Document:

form8k-exhibit10_1.htm

    Exhibit
10.1

    

    

    LEXICON
PHARMACEUTICALS, INC.

    EQUITY INCENTIVE
PLAN

    

    This Plan
initially was established as the Lexicon Genetics Incorporated 1995 Stock Option
Plan (the “1995 Stock Option Plan”), which was adopted by the Board and approved
by the Company’s stockholders on September 13, 1995.  The 1995 Stock
Option Plan was subsequently amended and restated in its entirety and renamed
the Lexicon Genetics Incorporated 2000 Equity Incentive Plan (the “2000 Equity
Incentive Plan”), which was adopted by the Board on February 3, 2000 and
approved by the Company’s stockholders on March 15, 2000 and May 19, 2004. The
2000 Equity Incentive Plan is hereby amended and restated in its entirety and
renamed the Equity Incentive Plan, effective as of its adoption by the Board
subject to approval by the Company’s stockholders. The terms of this Plan shall
supersede the terms of the 1995 Stock Option Plan and the 2000 Equity Incentive
Plan in their entirety; provided, however, that
nothing herein shall operate or be construed as modifying the terms of an
Incentive Stock Option granted under the 1995 Stock Option Plan or the 2000
Equity Incentive Plan in a manner that would treat the option as being a new
grant for purpose of Section 424(h) of the Code.

    
       

      
        	
                  1.

              	
                PURPOSES.

              

      

    

     

    (a)           ELIGIBLE
STOCK AWARD RECIPIENTS. The persons eligible to receive Stock Awards are the
Employees, Directors and Consultants of the Company and its
Affiliates.

     

    (b)           AVAILABLE
STOCK AWARDS. The purpose of the Plan is to provide a means by which eligible
recipients of Stock Awards may be given an opportunity to benefit from increases
in value of the Common Stock through the granting of the following Stock Awards:
(i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Bonus
Awards, (iv) Restricted Stock Awards, (v) Phantom Stock Awards and (vi) Stock
Appreciation Rights.

     

    (c)           GENERAL
PURPOSE. The Company, by means of the Plan, seeks to retain the services of the
group of persons eligible to receive Stock Awards, to secure and retain the
services of new members of this group and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its
Affiliates.

     

    
      	
               
      2.

            	
              DEFINITIONS.

            

    

     

    (a)           “AFFILIATE”
means any parent corporation or subsidiary corporation of the Company, whether
now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.

     

    (b)           “BOARD”
means the Board of Directors of the Company.

     

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

     

    (d)           “COMMITTEE”
means a committee of one or more members of the Board appointed by the Board in
accordance with subsection 3(c).

     

    (e)           “COMMON
STOCK” means the common stock, par value $.001 per share, of the
Company.

     

    
      
        
        

      

      
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    (f)           “COMPANY”
means Lexicon Pharmaceuticals, Inc. a Delaware corporation.

     

    (g)           “CONSULTANT”
means any person other than a Director or Employee who is engaged by the Company
or an Affiliate to render consulting or advisory services and who is compensated
for such services.

     

    (h)           “CONTINUOUS
SERVICE” means that the Participant’s service with the Company or an Affiliate,
whether as an Employee, Director or Consultant, is not interrupted or
terminated. The Participant’s Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant’s Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party’s sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

     

    (i)           “COVERED
EMPLOYEE” means the chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation is required to
be reported to stockholders under the Exchange Act, as determined for purposes
of Section 162(m) of the Code.

     

    (j)           “DIRECTOR”
means a member of the Board of Directors of the Company.

     

    (k)           “DISABILITY”
means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.

     

    (l)           “EMPLOYEE”
means any person (which may include a Director) who is employed by the Company
or an Affiliate.

     

    (m)           “EXCHANGE
ACT” means the Securities Exchange Act of 1934, as amended.

     

    (n)           “FAIR
MARKET VALUE” means, as of any date, the value of the Common Stock determined as
follows:

     

    (i)           If
the Common Stock is listed on any established stock exchange or traded on the
Nasdaq Stock Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable.

     

    (ii)           In
the absence of such markets for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board in such manner as it deems appropriate and
as is consistent with the requirements of section 409A of the Code.

     

    (o)           “INCENTIVE
STOCK OPTION” means an option to purchase Common Stock that is intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

     

    
      
        
        

      

      
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    (p)           “NON-EMPLOYEE
DIRECTOR” means a Director who either (i) is not a current Employee or Officer
of the Company or its parent or a subsidiary, does not receive compensation
(directly or indirectly) from the Company or its parent for a subsidiary for
services rendered as a consultant or in any capacity other than as a Director
(except for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation
S-K”)), does not possess an interest in any other transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K and is not
engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.

     

    (q)           “NONSTATUTORY
STOCK OPTION” means an option to purchase Common Stock other than an Incentive
Stock Option.

     

    (r)           “OFFICER”
means a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated
thereunder.

     

    (s)           “OPTION”
means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant
to Section 6 of the Plan.

     

    (t)           “OPTION
AGREEMENT” means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an individual Option grant. Each Option
Agreement shall be subject to the terms and conditions of the Plan.

     

    (u)           “OPTIONHOLDER”
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.

     

    (v)           “OUTSIDE
DIRECTOR” means a Director who either (i) is not a current employee of the
Company or an “affiliated corporation” (within the meaning of Treasury
Regulations promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an “affiliated corporation” receiving compensation
for prior services (other than benefits under a tax qualified pension plan), was
not an officer of the Company or an “affiliated corporation” at any time and is
not currently receiving direct or indirect remuneration from the Company or an
“affiliated corporation” for services in any capacity other than as a Director
or (ii) is otherwise considered an “outside director” for purposes of Section
162(m) of the Code.

