Document:

Exhibit 10.3

 

SUNESIS PHARMACEUTICALS, INC.

2005 EQUITY INCENTIVE AWARD PLAN

 

ARTICLE 1

PURPOSE

 

1.1                                 General.  The purpose of the Sunesis Pharmaceuticals,
Inc. 2005 Equity Incentive Award Plan (the “Plan”) is to promote the success and
enhance the value of Sunesis Pharmaceuticals, Inc. (the “Company”) by linking
the personal interests of the members of the Board, employees, consultants,
officers, and executives of the Company and any Subsidiary, to those of Company
stockholders and by providing such individuals with an incentive for
outstanding performance to generate superior returns to Company
stockholders.  The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of members of the Board, employees,
consultants, officers, and executives of the Company upon whose judgment,
interest, and special effort the successful conduct of the Company’s operation
is largely dependent.

 

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

 

2.1                                 Definitions.  The following words and phrases shall have
the following meanings:

 

(a)                                  “Award” means an
Option, a Restricted Stock award, a Stock Appreciation Right award, a
Performance Share award, a Dividend Equivalents award, a Stock Payment award, a
Restricted Stock Unit award, or a Performance-Based Award granted to a
Participant pursuant to the Plan.

 

(b)                                 “Award Agreement”
means any written agreement, contract, or other instrument or document
evidencing an Award.

 

(c)                                  “Board” means the
Board of Directors of the Company.

 

(d)                                 “Cause” includes one
or more of the following: (i) the commission of an act of fraud, embezzlement
or dishonesty by a Participant that has a material adverse impact on the
Company or any successor or parent or Subsidiary thereof; (ii) a conviction of,
or plea of “guilty” or “no contest” to, a felony by a Participant; (iii) any
unauthorized use or disclosure by a Participant of confidential information or
trade secrets of the Company or any successor or parent or Subsidiary thereof
that has a material adverse impact on any such entity or (iv) any other
intentional misconduct by a Participant that has a material adverse impact on
the Company or any successor or parent or Subsidiary thereof.  However, if the term or concept of “Cause”
has been defined in an agreement between a Participant and the Company or any
successor or parent or Subsidiary thereof, then “Cause” shall have the
definition set forth in such agreement. 
The foregoing definition shall not in any way preclude or restrict the
right of the Company or any successor or parent or Subsidiary thereof to
discharge or dismiss any Participant in the service of such entity for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of this Plan, to constitute grounds for termination for Cause.

 

 

(e)                                  “Change of Control”
means and includes each of the following:

 

(1)                                  the
acquisition, directly or indirectly, by any “person” or “group” (as those terms
are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the
rules thereunder) of “beneficial ownership” (as determined pursuant to
Rule 13d-3 under the Exchange Act) of securities entitled to vote
generally in the election of directors (“voting securities”) of the Company
that represent 50% or more of the combined voting power of the Company’s then
outstanding voting securities, other than:

 

(A)                              an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company or by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any person controlled
by the Company, or

 

(B)                                an
acquisition of voting securities by the Company or a corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company;

 

Notwithstanding the foregoing, the following event
shall not constitute an “acquisition” by any person or group for purposes of
this subsection (e): an acquisition of the Company’s securities by the
Company that causes the Company’s voting securities beneficially owned by a
person or group to represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities; provided,
however, that if a person or group shall become the beneficial owner
of 50% or more of the combined voting power of the Company’s then outstanding
voting securities by reason of share acquisitions by the Company as described above
and shall, after such share acquisitions by the Company, become the beneficial
owner of any additional voting securities of the Company, then such acquisition
shall constitute a Change of Control; or

 

(2)                                  during
any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a
director designated by a person who shall have entered into an agreement with
the Company to effect a transaction described in clauses (1) or
(3) of this subsection (e)) whose election by the Board or nomination
for election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or

 

(3)                                  the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business combination or
(y) a sale or other disposition of all or substantially all of the Company’s
assets or (z) the acquisition of assets or stock of another entity, in
each case other than a transaction:

 

(A)                              which
results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being converted into voting securities of the Company or the person that, as a

 

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result of the transaction, controls, directly or indirectly, the
Company or owns, directly or indirectly, all or substantially all of the
Company’s assets or otherwise succeeds to the business of the Company (the
Company or such person, the “Successor Entity”)) directly or indirectly, at least a
majority of the combined voting power of the Successor Entity’s outstanding
voting securities immediately after the transaction, and

 

(B)                                after
which no person or group beneficially owns voting securities representing 50%
or more of the combined voting power of the Successor Entity; provided, however, that no person or group
shall be treated for purposes of this clause (B) as beneficially owning
50% or more of combined voting power of the Successor Entity solely as a result
of the voting power held in the Company prior to the consummation of the
transaction; or

 

(4)                                  the
Company’s stockholders approve a liquidation or dissolution of the Company.

 

The Committee shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Change of Control of the Company has occurred pursuant to the above definition,
and the date of the occurrence of such Change of Control and any incidental
matters relating thereto.

 

(f)                                    “Code” means the
Internal Revenue Code of 1986, as amended.

 

(g)                                 “Committee” means the
committee of the Board described in Article 12.

 

(h)                                 “Covered Employee”
means an Employee who is, or could be, a “covered employee” within the meaning
of Section 162(m) of the Code.

 

(i)                                     “Disability” means, for purposes of this Plan, that the Participant
qualifies to receive long-term disability payments under the Company’s
long-term disability insurance program, as it may be amended from time to time.

 

(j)                                     “Dividend Equivalents”
means a right granted to a Participant pursuant to Article 8 to receive
the equivalent value (in cash or Stock) of dividends paid on Stock.

 

(k)                                  “Employee” means any
officer or other employee (as defined in accordance with Section 3401(c)
of the Code) of the Company or any Subsidiary.

 

(l)                                     “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

 

(m)                               “Fair Market Value”
shall mean, as of any date, the value of Stock determined as follows:

 

(1)                                  If
the Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Committee deems reliable;

 

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(2)                                  If
the Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean of the closing
bid and asked prices for the Stock on the date prior to the date of
determination as reported in The Wall Street Journal
or such other source as the Committee deems reliable; or

 

(3)                                  In
the absence of an established market for the Stock, the Fair Market Value
thereof shall be determined in good faith by the Committee.

 

(n)                                 “Good Reason” means a
Participant’s voluntary resignation following any one or more of the following
that is effected without the Participant’s written consent: (i) a change in his
or her position following the Change of Control that materially reduces his or her
duties or responsibilities, (ii) a reduction in his or her base salary
following a Change of Control, unless the base salaries of all similarly
situated individuals are similarly reduced, or (iii) a relocation of such Participant’s
place of employment following a Change of Control by more than fifty (50) miles
from such Participant’s place of employment prior to a Change of Control.  However, if the term or concept of “Good
Reason” has been defined in an agreement between a Participant and the Company
or any successor or parent or Subsidiary thereof, then “Good Reason” shall have
the definition set forth in such agreement.

 

(o)                                 “Incentive Stock Option”
means an Option that is intended to meet the requirements of Section 422
of the Code or any successor provision thereto.

 

(p)                                 “Non-Employee Director”
means a member of the Board who qualifies as a “Non-Employee Director” as
defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition
adopted by the Board.

 

(q)                                 “Non-Qualified Stock Option”
means an Option that is not intended to be an Incentive Stock Option.

 

(r)                                    “Option” means a right
granted to a Participant pursuant to Article 5 of the Plan to purchase a
specified number of shares of Stock at a specified price during specified time
periods.  An Option may be either an
Incentive Stock Option or a Non-Qualified Stock Option.

 

(s)                                  “Participant” means a
person who, as a member of the Board, consultant to the Company or any
Subsidiary or Employee, has been granted an Award pursuant to the Plan.

 

(t)                                    “Performance-Based Award”
means an Award granted to selected Covered Employees pursuant to Articles 6 and
8, but which is subject to the terms and conditions set forth in Article 9.  All Performance-Based Awards are intended to
qualify as Qualified Performance-Based Compensation.

 

(u)                                 “Performance Criteria”
means the criteria that the Committee selects for purposes of establishing the
Performance Goal or Performance Goals for a Participant for a Performance
Period.  The Performance Criteria that
will be used to establish Performance Goals are limited to the following:  net earnings (either before or after
interest, taxes, depreciation and amortization), net losses, sales or revenue,
operating earnings, operating cash flow, return on net assets, return on
stockholders’ equity, return on assets, return on capital, stockholder returns,
gross or net profit margin, earnings per share, price per share of Stock, and
market share, any of

 

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which
may be measured either in absolute terms or as compared to any incremental
increase or as compared to results of a peer group.  The Committee shall, within the time
prescribed by Section 162(m) of the Code, define in an objective fashion
the manner of calculating the Performance Criteria it selects to use for such
Performance Period for such Participant.

 

(v)                                 “Performance Goals”
means, for a Performance Period, the goals established in writing by the
Committee for the Performance Period based upon the Performance Criteria.  Depending on the Performance Criteria used to
establish such Performance Goals, the Performance Goals may be expressed in
terms of overall Company performance or the performance of a division, business
unit, or an individual.  The Committee,
in its discretion, may, within the time prescribed by Section 162(m) of
the Code, adjust or modify the calculation of Performance Goals for such
Performance Period in order to prevent the dilution or enlargement of the
rights of Participants (i) in the event of, or in anticipation of, any unusual
or extraordinary corporate item, transaction, event, or development, or (ii) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

 

(w)                               “Performance Period”
means the one or more periods of time, which may be of varying and overlapping
durations, as the Committee may select, over which the attainment of one or
more Performance Goals will be measured for the purpose of determining a
Participant’s right to, and the payment of, a Performance-Based Award.

 

(x)                                   “Performance Share”
means a right granted to a Participant pursuant to Article 8, to receive
cash, Stock, or other Awards, the payment of which is contingent upon achieving
certain performance goals established by the Committee.

 

(y)                                 “Plan” means this
Sunesis Pharmaceuticals, Inc. 2005 Equity Incentive Award Plan, as it may be
amended from time to time.

 

(z)                                   “Public Trading Date”
means the first date upon which Stock is listed (or approved for listing) upon
notice of issuance on any securities exchange or designated (or approved for
designation) upon notice of issuance as a national market security on an
interdealer quotation system.

 

(aa)                            “Qualified Performance-Based
Compensation” means any compensation that is intended to qualify
as “qualified performance-based compensation” as described in Section 162(m)(4)(C)
of the Code.

 

(bb)                          “Restricted Stock”
means Stock awarded to a Participant pursuant to Article 6 that is subject
to certain restrictions and to risk of forfeiture.

 

(cc)                            “Restricted Stock Unit”
means a right to receive a specified number of shares of Stock during specified
time periods pursuant to Article 8.

 

(dd)                          “Stock” means the
common stock of the Company and such other securities of the Company that may
be substituted for Stock pursuant to Article 11.

 

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(ee)                            “Stock Appreciation Right”
or “SAR”
means a right granted pursuant to Article 7 to receive a payment equal to
the excess of the Fair Market Value of a specified number of shares of Stock on
the date the SAR is exercised over the Fair Market Value on the date the SAR
was granted as set forth in the applicable Award Agreement.

 

(ff)                                “Stock Payment” means
(a) a payment in the form of shares of Stock, or (b) an option or other right
to purchase shares of Stock, as part of any bonus, deferred compensation or
other arrangement, made in lieu of all or any portion of the compensation,
granted pursuant to Article 8.

 

(gg)                          “Subsidiary” means any
corporation or other entity of which a majority of the outstanding voting stock
or voting power is beneficially owned directly or indirectly by the Company.

