Document:

Exhibit 10.15

 

 

 

QUARK BIOTECH, INC.

THE 2003 ISRAELI STOCK OPTION PLAN

(Adopted on May 16, 2003)

(*In
compliance with Amendment No. 132 of the Israeli Tax Ordinance, 2002)

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  1.

  	
  SCOPE OF THE PLAN

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  PURPOSES OF THE PLAN

  	
  1

  
	
   

  	
   

  	
   

  
	
  3.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  4.

  	
  SHARES SUBJECT TO THE PLAN

  	
  4

  
	
   

  	
   

  	
   

  
	
  5.

  	
  ADMINISTRATION OF THE PLAN

  	
  4

  
	
   

  	
   

  	
   

  
	
  6.

  	
  ELIGIBILITY

  	
  6

  
	
   

  	
   

  	
   

  
	
  7.

  	
  DESIGNATION OF OPTIONS PURSUANT
  TO SECTION 102

  	
  6

  
	
   

  	
   

  	
   

  
	
  8.

  	
  TRUSTEE

  	
  7

  
	
   

  	
   

  	
   

  
	
  9.

  	
  TERM OF PLAN

  	
  7

  
	
   

  	
   

  	
   

  
	
  10.

  	
  TERM OF OPTION

  	
  8

  
	
   

  	
   

  	
   

  
	
  11.

  	
  OPTION EXERCISE PRICE AND
  CONSIDERATION

  	
  8

  
	
   

  	
   

  	
   

  
	
  12.

  	
  VESTING OF OPTIONS

  	
  8

  
	
   

  	
   

  	
   

  
	
  13.

  	
  TERM AND EXERCISE OF OPTION

  	
  9

  
	
   

  	
   

  	
   

  
	
  14.

  	
  DIVIDENDS

  	
  10

  
	
   

  	
   

  	
   

  
	
  15.

  	
  NON-TRANSFERABILITY OF OPTIONS

  	
  11

  
	
   

  	
   

  	
   

  
	
  16.

  	
  ADJUSTMENTS UPON CHANGES IN
  CAPITALIZATION OR MERGER

  	
  11

  
	
   

  	
   

  	
   

  
	
  17.

  	
  AMENDMENT AND TERMINATION OF THE
  PLAN

  	
  12

  
	
   

  	
   

  	
   

  
	
  18.

  	
  CONDITIONS UPON ISSUANCE OF
  SHARES

  	
  12

  
	
   

  	
   

  	
   

  
	
  19.

  	
  INABILITY TO OBTAIN AUTHORITY

  	
  13

  
	
   

  	
   

  	
   

  
	
  20.

  	
  RESERVATION OF SHARES

  	
  13

  
	
   

  	
   

  	
   

  
	
  21.

  	
  INFORMATION TO OPTIONEES AND
  PURCHASERS

  	
  13

  
	
   

  	
   

  	
   

  
	
  22.

  	
  TAXES

  	
  13

  
	
   

  	
   

  	
   

  
	
  23.

  	
  GOVERNMENT REGULATIONS

  	
  13

  
	
   

  	
   

  	
   

  
	
  24.

  	
  CONTINUANCE OF EMPLOYMENT OR
  HIRED SERVICES

  	
  13

  
	
   

  	
   

  	
   

  
	
  25.

  	
  GOVERNING LAW & JURISDICTION

  	
  14

  
	
   

  	
   

  	
   

  
	
  26.

  	
  NON-EXCLUSIVITY OF THE PLAN

  	
  14

  
	
   

  	
   

  	
   

  
	
  27.

  	
  MULTIPLE AGREEMENTS

  	
  14

  

 

i

 

This plan, as amended from time to time, shall be
known as Quark Biotech Inc. 2003 Israeli Stock Option Plan (the “Plan”).