     

    (w)           “PARTICIPANT”
means a person to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.

     

    (x)           “PHANTOM
STOCK AWARD” means a right to receive shares of Common Stock (or the Fair Market
Value thereof) granted pursuant to Section 7(c) of the Plan.

     

    (y)           “PLAN”
means this Lexicon Pharmaceuticals, Inc. Equity Incentive Plan.

     

    (z)           “RESTRICTED
STOCK AWARD” means a right to purchase restricted Common Stock granted pursuant
to Section 7(b) of the Plan.

     

    (aa)           “RULE
16B-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to
Rule 16b-3, as in effect from time to time.

     

    (bb)           “SECURITIES
ACT” means the Securities Act of 1933, as amended.

     

    
      
        
        

      

      
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    (cc)           “STOCK
APPRECIATION RIGHT” means a right to receive an amount equal to any appreciation
or increase in the Fair Market Value of Common Stock over a specified period of
time granted pursuant to Section 7(d) of the Plan.

     

    (dd)           “STOCK
AWARD” means any right granted under the Plan, including an Option, a Stock
Bonus Award, a Restricted Stock Award, a Phantom Stock Award, or a Stock
Appreciation Right.

     

    (ee)           “STOCK
AWARD AGREEMENT” means a written agreement between the Company and a holder of a
Stock Award evidencing the terms and conditions of an individual Stock Award
grant. Each Stock Award Agreement shall be subject to the terms and conditions
of the Plan.

     

    (ff)           “STOCK
BONUS AWARD” means an award of Common Stock granted pursuant to
Section 7(a) of the Plan.

     

    (gg)           “TEN
PERCENT STOCKHOLDER” means a person who owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates.

     

    
      	
               
      3.

            	
              ADMINISTRATION.

            

    

     

    (a)           ADMINISTRATION
BY BOARD. The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection
3(c).

     

    (b)           POWERS
OF BOARD. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:

     

    (i)           To
determine from time to time which of the persons eligible under the Plan shall
be granted Stock Awards; when and how each Stock Award shall be granted; what
type or combination of types of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive Common Stock pursuant to a
Stock Award; and the number of shares of Common Stock with respect to which a
Stock Award shall be granted to each such person.

     

    (ii)           To
construe and interpret the Plan and Stock Awards granted under it, and to
establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Stock Award Agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.

     

    (iii)           To
amend the Plan or a Stock Award as provided in Section 12.

     

    (iv)           To
terminate or suspend the Plan as provided in Section 13.

     

    (v)           Generally,
to exercise such powers and to perform such acts as the Board deems necessary or
expedient to promote the best interests of the Company that are not in conflict
with the provisions of the Plan.

     

    (c)           DELEGATION
TO COMMITTEE.

     

    (i)           GENERAL.
The Board may delegate administration of the Plan to a Committee or Committees
of one (1) 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. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.

    
      
        
        

      

      
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    (ii)           COMMITTEE
COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.  At such time as the
Common Stock is publicly traded, in the discretion of the Board, a Committee may
consist solely of two or more Outside Directors, in accordance with Section
162(m) of the Code, and/or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. Within the scope of such authority, the Board or the
Committee may (A) delegate to a committee of one or more members of the Board
who are not Outside Directors the authority to grant Stock Awards to eligible
persons who are either (1) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Stock
Award or (2) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code, and/or (B) delegate to a committee of one or more
members of the Board who are not Non-Employee Directors the authority to grant
Stock Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act.

     

    (d)           EFFECT
OF BOARD’S DECISION. All determinations, interpretations and constructions made
by the Board in good faith shall not be subject to review by any person and
shall be final, binding and conclusive on all persons.

     

    
      	
               
      4.

            	
              SHARES
      SUBJECT TO THE PLAN.

            

    

     

    (a)           SHARE
RESERVE. Subject to the provisions of Section 11 relating to adjustments upon
changes in Common Stock, the Common Stock that may be issued pursuant to Stock
Awards shall not exceed in the aggregate thirty-five million (35,000,000)
shares.

     

    (b)           REVERSION
OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for any reason expire
or otherwise terminate, in whole or in part, without having been exercised in
full or shares of Common Stock issued to a Participant pursuant to a Stock Award
are forfeited to or repurchased by the Company, including any repurchase or
forfeiture caused by the failure to meet a contingency or condition required for
the vesting of such shares, the shares of Common Stock not issued under such
Stock Award or forfeited to or repurchased by the Company shall revert to and
again become available for issuance under the Plan; provided, however, that
shares subject to a Stock Award that are not delivered to a Participant because
(i) such Participant’s right to purchase such shares subject to an Option are
surrendered in payment of the exercise price for other shares subject to such
Option in a “net exercise,” or (ii) such shares are withheld in satisfaction of
the withholding of taxes incurred in connection with the exercise of an Option
or Stock Appreciation Right, or the issuance of shares under a Stock Bonus
Award, Restricted Stock Award or Phantom Stock Award, the shares so surrendered
or withheld shall not remain available for subsequent issuance under the
Plan.

     

    (c)           SOURCE
OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.

     

    (d)           SHARES
AVAILABLE FOR SPECIFIC STOCK AWARDS. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, the Common
Stock that may be issued pursuant to Stock Awards other than Options and Stock
Appreciation Rights shall not exceed in the aggregate three million, five
hundred thousand (3,500,000) shares.