 

ARTICLE 3

SHARES SUBJECT TO THE PLAN

 

3.1                                 Number of Shares.

 

(a)                                  Subject
to Article 11, the aggregate number of shares of Stock which may be issued
or transferred pursuant to Awards under the Plan shall be six million five
hundred seventy-six thousand and thirty-two (6,576,032) shares, plus the number
of shares of Common Stock subject to each option granted under the Sunesis
Pharmaceuticals, Inc. 1998 Stock Plan and the Sunesis Pharmaceuticals, Inc.
2001 Stock Plan (the “Existing
Plans”) before the Public Trading Date that expire or are
canceled without having been exercised in full or shares of Stock that are
repurchased by the Company pursuant to the terms of such options.  In
addition to the foregoing, subject to Article 11, commencing on the first
day of the Company’s 2006 fiscal year and on the first day of each fiscal year
thereafter during the term of the Plan, the number of shares of Stock which may
be issued or transferred pursuant to Awards under the Plan shall be increased
by that number of shares of Stock equal to the least of (i) four percent (4%)
of the Company’s outstanding shares of Stock on such date, (ii) four
million (4,000,000) shares of Stock or (iii) a lesser amount determined by
the Board.  Notwithstanding anything to
the contrary herein, the maximum aggregate number of shares of Stock that may
be issued or transferred pursuant to Awards under the Plan during the term of
the Plan is forty-two million (42,000,000) shares, subject to Article 11.  The payment of Dividend Equivalents in
conjunction with any outstanding Awards shall not be counted against the shares
available for issuance under the Plan.

 

(b)                                 To
the extent that an Award terminates, expires, or lapses for any reason, any
shares of Stock subject to the Award shall again be available for the grant of
an Award pursuant to the Plan. 
Additionally, any shares of Stock tendered or withheld to satisfy the
grant or exercise price or tax withholding obligation pursuant to any Award
shall again be available for the grant of an Award pursuant to the Plan.  To the extent permitted by applicable law or
any exchange rule, shares of Stock issued in assumption of, or in substitution
for, any outstanding awards of any entity acquired in any form of combination
by the Company or any Subsidiary shall not be counted against shares of Stock
available for grant pursuant to this Plan.

 

(c)                                  Notwithstanding
the provisions of this Section 3.1 no shares of Stock may

 

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again
be optioned, granted or awarded if such action would cause an Incentive Stock
Option to fail to qualify as an Incentive Stock Option under Code Section 422.

 

3.2                                 Stock Distributed.  Any Stock distributed pursuant to an Award
may consist, in whole or in part, of authorized and unissued Stock, treasury
Stock or Stock purchased on the open market.

 

3.3                                 Limitation on Number of Shares Subject to
Awards.  Notwithstanding any
provision in the Plan to the contrary, and subject to Article 11, the
maximum number of shares of Stock with respect to one or more Awards that may
be granted to any one Participant during a calendar year shall be 1,000,000.

 

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

 

4.1                                 Eligibility.

 

(a)                                  General.  Persons eligible to participate in this Plan
include Employees, consultants to the Company or any Subsidiary and all members
of the Board, as determined by the Committee.

 

(b)                                 Foreign
Participants.  In order to assure the
viability of Awards granted to Participants employed in foreign countries, the
Committee may provide for such special terms as it may consider necessary or
appropriate to accommodate differences in local law, tax policy, or
custom.  Moreover, the Committee may approve
such supplements to, or amendments, restatements, or alternative versions of,
the Plan as it may consider necessary or appropriate for such purposes without
thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such
supplements, amendments, restatements, or alternative versions shall increase
the share limitations contained in Sections 3.1 and 3.3 of the Plan.

 

4.2                                 Actual Participation.  Subject to the provisions of the Plan, the
Committee may, from time to time, select from among all eligible individuals,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award.  No individual shall have
any right to be granted an Award pursuant to this Plan.

 

ARTICLE 5

STOCK OPTIONS

 

5.1                                 General.  The Committee is authorized to grant Options
to Participants on the following terms and conditions:

 

(a)                                  Exercise
Price.  The exercise price per share of
Stock subject to an Option shall be determined by the Committee and set forth
in the Award Agreement; provided
that the exercise price for any Option shall not be less than par value of a
share of Stock on the date of grant.

 

(b)                                 Time
And Conditions Of Exercise.  The
Committee shall determine the time or times at which an Option may be exercised
in whole or in part, provided
that the term of

 

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any
Option granted under the Plan shall not exceed ten years, and provided further, that in the case of a
Non-Qualified Stock Option, such Option shall be exercisable for one year after
the date of the Participant’s death, provided that this one (1) year period
does not exceed the Option’s ten (10) year term, as described above.  The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or
part of an Option may be exercised.

 

(c)                                  Payment.  The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, promissory note bearing interest at no
less than such rate as shall then preclude the imputation of interest under the
Code, shares of Stock held for longer than six months having a Fair Market
Value on the date of delivery equal to the aggregate exercise price of the
Option or exercised portion thereof, or other property acceptable to the
Committee (including through the delivery of a notice that the Participant has
placed a market sell order with a broker with respect to shares of Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price, provided
that payment of such proceeds is then made to the Company upon settlement of
such sale), and the methods by which shares of Stock shall be delivered or
deemed to be delivered to Participants. 
Notwithstanding any other provision of the Plan to the contrary, no
Participant who is a member of the Board or an “executive officer” of the
Company within the meaning of Section 13(k) of the Exchange Act shall be
permitted to pay the exercise price of an Option in any method which would
violate Section 13(k).

 

(d)                                 Evidence
Of Grant.  All Options shall be evidenced
by a written Award Agreement between the Company and the Participant.  The Award Agreement shall include such
additional provisions as may be specified by the Committee.

 

5.2                                 Incentive Stock Options.  Incentive Stock Options shall be granted only
to Employees who are employed by the Company or any subsidiary corporation
within the meaning of Code Section 424(f) and the terms of any Incentive
Stock Options granted pursuant to the Plan must comply with the following
additional provisions of this Section 5.2:

 

(a)                                  Exercise
Price.  The exercise price per share of
Stock shall be set by the Committee, provided
that the exercise price for any Incentive Stock Option shall not be less than
100% of the Fair Market Value on the date of grant.

 

(b)                                 Expiration
Of Option.  An Incentive Stock Option may
not be exercised to any extent by anyone after the first to occur of the
following events:

 

(1)                                  Ten
years from the date it is granted, unless an earlier time is set in the Award
Agreement.

 

(2)                                  One
year after the date of the Participant’s termination of employment or service
on account of Disability or death, unless in the case of death a shorter or
longer period is designated in the Award Agreement.  Upon the Participant’s Disability or death,
any Incentive Stock Options exercisable at the Participant’s Disability or
death may be exercised by the Participant’s legal representative or
representatives, by the person or persons entitled to do

 

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so pursuant
to the Participant’s last will and testament, or, if the Participant fails to
make testamentary disposition of such Incentive Stock Option or dies intestate,
by the person or persons entitled to receive the Incentive Stock Option
pursuant to the applicable laws of descent and distribution.

 

(c)                                  Individual
Dollar Limitation.  The aggregate Fair
Market Value (determined as of the time the Option is granted) of all shares of
Stock with respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00 or such other
limitation as imposed by Section 422(d) of the Code, or any successor
provision.  To the extent that Incentive
Stock Options are first exercisable by a Participant in excess of such
limitation, the excess shall be considered Non-Qualified Stock Options.

 

(d)                                 Ten
Percent Owners.  An Incentive Stock
Option shall be granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company (or any parent and subsidiary corporations,
within the meaning of Code Section 424(e) and (f)) only if such Option is
granted at a price that is not less than 110% of Fair Market Value on the date
of grant and the Option is exercisable for no more than five years from the
date of grant.

 

(e)                                  Transfer
Restriction.  The Participant shall give
the Company prompt notice of any disposition of shares of Stock acquired by
exercise of an Incentive Stock Option within (1) two years from the date of
grant of such Incentive Stock Option or (2) one year after the transfer of such
shares of Stock to the Participant.

 

(f)                                    Expiration
Of Incentive Stock Options.  No Award of
an Incentive Stock Option may be made pursuant to this Plan after the
Expiration Date (as defined in Section 13.2).

 

(g)                                 Right
To Exercise.  During a Participant’s
lifetime, an Incentive Stock Option may be exercised only by the Participant.

 

5.3                                 Granting
Of Options To Independent Directors.

 

(a)                                  During
the term of the Plan, a person who first becomes a Non-Employee Director after
the Public Trading Date automatically shall be granted an Option to purchase 90,000
shares of Stock (an “Initial Option”). 
Following the Public Trading Date and commencing on the Company’s 2006
annual meeting of the stockholders, Non-Employee Directors automatically shall
be granted an Option to purchase 30,000 shares of Stock effective as of each
annual meeting of the stockholders (an “Annual Option”); provided, he or she continues to serve as
member of the Board as of such date.  For
the avoidance of doubt, an Non-Employee Director elected for the first time to
the Board at an annual meeting of stockholders shall only receive an Initial
Option in connection with such election, and shall not receive an Annual Option
on the date following such meeting as well. 
Members of the Board who are employees of the Company who subsequently
retire from the Company and remain on the Board will not receive an Initial
Option grant but to the extent they are otherwise eligible, will receive, at
each annual meeting of stockholders after his or her retirement from employment
with the Company, an Annual Option grant.

 

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(b)                                 Options
granted to Non-Employee Directors shall be Non-Qualifed Stock Options.  The per Share price of each Option granted to
an Non-Employee Director shall equal 100% of the Fair Market Value of a share
of Common Stock on the date the Option is granted.  Initial Options shall become vested and exercisable
in two (2) equal annual installments over the two (2) year period commencing
with the date of grant.  Annual Options
shall become vested and exercisable in twelve (12) equal monthly installments
over the twelve (12) month period following their date of grant.  The term of each Option granted to an
Non-Employee Director shall be ten (10) years from the date the Option is
granted.  Upon a Director’s termination
of membership on the Board for any reason, his or her Option granted under Section 5.3(a)
shall remain exercisable for twelve (12) months following his or her
termination of membership on the Board (or such longer period as the Board may
determine in its discretion on or after the date of grant of such Option).  Unless otherwise determined by the Board on
or after the date of grant of such Option, no portion of an Option granted
under Section 5.3(a) which is unexercisable at the time of an Non-Employee
Director’s termination of membership on the Board shall thereafter become
exercisable.

 

ARTICLE 6

RESTRICTED STOCK AWARDS

 

6.1                                 Grant of Restricted Stock.  The Committee is authorized to make Awards of
Restricted Stock to any Participant selected by the Committee in such amounts
and subject to such terms and conditions as determined by the Committee.  All Awards of Restricted Stock shall be
evidenced by a written Restricted Stock Award Agreement.

 

6.2                                 Issuance and Restrictions.  Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted
Stock).  These restrictions may lapse
separately or in combination at such times, pursuant to such circumstances, in
such installments, or otherwise, as the Committee determines at the time of the
grant of the Award or thereafter.

 

6.3                                 Forfeiture.  Except as otherwise determined by the
Committee at the time of the grant of the Award or thereafter, upon termination
of employment or service during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may
provide in any Restricted Stock Award Agreement that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part in
the event of terminations resulting from specified causes, and the Committee
may in other cases waive in whole or in part restrictions or forfeiture
conditions relating to Restricted Stock.

 

6.4                                 Certificates For Restricted Stock.  Restricted Stock granted pursuant to the Plan
may be evidenced in such manner as the Committee shall determine.  If certificates representing shares of
Restricted Stock are registered in the name of the Participant, certificates
must bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company may, at its
discretion, retain physical possession of the certificate until such time as
all applicable restrictions lapse.

 

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ARTICLE 7

STOCK
APPRECIATION RIGHTS

 

7.1                                 Grant of Stock Appreciation Rights. 
A Stock Appreciation Right may be granted to any Participant
selected by the Committee.  A Stock
Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted
Option, or (c) independent of an Option. 
A Stock Appreciation Right shall be subject to such terms and conditions
not inconsistent with the Plan as the Committee shall impose and shall be
evidenced by an Award Agreement.

 

7.2                                 Coupled Stock Appreciation Rights.

 

(a)           A
Coupled Stock Appreciation Right (“CSAR”)
shall be related to a particular Option and shall be exercisable only when and
to the extent the related Option is exercisable.

 

(b)           A
CSAR may be granted to a Participant for no more than the number of shares
subject to the simultaneously or previously granted Option to which it is
coupled.

 

(c)           A
CSAR shall entitle the Participant (or other person entitled to exercise the
Option pursuant to the Plan) to surrender to the Company unexercised a portion
of the Option to which the CSAR relates (to the extent then exercisable
pursuant to its terms) and to receive from the Company in exchange therefor an
amount determined by multiplying the difference obtained by subtracting the
Option exercise price from the Fair Market Value of a share of Stock on the
date of exercise of the CSAR by the number of shares of Stock with respect to
which the CSAR shall have been exercised, subject to any limitations the
Committee may impose.