 

1.             Scope of the Plan 

 

This
Plan is a sub-plan created under and pursuant to the Quark Biotech, Inc. 1997
Stock Plan (the “U.S. Plan”), which has been
approved by the shareholders of Quark Biotech, Inc., and which provides that
Israeli employees may benefit under this Plan. Options shall be granted under
the Plan at the discretion of the Administrator and as reflected in terms of
written Option Agreements. Unless otherwise defined herein, the terms defined
in the U.S. Plan shall have the same defined meanings in this Plan.

 

2.             Purposes of the
Plan

 

The
purposes of this Plan are to attract and retain in the employ of the Company
and its Subsidiaries the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Directors,
consultants, service providers and any other entity which the Administrator
shall decide their services are considered valuable to the Company and its
affiliates and to promote the success and business of the Company and its
affiliates.

 

3.             Definitions 

 

As
used herein, the following definitions shall apply:

 

(1)           “Administrator”
means the Board or any of its Committees as shall be administering the Plan in
accordance with Section 5 hereof.

 

(2)           “Applicable
Laws” means the requirements relating to the administration of
stock option plans under Israeli law, the Ordinance, or U.S. State corporate
laws, U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and/or the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan.

 

(3)           “Approved
102 Option” means an Option granted pursuant to Section 102(b)
of the Ordinance and held in trust by a Trustee for the benefit of the
Optionee.

 

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

 

(5)           “Capital
Gain Option” or “CGO” as
defined in Section 7.4 below.

 

(6)           “Cause”
means, (i) conviction of any felony involving moral turpitude or affecting the
Company; (ii) any refusal to carry out a reasonable directive of the chief
executive officer, the Board or the Optionee’s direct supervisor, which
involves the business of the Company or any Parent or Subsidiary of the Company
and was capable of being lawfully performed; (iii) embezzlement of funds of the
Company or any Parent or Subsidiary of the Company, and (iv) any breach of the
Optionee’s fiduciary duties or duties of care of the Company; including without
limitation disclosure of confidential information of the Company.

 

 

1

 

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

 

(8)           “Committee”
means a Committee of Directors appointed by the Board in accordance with
Section 5 hereof.

 

(9)           “Common
Stock” means the Common Stock of the Company.

 

(10)         “Company”
means Quark Biotech, Inc., a California corporation.

 

(11)         “Controlling
Shareholder” shall have the meaning ascribed to it in Section
32(9) of the Ordinance.

 

(12)         “Date of
Grant” means, the date of grant of an Option, as determined by
the Administrator and set forth in the Optionee’s Option Agreement.

 

(13)         “Director”
means a member of the Board of Directors of the Company.

 

(14)         “Employee”
means a person who is employed by the Company or any Parent or Subsidiary of
the Company, including an individual who is serving as an officer holder (in
compliance with Section 102), but excluding a Controlling Shareholder. An
Employee shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.

 

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

 

(16)         “Exercise
Price” means the purchase price for each Share subject to an
Option.

 

(17)         “Fair
Market Value” means, 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 National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation (“NASDAQ”)
System, 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 time of determination) as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable.

 

Without
derogating from the above, solely for the purpose of determining the tax
liability pursuant to Section 102(b)(3) of the Ordinance, if at the Date of
Grant the Company’s Common Stock is listed on any established stock exchange or
a national market system or if the Company’s Common Stock will be registered
for trading within ninety (90) days following the Date of Grant, the Fair
Market Value of the Common Stock at the Date of Grant shall be determined in
accordance with the average value of the Company’s Common Stock on the thirty

 

 

2

 

(30) trading days preceding the Date of Grant or on
the thirty (30) trading days following the date of registration for trading, as
the case may be;

 

(ii)           If the Common Stock is
quoted on the NASDAQ System (but not on the National Market System thereof) or
regularly quoted by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination; or

 

(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.

 

(18)         “ITA”
means the Israeli Tax Authorities.

 

(19)         “Non-Employee”
means a consultant, adviser, service provider, Controlling Shareholder or any
other person who is providing services to the Company or to any Parent or
Subsidiary of the Company but is not an Employee.