    
      
        
        

      

      
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      5.

            	
              ELIGIBILITY.

            

    

     

    (a)           ELIGIBILITY
FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be granted only to
Employees.  Stock Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants.

     

    (b)           TEN
PERCENT STOCKHOLDERS.  A Ten Percent Stockholder shall not be granted
an Incentive Stock Option unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of the Common Stock at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.

     

    (c)           SECTION
162(m) LIMITATION. Subject to the provisions of Section 11 relating to
adjustments upon changes in the shares of Common Stock, no Employee shall be
eligible to be granted Options covering more than three million (3,000,000)
shares during any calendar year.

     

    
      	
               
      6.

            	
              OPTION
      PROVISIONS.

            

    

     

    Each
Option shall be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and,
if certificates are issued, a separate certificate or certificates will be
issued for shares of Common Stock purchased on exercise of each type of Option.
The provisions of separate Options need not be identical, but each Option shall
include (through incorporation of provisions hereof by reference in the Option
or otherwise) the substance of each of the following provisions:

     

    (a)           TERM.
Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders,
no Option shall be exercisable after the expiration of ten (10) years from the
date it was granted.

     

    (b)           EXERCISE
PRICE. Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, the exercise price of each Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

     

    (c)           CONSIDERATION.
The purchase price of Common Stock acquired pursuant to an Option shall be paid,
to the extent permitted by applicable statutes and regulations, either (i) in
cash at the time the Option is exercised or (ii) at the discretion of the Board
(1) by delivery to the Company of other Common Stock, (2) according to a
deferred payment or other similar arrangement with the Optionholder, (3) by
surrender of Optionholder’s right to purchase shares subject to an Option
(valued, for such purposes, as the Fair Market Value of such surrendered shares
on the date of exercise less the exercise price for such surrendered shares) in
payment of the exercise price for other shares subject to such Option in a “net
exercise” of such Option, or (4) in any other form of legal consideration
that may be acceptable to the Board.  At any time that the Company is
incorporated in Delaware, payment of the Common Stock’s “par value,” as defined
in the Delaware General Corporation Law, shall not be made by deferred
payment.  In the case of any deferred payment arrangement, interest
shall be compounded at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred
payment arrangement.

     

    
      
        
        

      

      
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    (d)           TRANSFERABILITY.
An Incentive Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. A Nonstatutory Stock Option shall be
transferable to the extent provided in the Option Agreement; provided that, if the
Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.

     

    (e)           VESTING
GENERALLY. The total number of shares of Common Stock subject to an Option may,
but need not, vest and therefore become exercisable in periodic installments
that may, but need not, be equal. The Option may be subject to such other terms
and conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary.

     

    (f)           TERMINATION
OF CONTINUOUS SERVICE. In the event an Optionholder’s Continuous Service
terminates (other than upon the Optionholder’s death or Disability), the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder’s Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option
Agreement.  If, after termination, the Optionholder does not exercise
his or her Option within the time specified in the Option Agreement, the Option
shall terminate.

     

    (g)           EXTENSION
OF TERMINATION DATE. An Optionholder’s Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionholder’s
Continuous Service (other than upon the Optionholder’s death or Disability)
would be prohibited at any time solely because the issuance of shares of Common
Stock would violate the registration requirements under the Securities Act, then
the Option shall terminate on the earlier of (i) the expiration of the term of
the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder’s Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.

     

    (h)           DISABILITY
OF OPTIONHOLDER. In the event that an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s Disability, the Optionholder may
exercise his or her Option (to the extent that the Optionholder was entitled to
exercise such Option as of the date of termination), but only within such period
of time ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option
Agreement,) or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified herein, the Option shall terminate.

     

    (i)           DEATH
OF OPTIONHOLDER. In the event (i) an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s death or (ii) the Optionholder dies
within the period (if any) specified in the Option Agreement after the
termination of the Optionholder’s Continuous Service for a reason other than
death, then the Option may be exercised (to the extent the Optionholder was
entitled to exercise such Option as of the date of death) by the Optionholder’s
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the Option upon the
Optionholder’s death pursuant to subsection 6(d), but only within the period
ending on the earlier of (1) the date eighteen (18) months following the date of
death (or such longer or shorter period specified in the Option Agreement) or
(2) the expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

    
      
        
        

      

      
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      7.

            	
              PROVISIONS
      OF STOCK AWARDS OTHER THAN OPTIONS.

            

    

     

    (a)           STOCK
BONUS AWARDS. Each Stock Bonus Award agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The terms
and conditions of Stock Bonus Award agreements may change from time to time, and
the terms and conditions of separate Stock Bonus Award agreements need not be
identical, but each Stock Bonus Award agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

     

    (i)           CONSIDERATION.
A Stock Bonus Award may be granted in consideration for past services actually
rendered to the Company or an Affiliate for its benefit.

     

    (ii)           VESTING.
Shares of Common Stock awarded under the Stock Bonus Award agreement may, but
need not, be subject to a share repurchase option or forfeiture restrictions in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.

     

    (iii)           TERMINATION
OF PARTICIPANT’S CONTINUOUS SERVICE. In the event a Participant’s Continuous
Service terminates, the Company may reacquire any or all of the shares of Common
Stock held by the Participant which have not vested as of the date of
termination under the terms of the Stock Bonus Award agreement.