 

7.3                                 Independent Stock Appreciation Rights.

 

(a)                                  An
Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and
shall have a term set by the Committee. 
An ISAR shall be exercisable in such installments as the Committee may
determine.  An ISAR shall cover such
number of shares of Stock as the Committee may determine.  The exercise price per share of Stock subject
to each ISAR shall be set by the Committee; provided, however, that, the Committee in its sole and absolute discretion may provide
that the ISAR may be exercised subsequent to a termination of employment or
service, as applicable, or following a Change of Control of the Company, or
because of the Participant’s retirement, death or disability, or otherwise.

 

(b)                                 An
ISAR shall entitle the Participant (or other person entitled to exercise the
ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR
(to the extent then exercisable pursuant to its terms) and to receive from the
Company an amount determined by multiplying the difference obtained by
subtracting the exercise price per share of the ISAR from the Fair Market Value
of a share of Stock on the date of exercise of the ISAR by the number of shares
of Stock with respect to which the ISAR shall have been exercised, subject to
any limitations the Committee may impose.

 

11

 

7.4                                 Payment and Limitations on Exercise.

 

(a)           Payment
of the amounts determined under Section 7.2(c) and 7.3(b) above shall be
in cash, in Stock (based on its Fair Market Value as of the date the Stock
Appreciation Right is exercised) or a combination of both, as determined by the
Committee.

 

(b)           To
the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock
it shall be made subject to satisfaction of all provisions of Article 5
above pertaining to Options.

 

ARTICLE 8

OTHER TYPES OF AWARDS

 

8.1                                 Performance Share Awards.  Any Participant selected by the Committee may be granted one or more
Performance Share awards which may be denominated in a number of shares of
Stock or in a dollar value of shares of Stock and which may be linked to any
one or more of the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, in each case on a specified date or
dates or over any period or periods determined by the Committee.  In making such determinations, the Committee
shall consider (among such other factors as it deems relevant in light of the
specific type of award) the contributions, responsibilities and other
compensation of the particular Participant.

 

8.2                                 Dividend Equivalents.

 

(a)           Any
Participant selected by the Committee may be granted Dividend Equivalents based
on the dividends declared on the shares of Stock that are subject to any Award,
to be credited as of dividend payment dates, during the period between the date
the Award is granted and the date the Award is exercised, vests or expires, as
determined by the Committee.  Such
Dividend Equivalents shall be converted to cash or additional shares of Stock
by such formula and at such time and subject to such limitations as may be
determined by the Committee.

 

(b)           Dividend
Equivalents granted with respect to Options or SARs that are intended to be
Qualified Performance-Based Compensation shall be payable, with respect to
pre-exercise periods, regardless of whether such Option or SAR is subsequently
exercised.

 

8.3                                 Stock Payments.  Any Participant selected by the Committee
may receive Stock Payments in the manner determined from time to time by the
Committee.  The number of shares shall be
determined by the Committee and may be based upon the Performance Criteria or
other specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.

 

8.4                                 Restricted Stock Units.  Any Participant selected by the Committee
may be granted an award of Restricted Stock Units in the manner determined from
time to time by the Committee.  The
number of Restricted Stock Units shall be determined by the Committee and may
be linked to the Performance Criteria or other specific performance criteria
determined to be appropriate by the Committee, in each case on a specified date
or dates or over any period or periods determined by the Committee.  Stock underlying a Restricted Stock Unit
award will not be issued until the Restricted Stock Unit award has vested,
pursuant to a vesting schedule or

 

12

 

performance
criteria set by the Committee.  Unless
otherwise provided by the Committee, a Participant awarded Restricted Stock
Units shall have no rights as a Company stockholder with respect to such
Restricted Stock Units until such time as the Restricted Stock Units have
vested and the Stock underlying the Restricted Stock Units has been issued.

 

8.5                                 Term.  The term of any Award of Performance
Shares, Dividend Equivalents, Stock Payments or Restricted Stock Units shall be
set by the Committee in its discretion.

 

8.6                                 Exercise or
Purchase Price.  The Committee may
establish the exercise or purchase price of any Award of Performance Shares,
Restricted Stock Units or Stock Payments; provided,
however, that such price shall not be less than the par value of a
share of Stock, unless otherwise permitted by applicable state law.

 

8.7           Exercise Upon Termination of
Employment or Service.  An Award of
Performance Shares, Dividend Equivalents, Restricted Stock Units and Stock
Payments shall only be exercisable or payable while the Participant is an
Employee, consultant to the Company or a member of the Board, as applicable; provided, however, that the Committee in
its sole and absolute discretion may provide that an Award of Performance
Shares, Dividend Equivalents, Stock Payments or Restricted Stock Units may be
exercised or paid subsequent to a termination of employment or service, as
applicable, or following a Change of Control of the Company, or because of the
Participant’s retirement, death or disability, or otherwise; provided, however, that any such provision
with respect to Performance Shares shall be subject to the requirements of Section 162(m)
of the Code that apply to Qualified Performance-Based Compensation.

 

8.8                                 Form of Payment.  Payments with respect to any Awards
granted under this Article 8 shall be made in cash, in Stock or a
combination of both, as determined by the Committee.

 

8.9                                 Award
Agreement.  All Awards under this Article 8
shall be subject to such additional terms and conditions as determined by the
Committee and shall be evidenced by a written Award Agreement.

 

ARTICLE 9

PERFORMANCE-BASED AWARDS

 

9.1                                 Purpose.  The purpose of this Article 9 is to
provide the Committee the ability to qualify Awards other than Options and SARs
and that are granted pursuant to Articles 6 and 8 as Qualified
Performance-Based Compensation.  If the
Committee, in its discretion, decides to grant a Performance-Based Award to a
Covered Employee, the provisions of this Article 9 shall control over any
contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion
grant Awards to Covered Employees that are based on Performance Criteria or
Performance Goals but that do not satisfy the requirements of this Article 9.

 

9.2                                 Applicability.  This Article 9 shall apply only to those
Covered Employees selected by the Committee to receive Performance-Based
Awards.  The designation of a Covered
Employee as a Participant for a Performance Period shall not in any manner entitle
the

 

13

 

Participant
to receive an Award for the period. 
Moreover, designation of a Covered Employee as a Participant for a
particular Performance Period shall not require designation of such Covered
Employee as a Participant in any subsequent Performance Period and designation
of one Covered Employee as a Participant shall not require designation of any
other Covered Employees as a Participant in such period or in any other period.

 

9.3                                 Procedures With Respect to Performance-Based
Awards.  To the extent
necessary to comply with the Qualified Performance-Based Compensation
requirements of Section 162(m)(4)(C) of the Code, with respect to any
Award granted under Articles 6 and 8 which may be granted to one or more
Covered Employees, no later than ninety (90) days following the commencement of
any fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m)
of the Code), the Committee shall, in writing, (i) designate one or more
Covered Employees, (ii) select the Performance Criteria applicable to the
Performance Period, (iii) establish the Performance Goals, and amounts of such
Awards, as applicable, which may be earned for such Performance Period, and
(iv) specify the relationship between Performance Criteria and the Performance
Goals and the amounts of such Awards, as applicable, to be earned by each
Covered Employee for such Performance Period. 
Following the completion of each Performance Period, the Committee shall
certify in writing whether the applicable Performance Goals have been achieved
for such Performance Period.  In
determining the amount earned by a Covered Employee, the Committee shall have
the right to reduce or eliminate (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the Performance Period.

 

9.4                                 Payment of Performance-Based Awards.  Unless otherwise provided in the applicable
Award Agreement, a Participant must be employed by the Company or a Subsidiary
on the day a Performance-Based Award for such Performance Period is paid to the
Participant.  Furthermore, a Participant
shall be eligible to receive payment pursuant to a Performance-Based Award for
a Performance Period only if the Performance Goals for such period are
achieved.  In determining the amount earned
under a Performance-Based Award, the Committee may reduce or eliminate the
amount of the Performance-Based Award earned for the Performance Period, if in
its sole and absolute discretion, such reduction or elimination is appropriate.

 

9.5                                 Additional
Limitations.  Notwithstanding any
other provision of the Plan, any Award which is granted to a Covered Employee
and is intended to constitute Qualified Performance-Based Compensation shall be
subject to any additional limitations set forth in Section 162(m) of the
Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for
qualification as qualified performance-based compensation as described in Section 162(m)(4)(C)
of the Code, and the Plan shall be deemed amended to the extent necessary to
conform to such requirements.

 

ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

 

10.1                           Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in
the discretion of the Committee, be granted either alone, in addition to, or in
tandem with, any other Award granted pursuant to the Plan. Awards granted in
addition to or in tandem with other 

 

14

 

Awards
may be granted either at the same time as or at a different time from the grant
of such other Awards.

 

10.2                           Award Agreement.  Awards under the Plan shall be evidenced by
Award Agreements that set forth the terms, conditions and limitations for each
Award which may include the term of an Award, the provisions applicable in the
event the Participant’s employment or service terminates, and the Company’s
authority to unilaterally or bilaterally amend, modify, suspend, cancel or
rescind an Award.

 

10.3                           Limits on Transfer.  No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary.  Except as
otherwise provided by the Committee, no Award shall be assigned, transferred,
or otherwise disposed of by a Participant other than by will or the laws of
descent and distribution.  The Committee
by express provision in the Award or an amendment thereto may permit an Award
(other than an Incentive Stock Option) to be transferred to, exercised by and
paid to certain persons or entities related to the Participant, including but
not limited to members of the Participant’s family, charitable institutions, or
trusts or other entities whose beneficiaries or beneficial owners are members
of the Participant’s family and/or charitable institutions, or to such other
persons or entities as may be expressly approved by the Committee, pursuant to
such conditions and procedures as the Committee may establish.  Any permitted transfer may be subject to the
condition that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes (or to a “blind
trust” in connection with the Participant’s termination of employment or
service with the Company or a Subsidiary to assume a position with a
governmental, charitable, educational or similar non-profit institution) and on
a basis consistent with the Company’s lawful issue of securities.

 

10.4                           Beneficiaries.  Notwithstanding Section 10.3, a
Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any
distribution with respect to any Award upon the Participant’s death.  A beneficiary, legal guardian, legal
representative, or other person claiming any rights pursuant to the Plan is
subject to all terms and conditions of the Plan and any Award Agreement
applicable to the Participant, except to the extent the Plan and Award
Agreement otherwise provide, and to any additional restrictions deemed
necessary or appropriate by the Committee. 
If the Participant is married and resides in a community property state,
a designation of a person other than the Participant’s spouse as his
beneficiary with respect to more than 50% of the Participant’s interest in the
Award shall not be effective without the prior written consent of the
Participant’s spouse.  If no beneficiary
has been designated or survives the Participant, payment shall be made to the
person entitled thereto pursuant to the Participant’s will or the laws of
descent and distribution.  Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.

 

10.5                           Stock Certificates.  Notwithstanding anything herein to the
contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Stock pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the
issuance and delivery of such certificates is in compliance with all applicable
laws,

 

15

 

regulations
of governmental authorities and, if applicable, the requirements of any
exchange on which the shares of Stock are listed or traded.  All Stock certificates delivered pursuant to
the Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal, state, or
foreign jurisdiction, securities or other laws, rules and regulations and the
rules of any national securities exchange or automated quotation system on
which the Stock is listed, quoted, or traded. 
The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.  In
addition to the terms and conditions provided herein, the Board may require
that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to
comply with any such laws, regulations, or requirements. The Committee shall
have the right to require any Participant
to comply with any timing or other restrictions with respect to the settlement
or exercise of any Award, including a window-period limitation, as may be
imposed in the discretion of the Committee.

 

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

 

11.1                           Adjustments.  In the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation, spin-off,
recapitalization or other distribution (other than normal cash dividends) of
Company assets to stockholders, or any other change affecting the shares of
Stock or the share price of the Stock, the Committee shall make such
proportionate adjustments, if any, as the Committee in its discretion may deem
appropriate to reflect such change with respect to (i) the aggregate number and
type of shares that may be issued under the Plan (including, but not limited
to, adjustments of the limitations in Sections 3.1 and 3.3); (ii) the terms and
conditions of any outstanding Awards (including, without limitation, any
applicable performance targets or criteria with respect thereto); and (iii) the
grant or exercise price per share for any outstanding Awards under the
Plan.  Any adjustment affecting an Award
intended as Qualified Performance-Based Compensation shall be made consistent
with the requirements of Section 162(m) of the Code.