 

(20)         “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.

 

(21)         “Ordinary
Income Option” or “ORO” as
defined in Section 7.5 below.

 

(22)         “Option”
means any option to purchase one or more Shares pursuant to the Plan.

 

(23)         “102
Option” means any Option granted to Employees pursuant to
Section 102 of the Ordinance.

 

(24)         “3(i)
Option” means an Option granted to a Non-Employee pursuant to
Section 3(i) of the Ordinance.

 

(25)         “Option
Agreement” means a written or electronic agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.

 

(26)         “Option
Exchange Program” means a program whereby outstanding Options
are exchanged for Options with a lower exercise price.

 

(27)         “Optioned
Stock” means the Common Stock subject to an Option.

 

(28)         “Optionee”
means the holder of an outstanding Option granted under the Plan.

 

(29)         “Ordinance”
means the 1961 Israeli Income Tax Ordinance (New Version), as now in effect or
as hereafter amended.

 

 

3

 

(30)         “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

 

(31)         “Plan”
means this 2003 Israeli Stock Option Plan.

 

(32)         “Section
102” means Section 102 of the Ordinance, as now in effect or as
hereafter amended.

 

(33)         “Share”
means a share of the Common Stock of the Company, as adjusted in accordance
with Section 16 below.

 

(34)         “Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined
in Section 424(f) of the Code.

 

(35)         “Trustee”
means a trustee to be approved by the Israeli Tax Authorities pursuant to
Section 102.

 

(36)         “Unapproved
102 Option” means an Option granted pursuant to Section 102(c)
of the Ordinance and not held in trust by a Trustee.

 

(37)         “Vesting
Dates” means, as determined by the Administrator, the date as of
which the Optionee shall be entitled to exercise the Options or part of the
Options, as set forth in section 12 of the Plan.

 

4.             Shares Subject to
the Plan 

 

Subject
to the provisions of Section 16 of the Plan, the maximum aggregate number of
Shares which may be subject to option and sold under the Plan is that number of
shares equal to: (i) 3,870,000 Shares plus (ii) any Shares returned to the
Company’s 1994 Stock Option Plan (the “1994 Plan”) as
a result of termination of options under the 1994 Plan less the number of
Shares issued under the U.S. Plan and any other sub-plans promulgated
thereunder. The Shares may be authorized but unissued, or reacquired Common
Stock.

 

If an
Option should expire or become unexercisable for any reason without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated). However,
Shares that have actually been issued under the Plan upon exercise of an Option
shall not be returned to the Plan and shall not become available for future
distribution under the Plan.

 

5.             Administration of
the Plan 

 

(1)           Administrator. The
Plan shall be administered by the Board or a Committee appointed by the Board,
which Committee shall be constituted to comply with Applicable Laws.

 

(2)           Powers of the
Administrator. Subject to the provisions of the Plan and, in the case of a
Committee, the specific duties delegated by the Board to such Committee, and

 

 

4

 

subject to the approval
of any relevant authorities, the Administrator shall have the authority in its
discretion:

 

(i)            to determine the Fair
Market Value;

 

(ii)           to select the Employees
and Non-Employees to whom Options may from time to time be granted hereunder;

 

(iii)          to determine the number
of Shares to be covered by each Option granted hereunder;

 

(iv)          to approve forms of
agreement for use under the Plan;

 

(v)           to determine the terms
and conditions, of any Option granted hereunder. Such terms and conditions
include, but are not limited to, the Exercise Price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the Common Stock relating thereto, based
in each case on such factors as the Administrator, in its sole discretion,
shall determine;

 

(vi)          to determine whether and
under what circumstances an Option may be settled in cash under subsection
13(6) instead of Common Stock

 

(vii)         to reduce the Exercise
Price of any Option to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option has declined since the date
the Option was granted;

 

(viii)        to initiate an Option
Exchange Program;

 

(ix)           to prescribe, amend and
rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of satisfying
applicable foreign laws;

 

(x)            to allow Optionees to
satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Option that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined. All elections
by Optionees to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable and subject to the Applicable Laws; and

 

(xi)           to construe and
interpret the terms of the Plan and awards granted pursuant to the Plan.