     

    (iv)           TRANSFERABILITY.
Rights to acquire shares of Common Stock under the Stock Bonus Award agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the Stock Bonus Award agreement, as the Board shall determine
in its discretion, so long as Common Stock awarded under the Stock Bonus Award
agreement remains subject to the terms of the Stock Bonus Award
agreement.

     

    (b)           RESTRICTED
STOCK AWARDS. Each Restricted Stock Award agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate. The
terms and conditions of the Restricted Stock Award agreement may change from
time to time, and the terms and conditions of separate Restricted Stock Award
agreements need not be identical, but each Restricted Stock Award agreement
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following
provisions:

     

    (i)           PURCHASE
PRICE. The purchase price under each Restricted Stock Award agreement shall be
such amount as the Board shall determine and designate in such Restricted Stock
Award agreement. Such purchase price shall not be less than eighty-five percent
(85%) of the Common Stock’s Fair Market Value on the date such award is made or
at the time the purchase is consummated.

     

    (ii)           CONSIDERATION.
The purchase price of Common Stock acquired pursuant to the Restricted Stock
Award agreement shall be paid either: (A) in cash at the time of purchase; (B)
at the discretion of the Board, according to a deferred payment or other similar
arrangement with the Participant; or (C) in any other form of legal
consideration that may be acceptable to the Board in its discretion; provided, however, that at any
time that the Company is incorporated in Delaware, then payment of the Common
Stock’s “par value,” as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.

     

    
      
        
        

      

      
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    (iii)           VESTING.
Shares of Common Stock acquired under the Restricted Stock Award agreement may,
but need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.

     

    (iv)           TERMINATION
OF PARTICIPANT’S CONTINUOUS SERVICE. In the event a Participant’s Continuous
Service terminates, the Company may repurchase or otherwise reacquire any or all
of the shares of Common Stock held by the Participant which have not vested as
of the date of termination under the terms of the Restricted Stock Award
agreement.

     

    (v)           TRANSFERABILITY.
Rights to acquire shares of Common Stock under the Restricted Stock Award
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the Restricted Stock Award agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded under
the Restricted Stock Award agreement remains subject to the terms of the
Restricted Stock Award agreement.

     

    (c)           PHANTOM
STOCK AWARDS. Each Phantom Stock Award agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The terms
and conditions of Phantom Stock Award agreements may change from time to time,
and the terms and conditions of separate Phantom Stock Award agreements need not
be identical, provided,
however, that each Phantom Stock Award agreement shall include (through
incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:

     

    (i)           CONSIDERATION.
At the time of grant of a Phantom Stock Award, the Board will determine the
consideration, if any, to be paid by the Participant upon delivery of each share
of Common Stock subject to the Phantom Stock Award. The consideration to be paid
(if any) by the Participant for each share of Common Stock subject to a Phantom
Stock Award may be paid in any form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable
law.

     

    (ii)           VESTING.
At the time of the grant of a Phantom Stock Award, the Board may impose such
restrictions or conditions to the vesting of the Phantom Stock Award as it, in
its sole discretion, deems appropriate.

     

    (iii)           PAYMENT.
A Phantom Stock Award may be settled by the delivery of shares of Common Stock,
their cash equivalent, any combination thereof or in any other form of
consideration, as determined by the Board and contained in the Phantom Stock
Award agreement.

     

    (iv)           DIVIDEND
EQUIVALENTS. Dividend equivalents may be credited in respect of shares of Common
Stock covered by a Phantom Stock Award, as determined by the Board and contained
in the Phantom Stock Award agreement. At the sole discretion of the Board, such
dividend equivalents may be converted into additional shares of Common Stock
covered by the Phantom Stock Award in such manner as determined by the Board.
Any additional shares covered by the Phantom Stock Award credited by reason of
such dividend equivalents will be subject to all the terms and conditions of the
underlying Phantom Stock Award agreement to which they relate.

     

    (v)           TERMINATION
OF PARTICIPANT’S CONTINUOUS SERVICE. Except as otherwise provided in the
applicable Phantom Stock Award agreement, such portion of the Phantom Stock
Award that has not vested will be forfeited upon the Participant’s termination
of Continuous Service.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (vi)           TRANSFERABILITY.
Rights under the Phantom Stock Award agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Phantom
Stock Award agreement, as the Board shall determine in its
discretion.

     

    (d)           STOCK
APPRECIATION RIGHTS. Each Stock Appreciation Right agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of the Stock Appreciation Right agreements
may change from time to time, and the terms and conditions of separate Stock
Appreciation Right agreements need not be identical, but each Stock Appreciation
Right agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions:

     

    (i)           CALCULATION
OF APPRECIATION.  Each Stock Appreciation Right will be denominated in
shares of Common Stock equivalents. The appreciation distribution payable on the
exercise of a Stock Appreciation Right will be not greater than an amount equal
to the excess of (i) the aggregate Fair Market Value (on the date of the
exercise of the Stock Appreciation Right) of a number of shares of Common Stock
equal to the number of shares of Common Stock equivalents in which the
Participant is vested under such Stock Appreciation Right, and with respect to
which the Participant is exercising the Stock Appreciation Right on such date,
over (ii) an amount (the strike price) that will be determined by the Board
at the time of grant of the Stock Appreciation Right for such number of shares
of Common Stock, provided that the strike
price of a Stock Appreciation Right shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock equal to the number of
shares of Common Stock equivalents subject to the Stock Appreciation Right on
the date the Stock Appreciation Right is granted.