 

11.2                           Effect of a Change of Control When Awards Are
Not Assumed.  If a Change of
Control occurs and a Participant’s Awards are not assumed by the surviving or
successor entity or its parent or Subsidiary and such successor does not
substitute substantially similar awards for those outstanding under the Plan,
such Awards shall become fully exercisable and/or payable as applicable, and
all forfeiture restrictions on such Awards shall lapse.  Upon, or in anticipation of, a Change of
Control, the Committee may cause any and all Awards outstanding hereunder to
terminate at a specific time in the future and shall give each Participant the
right to exercise such Awards during a period of time as the Committee, in its
sole and absolute discretion, shall determine. 
The Committee shall have sole discretion to determine whether an Award
has been assumed by the surviving or successor entity or its parent or
Subsidiary or whether such successor has substituted substantially similar
awards for those outstanding under the Plan in connection with a Change of
Control.

 

16

 

11.3                           Effect
of Change of Control When Awards Are
Assumed; Termination Following Change of Control.

 

(a)                                  In
the event of a Change of Control where a Participant’s Awards are assumed by
the surviving or successor entity or its parent or Subsidiary or such successor
substitutes substantially similar awards for those outstanding under the Plan,
then fifty percent (50%) of such Participant’s unvested Awards shall become
fully exercisable and/or payable as applicable, and all forfeiture restrictions
on such Awards shall lapse, immediately prior to such Change of Control.

 

(b)                                 In
the event of a Change of Control where a Participant’s Awards are assumed by
the surviving or successor entity or its parent or Subsidiary or such successor
substitutes substantially similar awards for those outstanding under the Plan,
if within twelve (12) months following such Change of Control (i) the
Participant’s employment or service with the surviving or successor entity or
its parent or Subsidiary is terminated without Cause or (ii) such Participant
voluntarily terminates such Participant’s employment or service with Good
Reason, then such Participant’s remaining unvested Awards (including any
substituted awards) shall become fully exercisable and/or payable as
applicable, and all forfeiture restrictions on such Awards (including any
substituted awards) shall lapse, on the date of termination.  Such Awards (including any substituted
awards) shall remain exercisable, as applicable, until the earlier of the
expiration date of the Award or three (3) months following such Participant’s
cessation of employment or service.

 

11.4                           Outstanding Awards—Certain Mergers.  Subject to any required action by the
stockholders of the Company, in the event that the Company shall be the
surviving corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Stock receive
securities of another corporation), each Award outstanding on the date of such
merger or consolidation shall pertain to and apply to the securities that a
holder of the number of shares of Stock subject to such Award would have
received in such merger or consolidation.

 

11.5                           Outstanding Awards—Other Changes.  In the event of any other change in the
capitalization of the Company or corporate change other than those specifically
referred to in this Article 11, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject to
Awards outstanding on the date on which such change occurs and in the per share
grant or exercise price of each Award as the Committee may consider appropriate
to prevent dilution or enlargement of rights.

 

11.6                           No Other Rights.  Except as expressly provided in the Plan, no
Participant shall have any rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any dissolution,
liquidation, merger, or consolidation of the Company or any other
corporation.  Except as expressly
provided in the Plan or pursuant to action of the Committee under the Plan, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of Stock
subject to an Award or the grant or exercise price of any Award.

 

17

 

ARTICLE 12

ADMINISTRATION

 

12.1                           Committee.  Unless and until the Board delegates
administration to a Committee as set forth below, the Plan shall be
administered by the Board.  The Board may
delegate administration of the Plan to a Committee or Committees of one or more
members of the Board, and the term “Committee” shall apply to any person or
persons to whom such authority has been delegated.  If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of the
Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. 
Notwithstanding the foregoing, however, from and after the Public
Trading Date, a Committee of the Board shall administer the Plan and the
Committee shall consist solely of two or more members of the Board each of whom
is both an “outside director,” within the meaning of Section 162(m) of the
Code, and a Non-Employee Director. 
Within the scope of such authority, the Board or the Committee may (i)
delegate to a committee of one or more members of the Board who are not “outside
directors,” within the meaning of Section 162(m) of the Code the authority
to grant awards under the Plan to eligible persons who are either (1) not then “covered
employees,” within the meaning of Section 162(m) of the Code and are not
expected to be “covered employees” at the time of recognition of income
resulting from such award or (2) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a
committee of one or more members of the Board who are not Non-Employee
Directors, the authority to grant awards under the Plan to eligible persons who
are not then subject to Section 16 of the Exchange Act.  The Board may abolish the Committee at any
time and/or revest in the Board the administration of the Plan.  Appointment of Committee members shall be effective
upon acceptance of appointment. 
Committee members may resign at any time by delivering written notice to
the Board.  Vacancies in the Committee
may only be filled by the Board.

 

12.2                           Action by the Committee.  A majority of the Committee shall constitute
a quorum.  The acts of a majority of the
members present at any meeting at which a quorum is present, and acts approved
in writing by a majority of the Committee in lieu of a meeting, shall be deemed
the acts of the Committee.  Each member
of the Committee is entitled to, in good faith, rely or act upon any report or
other information furnished to that member by any officer or other employee of
the Company or any Subsidiary, the Company’s independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.

 

12.3                           Authority of Committee.  Subject to any specific designation in the
Plan, the Committee has the exclusive power, authority and discretion to:

 

(a)                                  Designate
Participants to receive Awards;

 

(b)                                 Determine
the type or types of Awards to be granted to each Participant;

 

(c)                                  Determine
the number of Awards to be granted and the number of shares 

 

18

 

of
Stock to which an Award will relate;

 

(d)                                 Determine
the terms and conditions of any Award granted pursuant to the Plan, including,
but not limited to, the exercise price, grant price, or purchase price, any
reload provision, any restrictions or limitations on the Award, any schedule for
lapse of forfeiture restrictions or restrictions on the exercisability of an
Award, and accelerations or waivers thereof, any provisions related to
non-competition and recapture of gain on an Award, based in each case on such
considerations as the Committee in its sole discretion determines; provided, however, that the Committee
shall not have the authority to accelerate the vesting or waive the forfeiture
of any Performance-Based Awards;

 

(e)                                  Determine
whether, to what extent, and pursuant to what circumstances an Award may be
settled in, or the exercise price of an Award may be paid in, cash, Stock,
other Awards, or other property, or an Award may be canceled, forfeited, or
surrendered;

 

(f)                                    Prescribe
the form of each Award Agreement, which need not be identical for each
Participant;

 

(g)                                 Decide
all other matters that must be determined in connection with an Award;

 

(h)                                 Establish,
adopt, or revise any rules and regulations as it may deem necessary or
advisable to administer the Plan;

 

(i)                                     Interpret
the terms of, and any matter arising pursuant to, the Plan or any Award
Agreement; and

 

(j)                                     Make
all other decisions and determinations that may be required pursuant to the
Plan or as the Committee deems necessary or advisable to administer the Plan.

 

12.4                           Decisions Binding.  The Committee’s interpretation of the Plan,
any Awards granted pursuant to the Plan, any Award Agreement and all decisions
and determinations by the Committee with respect to the Plan are final,
binding, and conclusive on all parties.

 

ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

 

13.1                           Effective Date.  The Plan is effective as the Public Trading
Date; provided that the Plan has
been approved by the Company’s stockholders prior to such date.

 

13.2                           Expiration Date.  The Plan will expire on, and no Award may be
granted pursuant to the Plan after, the earlier of the tenth anniversary of (i)
the date this Plan is approved by the Company’s stockholders or (ii) the date
this Plan is approved by the Board (the “Expiration Date”).  Any Awards that are outstanding on the
Expiration Date shall remain in force according to the terms of the Plan and
the applicable Award Agreement.  Each
Award Agreement shall provide that it will expire on the tenth anniversary of
the date of grant of the Award to which it relates.

 

19

 

ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION

 

14.1                           Amendment, Modification, and Termination.  With the approval of the Board, at any time
and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (i) to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required, and (ii) shareholder
approval is required for any amendment to the Plan that (A) increases the
number of shares available under the Plan (other than any adjustment as
provided by Article 11), (B) permits the Committee to grant Options with
an exercise price that is below Fair Market Value on the date of grant, or (C)
permits the Committee to extend the exercise period for an Option beyond ten
years from the date of grant.

 

14.2                           Awards Previously Granted.  No termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously
granted pursuant to the Plan without the prior written consent of the
Participant.

 

ARTICLE 15

GENERAL PROVISIONS

 

15.1                           No Rights to Awards.  No Participant, employee, or other person
shall have any claim to be granted any Award pursuant to the Plan, and neither
the Company nor the Committee is obligated to treat Participants, employees,
and other persons uniformly.

 

15.2                           No Stockholders Rights.  No Award gives the Participant any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.

 

15.3                           Withholding.  The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal, state, local and
foreign taxes (including the Participant’s FICA obligation) required by law to
be withheld with respect to any taxable event concerning a Participant arising
as a result of this Plan.  The Committee
may in its discretion and in satisfaction of the foregoing requirement allow a
Participant to elect to have the Company withhold shares of Stock otherwise
issuable under an Award (or allow the return of shares of Stock) having a Fair
Market Value equal to the sums required to be withheld.  Notwithstanding any other provision of the
Plan, the number of shares of Stock which may be withheld with respect to the
issuance, vesting, exercise or payment of any Award (or which may be repurchased
from the Participant of such Award within six months after such shares of Stock
were acquired by the Participant from the Company) in order to satisfy the
Participant’s federal, state, local and foreign income and payroll tax
liabilities with respect to the issuance, vesting, exercise or payment of the
Award shall be limited to the number of shares which have a Fair Market Value
on the date of withholding or repurchase equal to the aggregate amount of such
liabilities based on the minimum statutory withholding rates for federal,
state, local and foreign income tax and payroll tax purposes that are
applicable to such supplemental taxable income.

 

20

 

15.4                           No Right to Employment or Services.  Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant’s employment or services at any time,
nor confer upon any Participant any right to continue in the employ or service
of the Company or any Subsidiary.

 

15.5                           Unfunded Status of Awards.  The Plan is intended to be an “unfunded” plan
for incentive compensation.  With respect
to any payments not yet made to a Participant pursuant to an Award, nothing
contained in the Plan or any Award Agreement shall give the Participant any
rights that are greater than those of a general creditor of the Company or any
Subsidiary.

 

15.6                           Indemnification.  To the extent allowable pursuant to
applicable law, each member of the Committee or of the Board shall be
indemnified and held harmless by the Company from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by such member in
connection with or resulting from any claim, action, suit, or proceeding to which
he or she may be a party or in which he or she may be involved by reason of any
action or failure to act pursuant to the Plan and against and from any and all
amounts paid by him or her in satisfaction of judgment in such action, suit, or
proceeding against him or her, provided
he or she gives the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf.  The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled pursuant to the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.

 

15.7                           Relationship to Other Benefits.  No payment pursuant to the Plan shall be
taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.

 

15.8                           Expenses.  The expenses of administering the Plan shall
be borne by the Company and its Subsidiaries.

 

15.9                           Titles and Headings.  The titles and headings of the Sections in
the Plan are for convenience of reference only and, in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.

 

15.10                     Fractional Shares.  No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.

 

15.11                     Limitations
Applicable to Section 16 Persons. 
Notwithstanding any other provision of the Plan, the Plan, and any Award
granted or awarded to any Participant who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such

 

21

 

exemptive
rule.  To the extent permitted by
applicable law, the Plan and Awards granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such applicable exemptive
rule.

 

15.12                     Government And Other Regulations.  The obligation of the Company to make payment
of awards in Stock or otherwise shall be subject to all applicable laws, rules,
and regulations, and to such approvals by government agencies as may be
required.  The Company shall be under no
obligation to register pursuant to the Securities Act of 1933, as amended, any
of the shares of Stock paid pursuant to the Plan.  If the shares paid pursuant to the Plan may
in certain circumstances be exempt from registration pursuant to the Securities
Act of 1933, as amended, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.

 

15.13                     Governing Law.  The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Delaware.

 

22

 

SUNESIS PHARMACEUTICALS, INC.

STOCK
OPTION GRANT NOTICE AND STOCK OPTION AGREEMENT

UNDER THE
2005 EQUITY INCENTIVE PLAN

 

Sunesis Pharmaceuticals, Inc. (the “Company”), pursuant
to its 2005 Equity Incentive Plan (the “Plan”) hereby grants to the Optionee listed
below (“Optionee”),
an option to purchase the number of shares of the Company’s Stock set forth
below.  This option is subject to all of
the terms and conditions as set forth herein and in the Stock Option Agreement
and the Plan, each of which are attached hereto and incorporated herein by
reference.  Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Stock Option Agreement.

	
  Optionee:

  	
   

  	
   

  
	
  Date of Stock Option Agreement:

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
   

  
	
  Vesting Commencement Date: 

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $                       per
  share

  
	
  Total Number of Shares Granted:

  	
   

  	
   

  
	
  Total Exercise Price:

  	
   

  	
  $

  
	
  Expiration Date:

  	
   

  	
   

  

 

Type of Option:                    o  Incentive Stock Option      o  Non-Qualified Stock Option

 

Vesting Schedule:                                        [Insert
vesting schedule]

By his or her signature and
the Company’s signature below, Optionee agrees to be bound by the terms and
conditions of the Plan and the Stock Option Agreement attached hereto.  Optionee has reviewed the Stock Option
Agreement and the Plan in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this option and fully understands all
provisions of the Grant Notice, the Stock Option Agreement and the Plan.  Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the administrator of
the Plan upon any questions arising under the Plan or this option.  Optionee further agrees to notify the Company
upon any change in the residence address indicated below.

	
  SUNESIS PHARMACEUTICALS, INC.

  	
  OPTIONEE:

  
	
  By: 

  	
   

  	
  By: 

  	
   

  
	
  Print Name: 

  	
  Print Name: 

  
	
  Title:             

  	
   

  
	
  Address:   

  	
  Address:

  
				

 

1

 

SUNESIS PHARMACEUTICALS, INC.

2005
EQUITY INCENTIVE PLAN

STOCK
OPTION AGREEMENT

Pursuant to the Stock Option Grant Notice (“Grant Notice”) to
which this Stock Option Agreement (this “Agreement”) is attached, Sunesis
Pharmaceuticals, Inc. (the “Company”) has granted to the Optionee an option under
the Company’s 2005 Equity Incentive Plan (the “Plan”) to purchase the number of shares
of Stock indicated in the Grant Notice at the exercise price indicated in the
Grant Notice. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Stock Option Agreement.

ARTICLE I

DEFINITIONS;
INCORPORATION OF TERMS

1.1           General.  Wherever the following terms are used in this
Agreement they shall have the meanings specified below, unless the context
clearly indicates otherwise.  Capitalized
terms not specifically defined herein shall have the meanings specified in the
Plan.

1.2           Incorporation
of Terms of Plan.  The Option is
subject to the terms and conditions of the Plan which are incorporated herein
by reference.

ARTICLE II

GRANT OF
OPTION

2.1           Grant
of Option.  In consideration of the
Optionee’s agreement to remain in the employ of the Company or its Subsidiaries
and for other good and valuable consideration, effective as of the Grant Date
set forth in the Grant Notice (the “Grant Date”), the Company irrevocably grants
to the Optionee the Option to purchase any part or all of an aggregate of the
number of shares of Stock set forth in the Grant Notice, upon the terms and
conditions set forth in this Agreement.  Unless
designated as a Non-Qualified Stock Option in the Grant Notice, the Option
shall be an Incentive Stock Option to the maximum extent permitted by law.

2.2           Purchase
Price.  The purchase price of the
shares of Stock subject to the Option per share shall be as set forth in the
Grant Notice, without commission or other charge; provided, however,
that if this Option is designated as an Incentive Stock Option the price per
share of the shares subject to the Option shall not be less than the greater of
(i) 100% of the Fair Market Value of a share of Stock on the Grant Date,
or (ii) 110% of the Fair Market Value of a share of Stock on the Grant
Date in the case of an Optionee then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code); provided, further, that such exercise
price shall not be less than the par value of a share of Stock, unless
otherwise permitted by applicable law.

2.3           Consideration
to the Company.  In consideration of
the granting of the Option by the Company, the Optionee agrees to render
faithful and efficient services to the Company or any Subsidiary, with such
duties and responsibilities as the Company shall from time to time
prescribe.  Nothing in the Plan or this
Agreement shall confer upon the Optionee any right to (a) continue in the
employ of the Company or any Subsidiary or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries, which are hereby
expressly reserved, to 

 

1

 

discharge the Optionee, if the Optionee is an
Employee, or (b) continue to provide services to the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company or its
Subsidiaries, which are hereby expressly reserved, to terminate the services of
Optionee, if the Optionee is a Consultant, at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided
otherwise in a written agreement between the Company and the Optionee.

ARTICLE III

PERIOD OF EXERCISABILITY

3.1           Commencement of Exercisability.

(a)           Subject to Sections 3.3 and 5.11, the
Option shall become exercisable in such amounts and at such times as are set
forth in the Grant Notice.

(b)           No
portion of the Option which has not become exercisable at Termination of
Service (as defined in Section 3.3 below) shall thereafter become exercisable,
except as may be otherwise provided by the Committee or as set forth in a
written agreement between the Company and the Optionee.

3.2           Duration
of Exercisability.  The installments
provided for in Section 3.1(a) are cumulative.  Each such installment which becomes
exercisable pursuant to Section 3.1 shall remain exercisable until it
becomes unexercisable under Section 3.3.

3.3           Expiration
of Option.  The Option may not be
exercised to any extent by anyone after the first to occur of the following
events:

(a)           The
expiration of ten years from the Grant Date (or five years from the Grant Date
if the Optionee is not an Employee); or

(b)           If
this Option is designated as an Incentive Stock Option and the Optionee owned
(within the meaning of Section 424(d) of the Code), at the time the Option
was granted, more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within
the meaning of Section 422 of the Code), the expiration of five years from the
date the Option was granted; or

(c)           The
expiration of three months following the date of the Optionee’s Termination of
Service, unless such Termination of Service occurs by reason of the Optionee’s
death or Disability or as set forth in a written agreement with the Company; or

(d)           The
expiration of twelve months following the date of the Optionee’s Termination of Service by
reason of the Optionee’s Disability; or

(e)           The expiration of twelve months following the date
of the Optionee’s Termination of Service by reason of the Optionee’s death.

                (e)           For purposes of this Agreement, “Termination of Service”
means the time when the service relationship (whether as an Employee or a
consultant) between the Optionee and the Company or any Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, a termination by resignation, discharge, death or Disability; but
excluding (a) a termination where there is a simultaneous reemployment or
continuing employment or consultancy of the Optionee by the Company or any
Subsidiary or a parent corporation thereof (within the meaning of Section 422
of the Code), (b) at the discretion of the Committee, a termination which
results in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Committee, a termination which is followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary 

 

2

 

with the former Employee.  The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Service for the purposes of this Agreement, and all questions of whether
particular leaves of absence for Optionees who are Employees of the Company or
any of its Subsidiaries constitute Terminations of Service; provided, however,
that, if this Option is designated as an Incentive Stock Option, unless
otherwise determined by the Administrator in its discretion, a leave of
absence, change in status from an Employee to an independent contractor or
other change in the employee-employer relationship shall constitute a
Termination of Service if, and to the extent that, such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. 
Notwithstanding any other provision of the Plan or this Agreement, the
Company or any Subsidiary has an absolute and unrestricted right to terminate
the Optionee’s employment and/or consultancy at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided
otherwise in a written agreement between the Company and the Optionee.

3.4           Special
Tax Consequences.  The Optionee
acknowledges that, to the extent that the aggregate Fair Market Value of stock
with respect to which Incentive Stock Options (but without regard to
Section 422(d) of the Code), including the Option, are exercisable for the
first time by the Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company, any Subsidiary and any
parent corporation thereof (within the meaning of Section 422 of the Code))
exceeds $100,000, the Option and such other options shall be treated as not
qualifying under Section 422 of the Code but rather shall be taxed as
Non-Qualified Stock Options.  The
Optionee further acknowledges that the rule set forth in the preceding sentence
shall be applied by taking options into account in the order in which they were
granted. For purposes of these rules, the Fair Market Value of Stock shall be
determined as of the time the option with respect to such Stock is granted.

ARTICLE IV

EXERCISE
OF OPTION

4.1           Person
Eligible to Exercise.  Except as
provided in Sections 5.2(b) and 5.2(c), during the lifetime of the Optionee,
only the Optionee may exercise the Option or any portion thereof.  After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.3, be exercised by the Optionee’s
beneficiary designated in accordance with Section 10.4 of the Plan.  If no beneficiary has been designated or
survives the Optionee, the Option may be exercised by the person entitled to
such exercise pursuant to the Optionee’s will or the laws of descent and
distribution.

4.2           Partial
Exercise.  Any exercisable portion of
the Option or the entire Option, if then wholly exercisable, may be exercised
in whole or in part at any time prior to the time when the Option or portion
thereof becomes unexercisable under Section 3.3.

4.3           Manner
of Exercise.  The Option, or any
exercisable portion thereof, may be exercised solely by delivery to the
Secretary of the Company or the Secretary’s office of all of the following
prior to the time when the Option or such portion thereof becomes unexercisable
under Section 3.3:

(a)           An
Exercise Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable
rules established by the Committee.  Such
notice shall be substantially in the form attached as Exhibit A (or such
other form as is prescribed by the Committee); and

 

3

 

(b)           (i)            Full
payment (in cash or by check) for the shares with respect to which the Option
or portion thereof is exercised, to the extent permitted under applicable laws;
or

  (ii)           To the extent permitted under
applicable laws, through the delivery of a notice that the Optionee has placed
a market sell order with a broker with respect to shares of Stock then issuable
upon exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price, provided,
that payment of such proceeds is made to the Company upon settlement of such
sale; or

(iii)          With the consent of the Committee, any
combination of the consideration provided in the foregoing subparagraphs (i)
and (ii); and

(c)           A
bona fide written representation and agreement, in such form as is prescribed
by the Committee, signed by the Optionee or other person then entitled to
exercise such Option or portion thereof, stating that the shares of Stock are
being acquired for the Optionee’s own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then entitled
to exercise such Option or portion thereof will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. 
The Committee may, in its absolute discretion, take whatever additional actions
it deems appropriate to ensure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations.  Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue stop-transfer
orders covering such shares.  Share
certificates evidencing Stock issued on exercise of the Option shall bear an
appropriate legend referring to the provisions of this subsection (c) and
the agreements herein.  The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and

(d)           Full payment to the Company (or other
employer corporation) of all amounts which, under federal, state, local or
foreign tax law, it is required to withhold upon exercise of the Option.  With the consent of the Committee, shares of
Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the statutory minimum sums
required to be withheld, may be used to make all or part of such payment; and

 

(e)           In
the event the Option or portion thereof shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option.

4.4           Conditions
to Issuance of Stock Certificates. 
The shares of Stock deliverable upon the exercise of the Option, or any
portion thereof, shall be fully paid and nonassessable.  The Company shall not be required to issue or
deliver any certificate or certificates for shares of Stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:

(a)           The
admission of such shares to listing on all stock exchanges on which such Stock
is then listed; and

 

4

 

(b)           The
completion of any registration or other qualification of such shares under any
state or federal law or under rulings or regulations of the Securities and
Exchange Commission or of any other governmental regulatory body, which the
Committee shall, in its absolute discretion, deem necessary or advisable; and

(c)           The
obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee shall, in its absolute discretion,
determine to be necessary or advisable; and

(d)           The
receipt by the Company of full payment for such shares, including payment of
all amounts which, under federal, state or local tax law, the Company (or other
employer corporation) is required to withhold upon exercise of the Option; and

(e)           The
lapse of such reasonable period of time following the exercise of the Option as
the Committee may from time to time establish for reasons of administrative
convenience.

4.5           Rights
as Stockholder.  The holder of the
Option shall not be, nor have any of the rights or privileges of, a stockholder
of the Company in respect of any shares purchasable upon the exercise of any
part of the Option unless and until certificates representing such shares shall
have been issued by the Company to such holder.

ARTICLE V

OTHER
PROVISIONS

5.1           Administration.  The Committee shall have the power to
interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.  All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Optionee, the Company and all other interested persons.  No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, this Agreement or the Option.  In its absolute discretion, the Board may at
any time and from time to time exercise any and all rights and duties of the
Committee under the Plan and this Agreement.