     

    (ii)           VESTING.
At the time of the grant of a Stock Appreciation Right, the Board may impose
such restrictions or conditions to the vesting of such Stock Appreciation Right
as it, in its sole discretion, deems appropriate.

     

    (iii)           EXERCISE.
To exercise any outstanding Stock Appreciation Right, the Participant must
provide written notice of exercise to the Company in compliance with the
provisions of the Stock Appreciation Right agreement evidencing such Stock
Appreciation Right.

     

    (iv)           PAYMENT.
The appreciation distribution in respect to a Stock Appreciation Right may be
paid in cash, shares of Common Stock, a combination of cash and shares of Common
Stock or in any other form of consideration, as determined by the Board and
contained in the Stock Appreciation Right agreement evidencing such Stock
Appreciation Right.

     

    (v)           TERMINATION
OF PARTICIPANT’S CONTINUOUS SERVICE. In the event that a Participant’s
Continuous Service terminates, the Participant may exercise his or her Stock
Appreciation Right (to the extent that the Participant was entitled to exercise
such Stock Appreciation Right as of the date of termination) but only within
such period of time ending on the earlier of (i) the date three
(3) months following the
termination of the Participant’s Continuous Service (or such longer or shorter
period specified in the Stock Appreciation Right agreement), or (ii) the
expiration of the term of the Stock Appreciation Right as set forth in the Stock
Appreciation Right agreement. If, after termination, the Participant does not
exercise his or her Stock Appreciation Right within the time specified herein or
in the Stock Appreciation Right agreement (as applicable), the Stock
Appreciation Right shall terminate.

     

    (vi)           TRANSFERABILITY.
Rights under the Stock Appreciation Right agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Stock
Appreciation Right agreement, as the Board shall determine in its
discretion.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	
               
      8.

            	
              COVENANTS
      OF THE COMPANY.

            

    

     

    (a)           AVAILABILITY
OF SHARES. During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of Common Stock required to satisfy
such Stock Awards.

     

    (b)           SECURITIES
LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
grant Stock Awards and to issue and sell shares of Common Stock upon exercise of
the Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
Common Stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is
obtained.

     

    
      	
               
      9.

            	
              USE
      OF PROCEEDS FROM STOCK.

            

    

     

    Proceeds
from the sale of Common Stock pursuant to Stock Awards shall constitute general
funds of the Company.

     

    
      	
               
      10.

            	
              MISCELLANEOUS.

            

    

     

    (a)           ACCELERATION
OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the
time at which a Stock Award may first be exercised or the time during which a
Stock Award or any part thereof will vest in accordance with the Plan,
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.

     

    (b)           STOCKHOLDER
RIGHTS. No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Common Stock subject to
such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.

     

    (c)           NO
EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any instrument
executed or Stock Award granted pursuant thereto shall confer upon any
Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Stock Award was granted or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant’s agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

     

    (d)           INCENTIVE
STOCK OPTION $100,000 LIMITATION. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any Optionholder
during any calendar year (under all plans of the Company and its Affiliates)
exceeds one hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.

     

    (e)           INVESTMENT
ASSURANCES. The Company may require a Participant, as a condition of exercising
or acquiring Common Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participant’s knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (ii) to give written assurances satisfactory to
the Company stating that the Participant is acquiring Common Stock subject to
the Stock Award for the Participant’s own account and not with any present
intention of selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (1) the issuance of the shares of Common Stock upon the exercise
or acquisition of Common Stock under the Stock Award has been registered under a
then currently effective registration statement under the Securities Act or (2)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the Common Stock.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (f)           WITHHOLDING
OBLIGATIONS. To the extent provided by the terms of a Stock Award Agreement, the
Participant may satisfy any federal, state or local tax withholding obligation
relating to the exercise or acquisition of Common Stock under a Stock Award by
any of the following means (in addition to the Company’s right to withhold from
any compensation paid to the Participant by the Company) or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares of Common Stock from the shares of Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition of Common
Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

     

    
      	
               
      11.

            	
              ADJUSTMENTS
      UPON CHANGES IN STOCK.

            

    

     

    (a)           CAPITALIZATION
ADJUSTMENTS.  If any change is made in the Common Stock subject to the
Plan, or subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and the number of securities subject to the Plan pursuant to
subsection 4(a), the maximum number of securities subject to Stock Awards other
than Options and Stock Appreciation Rights pursuant to subsection 4(d), the
maximum number of securities subject to award to any person pursuant to
subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of securities and price per share of Common Stock
subject to such outstanding Stock Awards. The Board shall make such adjustments,
and its determination shall be final, binding and conclusive. For
clarity, the conversion of any convertible securities of the Company shall not
be treated as a transaction “without receipt of consideration” by the
Company.

     

    (b)           DISSOLUTION
OR LIQUIDATION.  In the event of a dissolution or liquidation of the
Company, then all outstanding Stock Awards shall terminate immediately prior to
such event.

     

    (c)           ASSET
SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.  In the event of (i) a
sale, lease or other disposition of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(c) for those outstanding under the Plan). In the
event any surviving corporation or acquiring corporation fails to assume such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	
               
      12.

            	
              AMENDMENT
      OF THE PLAN AND STOCK AWARDS.

            

    

     

    (a)           AMENDMENT
OF PLAN. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in Common Stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

     

    (b)           STOCKHOLDER
APPROVAL. The Board may, in its sole discretion, submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.

     

    (c)           CONTEMPLATED
AMENDMENTS. It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.

     

    (d)           NO
IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.