5.2           Option
Not Transferable.

(a)           Subject
to Section 5.2(b), the Option may not be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution unless
and until the Option has been exercised, or the shares underlying such Option
have been issued, and all restrictions applicable to such shares have
lapsed.  Neither the Option nor any
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his or her successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the preceding
sentence.

(b)           Notwithstanding
any other provision in this Agreement, with the consent of the Committee and to
the extent the Option is not intended to qualify as an Incentive Stock Option,
the Option may be transferred to, exercised by and paid to certain persons or
entities related to the Optionee, including but not limited to members of the
Optionee’s family, charitable institutes or trusts or other entities whose
beneficiaries or beneficial owners are members of the Optionee’s family or to
such other 

 

5

 

persons or entities as may be expressly approved by
the Committee (each a “Permitted Transferee”), pursuant to such conditions and
procedures as the Committee may require.

(c)           Unless
transferred to a Permitted Transferee in accordance with Section 5.2(b), during
the lifetime of the Optionee, only the Optionee may exercise the Option or any
portion thereof.  Subject to such
conditions and procedures as the Committee may require, a Permitted Transferee
may exercise the Option or any portion thereof during the Optionee’s
lifetime.  After the death of the
Optionee, any exercisable portion of the Option may, prior to the time when the
Option becomes unexercisable under Section 3.3, be exercised by the
Optionee’s beneficiary designated in accordance with Section 10.4 of the
Plan.  If no beneficiary has been
designated or survives the Optionee, the Option may be exercised by the person
entitled to such exercise pursuant to the Optionee’s will or the laws of
descent and distribution.

5.3           Restrictive Legends and
Stop-Transfer Orders.

(a)           The share certificate or certificates
evidencing the shares of Stock purchased hereunder shall be endorsed with any
legends that may be required by state or federal securities laws.

(b)           The
Optionee agrees that, in order to ensure compliance with the restrictions
referred to herein, the Company may issue appropriate “stop transfer”
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records.

(c)           The
Company shall not be required:  (i) to
transfer on its books any shares of Stock that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement, or (ii) to
treat as owner of such shares of Stock or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such shares shall have
been so transferred.

5.4           Shares
to Be Reserved.  The Company shall at
all times during the term of the Option reserve and keep available such number
of shares of Stock as will be sufficient to satisfy the requirements of this
Agreement.

5.5           Notices.  Any notice to be given under the terms of
this Agreement to the Company shall be addressed to the Company in care of the
Secretary, and any notice to be given to the Optionee shall be addressed to the
Optionee at the address given beneath the Optionee’s signature on the Grant
Notice.  By a notice given pursuant to
this Section 5.5, either party may hereafter designate a different address
for notices to be given to that party. 
Any notice which is required to be given to the Optionee shall, if the
Optionee is then deceased, be given to the Optionee’s designated beneficiary if
any, or the person otherwise entitled to exercise his or her Option pursuant to
Section 4.1 by written notice under this Section 5.6.  Any notice
shall be deemed duly given when sent via email or enclosed in a properly sealed
envelope or wrapper addressed as aforesaid and deposited (with postage prepaid)
in a post office or branch post office regularly maintained by the United
States Postal Service.

5.6           Titles.  Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.

5.7           Stockholder
Approval.  The Plan will be submitted
for approval by the Company’s stockholders within twelve months after the date
the Plan was initially adopted by the Board. 
The Option may not be exercised to any extent by anyone prior to the
time when the Plan is approved by the stockholders, and if such approval has
not been obtained by the end of said twelve month period, the Option shall
thereupon be canceled and become null and void.

 

6

 

5.8           Notification
of Disposition.  If this Option is
designated as an Incentive Stock Option, the Optionee shall give prompt notice
to the Company of any disposition or other transfer of any shares of stock
acquired under this Agreement if such disposition or transfer is made (a)
within two years from the Grant Date with respect to such shares or (b) within
one year after the transfer of such shares to him.  Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Optionee in such
disposition or other transfer.

5.9           Construction.  This Agreement shall be administered,
interpreted and enforced under the laws of the State of Delaware without regard
to conflicts of laws thereof.

5.10         Conformity
to Securities Laws.  The Optionee
acknowledges that the Plan is intended to conform to the extent necessary with
all provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, and state securities laws and regulations.  Notwithstanding anything herein to the
contrary, the Plan shall be administered, and the Option is granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations.  To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

5.11         Amendments.  This Agreement may not be modified, amended
or terminated except by an instrument in writing, signed by the Optionee or
such other person as may be permitted to exercise the Option pursuant to
Section 4.1 and by a duly authorized representative of the Company.

 

7

 

EXHIBIT
A

TO
GRANT NOTICE AND STOCK OPTION AGREEMENT

FORM OF EXERCISE NOTICE

 

                Effective
as of today,            ,
     , the undersigned (“Optionee”) hereby elects to exercise
Optionee’s option to purchase          
shares of common stock (the “Shares”) of Sunesis Pharmaceuticals, Inc. (the “Company”) under and
pursuant to the Sunesis Pharmaceuticals, Inc. 2005 Equity Incentive Plan (the “Plan”) and the Grant
Notice and Stock Option Agreement dated              ,
     , (the “Option Agreement”).  Capitalized terms used herein without
definition shall have the meanings given in the Option Agreement.

	
  Grant Date:

  	
   

  	
   

  
	
  Number of Shares as to which Option is
  Exercised:

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $            

  
	
  Total Exercise Price:

  	
   

  	
  $            

  
	
  Certificate to be issued in name of:

  	
   

  	
   

  
	
  Cash Payment delivered herewith: 

  	
   

  	
  $            (Representing the full
  Exercise Price for the Shares, as well as any applicable withholding tax)

  

 

Type of
Option:                  o   Incentive Stock Option      o  Non-Qualified Stock Option

 

                1.             Representations of Optionee.  Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement.  Optionee agrees to abide by and be bound by
their terms and conditions.

                2.             Rights as Stockholder.  Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist with
respect to Shares subject to the Option, notwithstanding the exercise of the
Option.  The Company shall issue (or
cause to be issued) such stock certificate promptly after the Option is
exercised.  No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Article 11 of the Plan.

                3.             Tax Consultation.  Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee’s purchase or disposition of
the Shares.  Optionee represents that
Optionee has consulted with any tax consultants Optionee deems advisable in
connection with the purchase or disposition of the Shares and that Optionee is
not relying on the Company for any tax advice.

                4.             Successors and Assigns.  The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors 

 

8

 

and assigns of the Company.  Subject to the restrictions on transfer
herein set forth, this Agreement shall be binding upon Optionee and his or her
heirs, executors, administrators, successors and assigns.

                5.             Interpretation.  Any dispute regarding the interpretation of
this Agreement shall be submitted by Optionee or by the Company forthwith to
the Committee, which shall review such dispute at its next regular
meeting.  The resolution of such a
dispute by the Administrator shall be final and binding on the Company and on
Optionee.

                6.             Governing Law; Severability.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware excluding that
body of law pertaining to conflicts of law. 
Should any provision of this Agreement be determined by a court of law
to be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.

                7.             Notices.  Any notice required or permitted hereunder
shall be given in accordance with the provisions set forth in Section 5.5 of
the Option Agreement.

                8.             Further Instruments.  The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

                9.             Entire Agreement.  The Plan and Option Agreement are
incorporated herein by reference.  This
Agreement, the Plan and the Option Agreement constitute the entire agreement of
the parties and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof.

 

(Signature Page Follows)

 

9

 

 

	
  ACCEPTED
  BY:

  	
   

  	
  SUBMITTED
  BY:

  
	
   

  	
   

  	
   

  
	
  SUNESIS
  PHARMACEUTICALS, INC.

  	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
  Optionee

  
	
  Its: 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

10Exhibit 10.4

 

SUNESIS PHARMACEUTICALS, INC.

 

EMPLOYEE STOCK PURCHASE PLAN

 

Sunesis
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby
adopts the Sunesis Pharmaceuticals, Inc. Employee Stock Purchase Plan (the “Plan”), effective as
of the Effective Date (as defined herein).

 

1.             Purpose.  The purposes of the Plan are as follows:

 

(a)           To
assist employees of the Company and its Designated Subsidiaries (as defined
below) in acquiring a stock ownership interest in the Company pursuant to a
plan which is intended to qualify as an “employee stock purchase plan” within
the meaning of Section 423(b) of the Internal Revenue Code of 1986, as
amended.

 

(b)           To help employees provide for their future
security and to encourage them to remain in the employment of the Company and
its Designated Subsidiaries.

 

2.             Definitions.

 

(a)           “Administrator” shall
mean the administrator of the Plan, as determined pursuant to Section 14
hereof.

 

(b)           “Board” shall mean the
Board of Directors of the Company.

 

(c)           “Code” shall mean the
Internal Revenue Code of 1986, as amended.

 

(d)           “Committee” shall mean
the committee appointed to administer the Plan pursuant to Section 14
hereof.

 

(e)           “Common Stock” shall
mean the common stock of the Company.

 

(f)            “Company” shall mean
Sunesis Pharmaceuticals, Inc., a Delaware corporation, and any successor by
merger, consolidation or otherwise.

 

(g)           “Compensation” shall
mean all base straight time gross earnings and commissions, exclusive of
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, expense reimbursements, fringe benefits and other
compensation.

 

(h)           “Designated Subsidiary”
shall mean any Subsidiary which has been designated by the Administrator from
time to time in its sole discretion as eligible to participate in the
Plan.  The Administrator may designate,
or terminate the designation of, a subsidiary as a Designated Subsidiary
without the approval of the stockholders of the Company.

 

(i)            “Effective Date” shall
mean the date on which the Company’s Registration Statement on Form S-1 filed
with respect to the Company’s initial public offering becomes effective.

 

 

(j)            “Eligible Employee”
shall mean an Employee of the Company or a Designated Subsidiary: (i) who does
not, immediately after the Option is granted, own stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3)
of the Code); (ii) whose customary employment is for more than twenty (20)
hours per week; and (iii) whose customary employment is for more than five (5)
months in any calendar year.  For
purposes of clause (i), the rules of Section 424(d) of the Code with
regard to the attribution of stock ownership shall apply in determining the
stock ownership of an individual, and stock which an employee may purchase
under outstanding options shall be treated as stock owned by the employee.  For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company or Designated
Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2).  Where the period of leave exceeds ninety (90)
days and the individual’s right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the ninety-first (91st) day of such leave.

 

(k)           “Employee” shall mean
any person who renders services to the Company or a Subsidiary in the status of
an employee within the meaning of Code Section 3401(c).  “Employee” shall not include any director of
the Company or a Subsidiary who does not render services to the Company or a
Subsidiary in the status of an employee within the meaning of Code Section 3401(c).

 

(l)            “Enrollment Date”
shall mean the first Trading Day of each Offering Period.  The Enrollment Date for the first Offering
Period under the Plan shall be the Effective Date.

 

(m)          “Exercise Date” shall
mean the last Trading Day of each Purchase Period.

 

(n)           “Fair Market Value”
shall mean, as of any date, the value of Common Stock determined as follows:

 

(i)             If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;

 

(ii)            If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean of the
closing bid and asked prices for the Common Stock on the date prior to the date
of determination as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;

 

(iii)           In
the absence of an established market for the Common Stock, the Fair Market
Value thereof shall be determined in good faith by the Administrator; or

 

(iv)          For
purposes of the first Offering Period under the Plan, the Fair Market Value on
the Enrollment Date shall be the initial price to the public as set forth in
the

 

2

 

final prospectus included
within the registration statement on Form S-1 filed with the Securities and
Exchange Commission for the initial public offering of the Company’s Common
Stock (the “Registration Statement”).

 

(o)           “Offering Period”
shall mean subject to Section 24, each twelve (12) month period commencing
on any December 1 or June 1 and terminating on the last Trading Day
in the periods ending twelve (12) months later, except for the first Offering
Period under the Plan, which shall commence on the Effective Date and end on May
31, 2006.  The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.

 

(p)           “Parent” means any
corporation, other than the Company, in an unbroken chain of corporations
ending with the Company if, at the time of the determination, each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

(q)           “Plan” shall mean this
Sunesis Pharmaceuticals, Inc. Employee Stock Purchase Plan.