     

    (e)           AMENDMENT
OF STOCK AWARDS. The Board at any time, and from time to time, may amend the
terms of any one or more Stock Awards; provided, however, that the rights under
any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.

     

    
      	
               
      13.

            	
              TERMINATION
      OR SUSPENSION OF THE PLAN.

            

    

     

    (a)           PLAN
TERM. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is
terminated.

     

    (b)           NO
IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair
rights and obligations under any Stock Award granted while the Plan is in effect
except with the written consent of the Participant.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	
               
      14.

            	
              EFFECTIVE
      DATE OF PLAN.

            

    

     

    The Plan
shall become effective upon its adoption by the Board, but no Stock Award shall
be exercised (or, in the case of a stock bonus, shall be granted) unless and
until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.

     

    
      	
               
      15.

            	
              CHOICE
      OF LAW.

            

    

     

    The law
of the State of Delaware shall govern all questions concerning the construction,
validity and interpretation of this Plan, without regard to such state’s
conflict of laws rules.

     

    14form8k-exhibit10_2.htm

    
       

      Exhibit
10.2

       

      LEXICON
PHARMACEUTICALS, INC.

      NON-EMPLOYEE
DIRECTORS’ STOCK OPTION PLAN

      

      This Plan
initially was established as the 2000 Non-Employee Directors’ Stock Option Plan,
effective as of April 12, 2000 (the “Initial Plan”).  The Initial Plan
is hereby amended and restated in its entirety and renamed the Non-Employee
Directors’ Stock Option Plan, effective as of its adoption by the Board subject
to approval by the Company’s stockholders.  The terms of this Plan
shall supersede the terms of Initial Plan in their entirety.

       

      1.           PURPOSES.

       

      (a)           ELIGIBLE
OPTION RECIPIENTS. The persons eligible to receive Options are the Non-Employee
Directors of the Company.

      

      (c)           AVAILABLE
OPTIONS. The purpose of the Plan is to provide a means by which Non-Employee
Directors may be given an opportunity to benefit from increases in value of the
Common Stock through the granting of Nonstatutory Stock Options.

      

      (d)           GENERAL
PURPOSE. The Company, by means of the Plan, seeks to retain the services of its
Non-Employee Directors, to secure and retain the services of new Non-Employee
Directors and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.

      

      2.           DEFINITIONS.

      

      (a)           “AFFILIATE”
means any parent corporation or subsidiary corporation of the Company, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and
(f), respectively, of the Code.

      

      (b)           “ANNUAL
GRANT” means an Option granted annually to all Non-Employee Directors who meet
the specified criteria pursuant to subsection 6(b) of the Plan.

      

      (c)           “ANNUAL
MEETING” means the annual meeting of the stockholders of the
Company.

      

      (d)           “BOARD”
means the Board of Directors of the Company.

      

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

      

      (f)           “COMMON
STOCK” means the common stock, par value $.001 per share, of the
Company.

      

      (g)           “COMPANY”
means Lexicon Pharmaceuticals, Inc., a Delaware corporation.

      

      (h)           “CONSULTANT”
means any person other than a Director or Employee who is engaged by the Company
or an Affiliate to render consulting or advisory services and who is compensated
for such services.

      

      (i)           “CONTINUOUS
SERVICE” means that the Optionholder’s service with the Company or an Affiliate,
whether as an Employee, Director or Consultant, is not interrupted or
terminated. The Optionholder’s Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder’s Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party’s sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal
leave.

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

      (j)           “DIRECTOR”
means a member of the Board of Directors of the Company.

      

      (k)           “DISABILITY”
means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.

      

      (l)           “EMPLOYEE”
means any person employed by the Company or an Affiliate. Mere service as a
Director or payment of a director’s fee by the Company or an Affiliate shall not
be sufficient to constitute “employment” by the Company or an
Affiliate.

      

      (m)           “EXCHANGE
ACT” means the Securities Exchange Act of 1934, as amended.

      

      (n)           “FAIR
MARKET VALUE” means, as of any date, the value of the Common Stock determined as
follows:

      

      (i)           If
the Common Stock is listed on any established stock exchange or traded on the
Nasdaq Stock Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable.

      

      (ii)           In
the absence of such markets for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board in such manner as it deems appropriate and
as is consistent with the requirements of section 409A of the Code.

      

      (o)           “INITIAL
GRANT” means an Option granted to a Non-Employee Director who meets the
specified criteria pursuant to subsection 6(a) of the Plan.

      

      (p)           “NON-EMPLOYEE
CHAIRMAN” means a Non-Employee Director serving as chairman of the
Board.

      

      (q)           “NON-EMPLOYEE
DIRECTOR” means a Director who is not an Employee.

      

      (r)           “OPTION”
means an option to purchase Common Stock granted pursuant to the
Plan.

      

      (s)           “OPTION
AGREEMENT” means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an individual Option
grant.  Each Option Agreement shall be subject to the terms and
conditions of the Plan.

      

      (t)           “OPTIONHOLDER”
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      (u)           “PLAN”
means this Lexicon Pharmaceuticals, Inc. Non-Employee Directors’ Stock Option
Plan.

      

      (v)           “RULE
16B-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to
Rule 16b-3, as in effect from time to time.

      

      (w)           “SECURITIES
ACT” means the Securities Act of 1933, as amended.

      

      3.           ADMINISTRATION.

      

      (a)           ADMINISTRATION
BY BOARD. The Board shall administer the Plan.  The Board may not
delegate administration of the Plan to a committee.

      

      (b)           POWERS
OF BOARD. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:

      

      (i)           To
determine the provisions of each Option to the extent not specified in the
Plan.