 

(r)            “Purchase Period”
shall mean the approximately six (6) month period commencing after one Exercise
Date and ending with the next Exercise Date, except that the first Purchase
Period of any Offering Period shall commence on the Enrollment Date and end
with the next Exercise Date.  Notwithstanding
the foregoing, the first Purchase Period with respect to the initial Offering
Period under the Plan shall end on the last Trading Day on or before the next
occurring December 1 following the Effective Date and such period may be
more or less than six-months in duration.

 

(s)           “Purchase Price” shall
mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment
Date or on the Exercise Date, whichever is lower; provided,
however, that the Purchase Price may be adjusted by the Administrator
pursuant to Section 20; provided, further,
that the Purchase Price shall not be less than the par value of a share of
Common Stock.

 

(t)            “Subsidiary” shall
mean any corporation, other than the Company, in an unbroken chain of
corporations beginning with the Company if, at the time of the determination,
each of the corporations other than the last corporation in an unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

 

(u)           “Trading Day” shall
mean a day on which national stock exchanges and the Nasdaq System are open for
trading.

 

3.             Eligibility.

 

(a)           Any
Eligible Employee who shall be employed by the Company or a Designated
Subsidiary on a given Enrollment Date for an Offering Period shall be eligible
to participate in the Plan during such Offering Period, subject to the
requirements of Section 5 and the limitations imposed by Section 423(b)
of the Code.

 

3

 

(b)           Each
person who, during the course of an Offering Period, first becomes an Eligible
Employee subsequent to the Enrollment Date will be eligible to become a
participant in the Plan on the first day of the first Purchase Period following
the day on which such person becomes an Eligible Employee, subject to the
requirements of Section 5 and the limitations imposed by Section 423(b)
of the Code.

 

(c)           No
Eligible Employee shall be granted an option under the Plan which permits his
rights to purchase stock under the Plan, and to purchase stock under all other
employee stock purchase plans of the Company, any Parent or any Subsidiary
subject to the Section 423, to accrue at a rate which exceeds $25,000 of
fair market value of such stock (determined at the time the option is granted)
for each calendar year in which the option is outstanding at any time.  For purpose of the limitation imposed by this
subsection, the right to purchase stock under an option accrues when the option
(or any portion thereof) first becomes exercisable during the calendar year,
the right to purchase stock under an option accrues at the rate provided in the
option, but in no case may such rate exceed $25,000 of fair market value of
such stock (determined at the time such option is granted) for any one calendar
year, and a right to purchase stock which has accrued under an option may not
be carried over to any option.  This
limitation shall be applied in accordance with Section 423(b)(8) of the
Code and the Treasury Regulations thereunder.

 

4.             Offering Periods.  Subject to Section 24, the
Plan shall be implemented by consecutive, overlapping Offering Periods which
shall continue until the Plan expires or is terminated in accordance with Section 20
hereof.  The Administrator shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.  In no event may an Offering Period exceed
twenty-seven (27) months in duration.

 

5.             Participation.

 

(a)           Each
Eligible Employee who is employed by the Company or a Designated Subsidiary on
the calendar day immediately preceding the Effective Date shall automatically
become a participant in the Plan with respect to the first Offering
Period.  Each such participant shall be
granted an option to purchase shares of Common Stock and shall be enrolled in
such first Offering Period to the extent of twenty percent (20%) of his or her
Compensation for the pay days during the first Offering Period (or, if less,
the maximum amount of contributions permitted to be made by such participant
for such Offering Period by payroll deduction under the terms of this
Plan).  Participants wishing to purchase
shares of Common Stock during the first Offering Period shall do so by making a
lump sum cash payment to the Company not later than ten (10) calendar days
before each Exercise Date of such Offering Period, and each such payment may be
made in an amount not exceeding twenty percent (20%) of such participant’s
Compensation for the pay days occurring during such Offering Period and
occurring prior to such lump sum payment; provided, however,
that such participant shall not be required to make such lump sum cash
payments, or exercise all or any portion of such option to purchase shares of
Common Stock by making such lump sum payments. 
Following the Effective Date, each such participant may, during the
period designated from time to time by the Administrator for such purpose,
elect to make such contributions (or a lesser amount of 

 

4

 

contributions) for the
first Offering Period by payroll deductions in accordance with Section 6,
in lieu of making contributions in such lump sum cash payments under this subsection (a),
or may elect to make no contributions for such Offering Period; provided, however, that, to make contributions by payroll
deductions, such participant must complete the form of subscription agreement
provided by the Company for the first Offering Period under this Plan.  If (i) during such Offering Period, such a
participant elects to make contributions by payroll deduction, or elects to make
no contributions for such Offering Period, or (ii) on or prior to the tenth (10th)
calendar day before the last Exercise Date of such Offering Period, such a
participant fails to make any lump sum cash payment, such participant shall be
deemed to have elected not to make contributions by lump sum payment with
respect to such first Offering Period. 
Except as described in subsection (e) below, a participant may not make
contributions by lump sum payment for any Offering Period other than the first
Offering Period.

 

(b)           Following
the first Offering Period, an Eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company’s payroll
office fifteen (15) days (or such shorter or
longer period as may be determined by the Administrator, in its sole
discretion) prior to the applicable Enrollment Date.

 

(c)           Each
person who, during the course of an Offering Period, first becomes an Eligible
Employee subsequent to the Enrollment Date will be eligible to become a
participant in the Plan on the first day of the first Purchase Period following
the day on which such person becomes an Eligible Employee.  Such person may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company’s
payroll office fifteen (15) days (or
such shorter or longer period as may be determined by the Administrator, in its
sole discretion) prior to the first day of any Purchase Period during the
Offering Period in which such person becomes an Eligible Employee.  The rights granted to such participant shall
have the same characteristics as any rights originally granted during that
Offering Period except that the first day of the Purchase Period in which such
person initially participates in the Plan shall be the “Enrollment Date” for
all purposes for such person, including determination of the Purchase Price.

 

(d)           Except
as provided in subsection (a), payroll deductions for a participant shall
commence on the first payroll following the Enrollment Date and shall end on
the last payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in Section 10
hereof.

 

(e)           During
a leave of absence approved by the Company or a Subsidiary and meeting the
requirements of Treasury Regulation Section 1.421-7(h)(2), a participant
may continue to participate in the Plan by making cash payments to the Company
on each pay day equal to the amount of the participant’s payroll deductions
under the Plan for the pay day immediately preceding the first day of such
participant’s leave of absence.  If a
leave of absence is unapproved or fails to meet the requirements of Treasury
Regulation Section 1.421-7(h)(2), the participant will cease automatically
to participate in the Plan.  In such
event, the company will automatically cease to deduct the participant’s payroll
under the Plan.  The Company will pay to
the participant his or her total payroll deductions for the Purchase Period, in
cash in one 

 

5

 

lump sum (without
interest), as soon as practicable after the participant ceases to participate
in the Plan.

 

6.             Payroll Deductions.

 

(a)           At
the time a participant files his or her subscription agreement, he or she shall
elect to have payroll deductions made on each pay day during the Offering
Period in an amount from one percent (1%) to twenty percent (20%) of the Compensation which he or she receives on each pay
day during the Offering Period.

 

(b)           All
payroll deductions made for a participant shall be credited to his or her
account under the Plan and shall be withheld in whole percentages only.  Except as described in Section 5(a)
hereof, a participant may not make any additional payments into such account.

 

(c)           A
participant may discontinue his or her participation in the Plan as provided in
Section 10 hereof, or may increase or decrease the rate of his or her
payroll deductions during the Offering Period by completing or filing with the
Company a new subscription agreement authorizing a change in payroll deduction
rate.  The Administrator may, in its
discretion, limit the number of participation rate changes during any Offering
Period.  The change in rate shall be
effective with the first full payroll period following five (5) business days
after the Company’s receipt of the new subscription agreement (or such shorter
or longer period as may be determined by the Administrator, in its sole
discretion).

 

(d)           Notwithstanding
the foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and Section 3(c) hereof, a participant’s payroll deductions may
be decreased to zero percent (0%) at any time during a Purchase Period.

 

(e)           At
the time the option is exercised, in whole or in part, or at the time some or
all of the Company’s Common Stock issued under the Plan is disposed of, the
participant must make adequate provision for the Company’s federal, state, or
other tax withholding obligations, if any, which arise upon the exercise of the
option or the disposition of the Common Stock. 
At any time, the Company may, but shall not be obligated to, withhold
from the participant’s compensation the amount necessary for the Company to
meet applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.

 

7.             Grant of Option.  On the Enrollment Date of each
Offering Period, each Eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Exercise Date during such
Offering Period (at the applicable Purchase Price) up to a number of shares of
the Company’s Common Stock determined by dividing such participant’s payroll
deductions accumulated prior to such Exercise Date and retained in the
participant’s account as of the Exercise Date by the applicable Purchase Price;
provided, however, that in no event shall a participant be permitted to
purchase during each Offering Period more than 10,000 shares of the Company’s
Common Stock (subject to any adjustment pursuant to Section 19) and during
each Purchase Period more than 5,000 shares
of the Company’s Common Stock (subject to any adjustment pursuant to Section 19);
and provided, further, that such purchase shall be subject to

 

6

 

the limitations set forth
in Sections 3(c) and 13 hereof.  The
Administrator may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company’s Common Stock
a participant may purchase during each Purchase Period and Offering Period.  Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof or otherwise becomes ineligible to
participate in the Plan.  The option
shall expire on the last day of the Offering Period.

 

8.             Exercise of Option.

 

(a)           Unless
a participant withdraws from the Plan as provided in Section 10 hereof or
otherwise becomes ineligible to participate in the Plan, his or her option for
the purchase of shares shall be exercised automatically on the Exercise Date,
and the maximum number of full shares subject to the option shall be purchased
for such participant at the applicable Purchase Price with the accumulated
payroll deductions in his or her account. 
No fractional shares shall be purchased; any payroll deductions
accumulated in a participant’s account which are not sufficient to purchase a
full share shall be retained in the participant’s account for the subsequent
Purchase Period or Offering Period. 
During a participant’s lifetime, a participant’s option to purchase
shares hereunder is exercisable only by him or her.

 

(b)           If
the Administrator determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the
Administrator may in its sole discretion (x) provide that the Company shall
make a pro rata allocation of the shares of Common Stock available for purchase
on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner
as shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 hereof.  The Company may make pro rata allocation of
the shares available on the Enrollment Date of any applicable Offering Period
pursuant to the preceding sentence, notwithstanding any authorization of
additional shares for issuance under the Plan by the Company’s stockholders
subsequent to such Enrollment Date.  The
balance of the amount credited to the account of each participant which has not
been applied to the purchase of shares of stock shall be paid to such
participant in one lump sum in cash as soon as reasonably practicable after the
Exercise Date, without any interest thereon.

 

9.             Deposit of Shares.  As
promptly as practicable after each Exercise Date on which a purchase of shares
occurs, the Company may arrange for the deposit, into each participant’s
account with any broker designated by the Company to administer this Plan, of
the number of shares purchased upon exercise of his or her option.

 

7

 

10.           Withdrawal.

 

(a)           A
participant may withdraw all but not less than all of the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by giving written notice to the Company in the form
of Exhibit A to this Plan.  All of
the participant’s payroll deductions credited to his or her account during the
Offering Period shall be paid to such participant as soon as reasonably
practicable after receipt of notice of withdrawal and such participant’s option
for the Offering Period shall be automatically terminated, and no further
payroll deductions for the purchase of shares shall be made for such Offering
Period.  If a participant withdraws from
an Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
subscription agreement.

 

(b)           A
participant’s withdrawal from an Offering Period shall not have any effect upon
his or her eligibility to participate in any similar plan which may hereafter
be adopted by the Company or in succeeding Offering Periods which commence
after the termination of the Offering Period from which the participant
withdraws.

 

11.           Termination of Employment.  Upon a
participant’s ceasing to be an Eligible Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant’s account during the Offering Period
shall be paid to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 15 hereof, as soon as
reasonably practicable and such participant’s option for the Offering Period
shall be automatically terminated.

 

12.           Interest.  No interest shall accrue on the
payroll deductions or lump sum contributions of a participant in the Plan.