      

      (ii)           To
construe and interpret the Plan and Options granted under it, and to establish,
amend and revoke rules and regulations for its administration. The Board, in the
exercise of this power, may correct any defect, omission or inconsistency in the
Plan or in any Option Agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.

      

      (iii)           To
amend the Plan or an Option as provided in Section 12.

      

      (iv)           Generally,
to exercise such powers and to perform such acts as the Board deems necessary or
expedient to promote the best interests of the Company that are not in conflict
with the provisions of the Plan.

      

      (c)           EFFECT
OF BOARD’S DECISION. All determinations, interpretations and constructions made
by the Board in good faith shall not be subject to review by any person and
shall be final, binding and conclusive on all persons.

      

      4.           SHARES
SUBJECT TO THE PLAN.

      

      (a)           SHARE
RESERVE. Subject to the provisions of Section 11 relating to adjustments upon
changes in the Common Stock, the Common Stock that may be issued pursuant to
Options shall not exceed in the aggregate one million, two hundred thousand
(1,200,000) shares of Common Stock.

      

      (b)           REVERSION
OF SHARES TO THE SHARE RESERVE. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the shares of Common Stock not acquired under such Option shall revert to and
again become available for issuance under the Plan.  For clarity, shares subject to an Option
that are not delivered to an Optionholder because (i) such Optionholder’s right
to purchase such shares are surrendered in payment of the exercise price for
other shares subject to such Option in a “net exercise,” or (ii) such shares are
withheld in satisfaction of the withholding of taxes incurred in connection with
the exercise of such Option, the shares so surrendered or withheld shall not
remain available for subsequent issuance under the Plan.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (c)           SOURCE
OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.

      

      5.           ELIGIBILITY.

      

      The
Options as set forth in section 6 automatically shall be granted under the Plan
to all Non-Employee Directors.

      

      6.           NON-DISCRETIONARY
GRANTS.

      

      (a)           INITIAL
GRANTS. Without any further action of the Board, each person who is elected or
appointed for the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a Non-Employee
Director, be granted an Initial Grant to purchase Thirty Thousand (30,000)
shares of Common Stock on the terms and conditions set forth
herein.

      

      (b)           ANNUAL
GRANTS. Without any further action of the Board, on the day following each
Annual Meeting, (i) each person who is then a Non-Employee Director, but is not
serving as Non-Employee Chairman, and has been a Non-Employee Director for at
least six (6) months, automatically shall be granted an Annual Grant to purchase
Ten Thousand (10,000) shares of Common Stock
and (ii) the person, if any, who is then Non-Employee Chairman, and has been a
Non-Employee Director for at least six (6) months, automatically shall be
granted an Annual Option to purchase Twenty Thousand (20,000) shares of Common
Stock, each such Option to be granted on the terms and conditions set forth
herein.

      

      7.           OPTION
PROVISIONS.

      

      Each Option shall be in such form and
shall contain such terms and conditions as required by the Plan. Each Option
shall contain such additional terms and conditions, not inconsistent with the
Plan, as the Board shall deem appropriate. Each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

      

      (a)           TERM.
No Option shall be exercisable after the expiration of ten (10) years from the
date it was granted.

      

      (b)           EXERCISE
PRICE. The exercise price of each Option shall be one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the
Code.

      

      (c)           CONSIDERATION.
The purchase price of stock acquired pursuant to an Option may be paid, to the
extent permitted by applicable statutes and regulations, in any combination of
(i) cash or check, (ii) delivery to the Company of other Common Stock, or (iii)
surrender of Optionholder’s right to purchase shares subject to such Option
(valued, for such purposes, as the Fair Market Value of such surrendered shares
on the date of exercise less the exercise price for such surrendered shares) in
payment of the exercise price for other shares subject to such Option in a “net
exercise” of such Option.

      

      (d)           TRANSFERABILITY.
An Option is not transferable, except (i) by will or by the laws of descent and
distribution, (ii) by instrument to an inter vivos or testamentary trust, in a
form accepted by the Company, in which the Option is to be passed to
beneficiaries upon the death of the trustor (settlor) and (iii) by gift, in a
form accepted by the Company, to a member of the “immediate family” of the
Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e). In addition, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.

      
        
          
          

        

        
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      (e)           VESTING.
Options shall vest as follows:

      

      (i)           Initial
Grants shall provide for vesting of 1/60th of the shares subject to the Option
each month after grant for five (5) years after the date of the
grant.

      

      (ii)           Annual
Grants shall provide for vesting of 1/12th of the shares subject to the Option
each month after grant for twelve (12) months after the date of the
grant.

      

      (f)           TERMINATION
OF CONTINUOUS SERVICE. In the event an Optionholder’s Continuous Service
terminates (other than upon the Optionholder’s death or Disability), the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date six (6) months following
the termination of the Optionholder’s Continuous Service, or (ii) the expiration
of the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.

      

      (g)           EXTENSION
OF TERMINATION DATE. If the exercise of the Option following the termination of
the Optionholder’s Continuous Service (other than upon the Optionholder’s death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 7(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder’s Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.

      

      (h)           DISABILITY
OF OPTIONHOLDER. In the event an Optionholder’s Continuous Service terminates as
a result of the Optionholder’s Disability, the Optionholder may exercise his or
her Option (to the extent that the Optionholder was entitled to exercise it as
of the date of termination), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.

      

      (i)           DEATH
OF OPTIONHOLDER. In the event (i) an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s death or (ii) the Optionholder dies
within the three-month period after the termination of the Optionholder’s
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise the Option as
of the date of death) by the Optionholder’s estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the Option upon the Optionholder’s death, but only within the period
ending on the earlier of (A) the date eighteen (18) months following the date of
death or (B) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

      

      8.           COVENANTS
OF THE COMPANY.

      

      (a)           AVAILABILITY
OF SHARES. During the terms of the Options, the Company shall keep available at
all times the number of shares of Common Stock required to satisfy such
Options.

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (b)           SECURITIES
LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
grant Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Option or any stock issued or
issuable pursuant to any such Option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.

      

      9.           USE
OF PROCEEDS FROM STOCK.

      

      Proceeds
from the sale of stock pursuant to Options shall constitute general funds of the
Company.

       

      10.           MISCELLANEOUS.

      

      (a)           STOCKHOLDER
RIGHTS. No Optionholder shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option unless
and until such Optionholder has satisfied all requirements for exercise of the
Option pursuant to its terms.

      

      (b)           NO
SERVICE RIGHTS. Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Optionholder any right to continue to
serve the Company as a Non-Employee Director or shall affect the right of the
Company or an Affiliate to terminate (i) the employment of an Employee with or
without notice and with or without cause, (ii) the service of a Consultant
pursuant to the terms of such Consultant’s agreement with the Company or an
Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

      

      (c)           INVESTMENT
ASSURANCES. The Company may require an Optionholder, as a condition of
exercising or acquiring stock under any Option, (i) to give written assurances
satisfactory to the Company as to the Optionholder’s knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (ii) to give written assurances satisfactory to the
Company stating that the Optionholder is acquiring the stock subject to the
Option for the Optionholder’s own account and not with any present intention of
selling or otherwise distributing the stock.  The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the
stock.

      

      (d)           WITHHOLDING
OBLIGATIONS. The Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company’s right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option, provided, however, that no shares of Common Stock are withheld
with a value exceeding the minimum amount of tax required to be withheld by law;
or (iii) delivering to the Company owned and unencumbered shares of the Common
Stock.

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      11.           ADJUSTMENTS
UPON CHANGES IN STOCK.

      

      (a)           CAPITALIZATION
ADJUSTMENTS. If any change is made in the stock subject to the Plan, or subject
to any Option, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and number of
securities subject to the Plan pursuant to subsection 4(a) and to be granted as
nondiscretionary Options specified in Section 5, and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. The Board shall
make such adjustments, and its determination shall be final, binding and
conclusive. For clarity, the conversion of any convertible securities of the
Company shall not be treated as a transaction “without receipt of consideration”
by the Company.

      

      (b)           DISSOLUTION
OR LIQUIDATION. In the event of a dissolution or liquidation of the Company,
then all outstanding Options shall terminate immediately prior to such
event.

      

      (c)           ASSET
SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.

      

      (i)           In
the event of (i) a sale, lease or other disposition of all or substantially all
of the assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in which the
Company is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options (including an
option to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c) for those outstanding under the
Plan).

      

      (ii)           In
the event any surviving corporation or acquiring corporation refuses to assume
such Options or to substitute similar Options for those outstanding under the
Plan, then the vesting of such Options and the vesting of any shares of Common
Stock acquired pursuant to such Options shall be accelerated in full, and the
Options shall terminate if not exercised at or prior to such event.

      

      (iii)           In
the event any surviving corporation or acquiring corporation assumes such
Options or substitutes similar Options for those outstanding under the Plan but
the Optionholder is not elected or appointed to the board of directors of the
surviving corporation or acquiring corporation at the first meeting of such
board of directors after such change in control event, then the vesting of such
Options and the vesting of any shares of Common Stock acquired pursuant to such
Options shall be accelerated by eighteen (18) months on the day after the first
meeting of the board of directors of the surviving corporation or acquiring
corporation.

      

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      (iv)           In
the event any surviving corporation or acquiring corporation assumes such
Options or substitutes similar Options for those outstanding under the Plan and
the Optionholder is elected or appointed to the board of directors of the
surviving corporation or acquiring corporation at the first meeting of such
board of directors after such change in control event, then the vesting of such
Options and the vesting of any shares of Common Stock acquired pursuant to such
Options shall not be accelerated.

      

      12.           AMENDMENT
OF THE PLAN AND OPTIONS.

      

      (a)           AMENDMENT
OF PLAN. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary to satisfy the
requirements of Rule 16b-3 or any Nasdaq or other securities exchange listing
requirements.

      

      (b)           STOCKHOLDER
APPROVAL. The Board may, in its sole discretion, submit any other amendment to
the Plan for stockholder approval.

      

      (c)           NO
IMPAIRMENT OF RIGHTS. Rights under any Option granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless (i) the Company
requests the consent of the Optionholder and (ii) the Optionholder consents in
writing.

      

      (d)           AMENDMENT
OF OPTIONS. The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

      

      13.           TERMINATION
OR SUSPENSION OF THE PLAN.

      

      (a)           PLAN
TERM. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is
terminated.

      

      (b)           NO
IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair
rights and obligations under any Option granted while the Plan is in effect
except with the written consent of the Optionholder.

      

      14.           EFFECTIVE
DATE OF PLAN.

      

      The Plan
shall become effective as determined by the Board, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

       

      15.           CHOICE OF LAW.

      

      All
questions concerning the construction, validity and interpretation of this Plan
shall be governed by the law of the State of Delaware, without regard to such
state’s conflict of laws rules.

       

      8

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