 

13.           Shares Subject to Plan.

 

(a)           Subject
to adjustment upon changes in capitalization of the Company as provided in Section 19
hereof, the maximum initial number of shares of the Company’s Common Stock
which shall be made available for sale under the Plan shall be seven hundred
fifty thousand (750,000) shares.  In
addition to the foregoing, subject to Section 19 hereof, commencing on the
first day of the Company’s 2006 fiscal year and on the first day of each fiscal
year thereafter during the term of the Plan, the number of shares of the
Company’s Common Stock which shall be made available for sale under the Plan
shall be increased by that number of shares of the Company’s Common Stock equal
to the least of (i) one-half percent (0.5%) of the Company’s outstanding
shares of Stock on such date, (ii) five hundred thousand (500,000) shares
or (iii) a lesser amount determined by the Board.  Notwithstanding the foregoing, in no event
shall the aggregate number of shares reserved for issuance under the Plan,
during the term of the Plan, exceed five million (5,000,000) shares of the
Company’s Common Stock during the term of the Plan, subject to adjustment as
provided in Section 19 hereof.

 

(b)           If
any right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for issuance under the Plan. 
The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

 

8

 

(c)           With
respect to shares of stock subject to an option granted under the Plan, a
participant shall not be deemed to be a stockholder of the Company, and the
participant shall not have any of the rights or privileges of a stockholder,
until such shares have been issued to the participant or his or her nominee
following exercise of the participant’s option. 
No adjustments shall be made for dividends (ordinary or extraordinary,
whether in cash securities, or other property) or distribution or other rights
for which the record date occurs prior to the date of such issuance, except as
otherwise expressly provided herein.

 

14.           Administration.

 

(a)           The
Plan shall be administered by the Board unless and until the Board delegates
administration to a Committee as set forth below.  The Board may delegate administration of the
Plan to a Committee comprised of two or more members of the Board, each of whom
is a “non-employee director” within the meaning of Rule 16b-3 which has been
adopted by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended, and which is otherwise constituted to comply with
applicable law, and the term “Committee” shall apply to any persons to whom
such authority has been delegated.  If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to exercise, subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  Each member of the Committee shall serve for
a term commencing on a date specified by the Board and continuing until the
member dies or resigns or is removed from office by the Board.  References in this Plan to the “Administrator”
shall mean the Board unless administration is delegated to a Committee or
subcommittee, in which case references in this Plan to the Administrator shall
thereafter be to the Committee or subcommittee.

 

(b)           It
shall be the duty of the Administrator to conduct the general administration of
the Plan in accordance with the provisions of the Plan.  The Administrator shall have the power to
interpret the Plan and the terms of the options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.  The Administrator at its option may utilize
the services of an agent to assist in the administration of the Plan including
establishing and maintaining an individual securities account under the Plan
for each participant.  In its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights and duties of the Administrator under the Plan.

 

(c)           All
expenses and liabilities incurred by the Administrator in connection with the
administration of the Plan shall be borne by the Company.  The Administrator may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons.  The Administrator, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons.  All actions taken and all interpretations and
determinations made by the Administrator in good faith shall be final and
binding upon all participants, the Company and all other interested
persons.  No member of the Board shall be
personally liable for any action, determination or interpretation made in good

 

9

 

faith with respect to the
Plan or the options, and all members of the Board shall be fully protected by
the Company in respect to any such action, determination, or interpretation.

 

15.           Designation of Beneficiary.

 

(a)           A
participant may file a written designation of a beneficiary who is to receive
any shares and cash, if any, from the participant’s account under the Plan in
the event of such participant’s death subsequent to an Exercise Date on which
the option is exercised but prior to delivery to such participant of such
shares and cash.  In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant’s account under the Plan in the event of such
participant’s death prior to exercise of the option.  If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.

 

(b)           Such
designation of beneficiary may be changed by the participant at any time by
written notice to the Company.  In the
event of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant’s
death, the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such shares and/or cash to the spouse
or to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

 

16.           Transferability.  Neither payroll deductions
credited to a participant’s account nor any rights with regard to the exercise
of an option or to receive shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as provided in Section 15 hereof) by the
participant.  Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds
from an Offering Period in accordance with Section 10 hereof.

 

17.           Use of Funds.  All payroll deductions received
or held by the Company under the Plan may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.

 

18.           Reports.  Individual accounts shall be
maintained for each participant in the Plan. 
Statements of account shall be given to participating Employees at least
annually, which statements shall set forth the amounts of payroll deductions,
the Purchase Price, the number of shares purchased and the remaining cash
balance, if any.

 

19.           Adjustments.  Upon Changes in Capitalization,
Dissolution, Liquidation, Merger or Asset Sale.

 

(a)           Changes
in Capitalization.  Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock which have been authorized for issuance under the Plan but not yet
placed under option, the maximum number of shares each participant may purchase
each Purchase Period (pursuant to Section 7), as well as the

 

10

 

 price per share and the number of shares of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common
Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been “effected without
receipt of consideration.”  Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. 
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.

 

(b)           Dissolution
or Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the “New Exercise
Date”), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the
Administrator.  The New Exercise Date
shall be before the date of the Company’s proposed dissolution or
liquidation.  The Administrator shall
notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for the participant’s option
has been changed to the New Exercise Date and that the participant’s option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in Section 10
hereof.

 

(c)           Merger
or Asset Sale.  In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation.  In the event that the successor corporation
refuses to assume or substitute for the option, any Purchase Periods then in
progress shall be shortened by setting a New Exercise Date and any Offering
Periods then in progress shall end on the New Exercise Date.  The New Exercise Date shall be before the
date of the Company’s proposed sale or merger. 
The Administrator shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant’s option has been changed to the New Exercise Date and that the
participant’s option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10 hereof.

 

20.           Amendment or Termination.

 

(a)           The
Board may at any time and for any reason terminate or amend the Plan.  Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board if the Board determines that the
termination of the Offering Period or the Plan is in the best interests of the
Company and its stockholders.  Except as
provided in Section 19 and this Section 20 hereof, no amendment may
make any change in any option theretofore granted which adversely affects the
rights of any participant without the consent of such participant.  To the extent necessary to comply with Section 423
of the Code (or any successor rule or provision or any other applicable 

 

11

 

law, regulation or stock
exchange rule), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.

 

(b)           Without
stockholder consent and without regard to whether any participant rights may be
considered to have been “adversely affected,” the Administrator shall be
entitled to change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company’s
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant’s
Compensation, and establish such other limitations or procedures as the
Administrator determines in its sole discretion advisable which are consistent
with the Plan.

 

(c)           In
the event the Board determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Board may, in its
discretion and, to the extent necessary or desirable, modify or amend the Plan
to reduce or eliminate such accounting consequence including, but not limited
to:

 

(i)            altering
the Purchase Price for any Offering Period including an Offering Period
underway at the time of the change in Purchase Price;

 

(ii)           shortening
any Offering Period so that the Offering Period ends on a new Exercise Date,
including an Offering Period underway at the time of the Administrator action;
and

 

(iii)          allocating
shares.

 

Such modifications or amendments shall not require
stockholder approval or the consent of any Plan participants.

 

21.           Notices.  All notices or other
communications by a participant to the Company under or in connection with the
Plan shall be deemed to have been duly given when received in the form
specified by the Company at the location, or by the person, designated by the
Company for the receipt thereof.

 

22.           Conditions
To Issuance of Shares.  The Company
shall not be required to issue or deliver any certificate or certificates for
shares of Stock purchased upon the exercise of options prior to fulfillment of
all the following conditions:

 

(a)           The
admission of such shares to listing on all stock exchanges, if any, on which is
then listed; and

 

(b)           The
completion of any registration or other qualification of such shares under any
state or federal law or under the rulings or regulations of the Securities and
Exchange 

 

12

 

Commission or any other
governmental regulatory body, which the Administrator shall, in its absolute
discretion, deem necessary or advisable; and

 

(c)           The
obtaining of any approval or other clearance from any state or federal
governmental agency which the Administrator shall, in its absolute discretion,
determine to be necessary or advisable; and

 

(d)           The
payment to the Company of all amounts which it is required to withhold under
federal, state or local law upon exercise of the option; and

 

(e)           The
lapse of such reasonable period of time following the exercise of the Option as
the Administrator may from time to time establish for reasons of administrative
convenience.

 

23.           Term of Plan.  The Plan shall become effective
on the Effective Date.  Subject to
approval by the stockholders of the Company in accordance with this Section,
the Plan shall be in effect until the tenth (10th) anniversary of
the date of the initial adoption of the Plan by the Board, unless sooner
terminated under Section 20 hereof. 
The Plan shall be submitted for the approval of the Company’s
stockholders within twelve (12) months after the date of the initial adoption
of the Plan by the Board.

 

24.           Automatic Transfer to Low Price Offering Period.  To the
extent permitted by any applicable laws, regulations, or stock exchange rules,
if the Fair Market Value of the Common Stock on any Exercise Date in an
Offering Period is lower than the Fair Market Value of the Common Stock on the
Enrollment Date of such Offering Period, then (i) a new twelve (12) month
Offering Period will automatically begin on the first trading day following
that Exercise Date, and (ii) all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.

 

25.           Equal Rights and Privileges.  All
Eligible Employees of the Company (or of any Designated Subsidiary) will have
equal rights and privileges under this Plan so that this Plan qualifies as an “employee
stock purchase plan” within the meaning of Section 423 of the Code or
applicable Treasury regulations thereunder. 
Any provision of this Plan that is inconsistent with Section 423 or
applicable Treasury regulations will, without further act or amendment by the
Company, the Board or the Administrator, be reformed to comply with the equal
rights and privileges requirement of Section 423 or applicable Treasury
regulations.

 

26.           No
Employment Rights.  Nothing in the
Plan shall be construed to give any person (including any Eligible Employee or
participant) the right to remain in the employ of the Company, a Parent or a
Subsidiary or to affect the right of the Company, any Parent or any Subsidiary
to terminate the employment of any person (including any Eligible Employee or
participant) at any time, with or without cause.

 

27.           Notice of Disposition of Shares.  Each
participant shall give prompt notice to the Company of any disposition or other
transfer of any shares of stock purchased upon exercise of an option if such
disposition or transfer is made:  (a)
within two (2) years from the Enrollment 

 

13

 

Date
of the Offering Period in which the shares were purchased or (b) within one (1)
year after the Exercise Date on which such shares were purchased.  Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the participant in such
disposition or other transfer.

 

28.           Governing Law.  The validity and enforceability
of this Plan shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to otherwise governing principles of
conflicts of law.

 

14

 

EMPLOYEE
STOCK PURCHASE PLAN (the “Plan”)

ENROLLMENT/CHANGE
FORM

(Capitalized terms not defined on this form have
the meanings ascribed to them in the Plan)

 

EMPLOYEE
NAME:                                                                                                            

 

ADDRESS:                                                                                                                                                                            

                                                                                (Please Print)

SOCIAL SECURITY:         _______________

 

COMPLETE REASON(S) FOR
ENROLLMENT/CHANGE:

____       New Enrollment

____       Withdrawal (This will reduce your
Contribution Rate to 0% and terminate your participation in the Plan for this
Offering Period.  Your existing payroll
deduction account balance will be refunded to you as soon as administratively
possible.)

____       Change: Contribution
Rate _______ (decreases only)                 Beneficiary  ________

 

 

PAYROLL
DEDUCTION AUTHORIZATION

I
authorize deductions from each payroll check of the following percentage of my
Compensation during the Offering Period in accordance with the Plan.  I understand that if I do not withdraw from
an Offering Period, any accumulated payroll deductions will be used to
automatically exercise my Option.  This
authorization will stay in effect until I change it or cease to participate in
the Plan.

Contribution Rate: 
________  (1–20%,
whole increments)

 

 

BENEFICIARY

___________________________________              ___________________    _______________

                                Name                                                      Social
Security #                 Relationship

_____________________________________________________________________

                                Address

_____________________________________________

Signature of Spouse (If beneficiary other than
spouse)

 

 

I have received and reviewed a copy of the Plan and the Company’s
Prospectus issued in connection with my participation in the Plan.  I have carefully reviewed and understand the
terms of the Plan and such other matters as I found necessary to understand the
mechanics and risks of participation in the Plan.

___________________________________________                            __________

                                Employee Signature                                                            Date

 

 

(For Human Resources Department Use Only)

Approved By:        _________________________________________

Date: 
____________                                                                        Payroll
Processing Date:  ____________

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