 

(xii)          to make an election as
to the type of Approved 102 Option; and

 

(xiii)         to designate the type of
Options to be granted to Optionees.

 

 

5

 

(3)           Effect of
Administrator’s Decision. All decisions, determinations and interpretations
of the Administrator shall be final and binding on all Optionees.

 

6.             Eligibility

 

(1)           The persons eligible
for participation in the Plan as Optionees shall include any Employees and/or
Non-Employees of the Company or of any Parent or Subsidiary of the Company;
provided, however, that (i) Employees may only be granted 102 Options; (ii) Non-Employees
may only be granted 3(i) Options; and (iii) Controlling Shareholders may only
be granted 3(i) Options.

 

(2)           The grant of an Option
hereunder shall neither entitle the Optionee to participate nor disqualify the
Optionee from participating in, any other grant of Options pursuant to the Plan
or any other option or share plan of the Company or any of any Parent or
Subsidiary of the Company.

 

7.             Designation Of
Options Pursuant To Section 102 

 

(1)           The Administrator may
designate Options granted to Employees pursuant to Section 102 as Unapproved
102 Options or Approved 102 Options.

 

(2)           The grant of Approved
102 Options shall be made under this Plan as described in Section 9 below, and
shall be conditioned upon the approval of this Plan by the ITA.

 

(3)           Approved 102 Options
may either be classified as Capital Gain Options or Ordinary Income Options .

 

(4)           Approved 102 Options
elected and designated by the Administrator to qualify under the capital gain
tax treatment in accordance with the provisions of Section 102(b)(2) shall be
referred to herein as “CGOs”.

 

(5)           Approved 102 Options
elected and designated by the Administrator to qualify under the ordinary
income tax treatment in accordance with the provisions of Section 102(b)(1)
shall be referred to herein as “OIOs”.

 

(6)           The Company’s election
of the type of Approved 102 Options as CGO or 0I0 granted to Employees (the “Election”), shall be appropriately filed with the ITA before
the Date of Grant of an Approved 102 Option. Such Election shall become effective
beginning the first Date of Grant of an Approved 102 Option under this Plan and
shall remain in effect until the end of the year following the year during
which the Company first granted Approved 102 Options. The Election shall
obligate the Company to grant only the type of Approved 102 Option it has
elected, and shall apply to all Optionees who were granted Approved 102 Options
during the period indicated herein, all in accordance with the provisions of
Section 102(g) of the Ordinance. For the avoidance of doubt, such Election
shall not prevent the Company from granting Unapproved 102 Options
simultaneously.

 

(7)           All Approved 102
Options must be held in trust by a Trustee, as described in Section 8 below.

 

 

6

 

(8)           For the avoidance of
doubt, the designation of Unapproved 102 Options and Approved 102 Options shall
be subject to the terms and conditions set forth in Section 102 of the
Ordinance and the regulations promulgated thereunder.

 

(9)           With regards to
Approved 102 Options, the provisions of the Plan and/or the Option Agreement
shall be subject to the provisions of Section 102 and the Tax Assessing Officer’s
permit, and the said provisions and permit shall be deemed an integral part of
the Plan and of the Option Agreement. Any provision of Section 102 and/or the
said permit which is necessary in order to receive and/or to keep any tax
benefit pursuant to Section 102, which is not expressly specified in the Plan
or the Option Agreement, shall be considered binding upon the Company and the
Optionees.

 

8.             Trustee

 

(1)           Approved 102 Options
which shall be granted under the Plan and/or any Shares allocated or issued
upon exercise of such Approved 102 Options and/or other shares received
subsequently following any realization of rights, including without limitation
bonus shares, shall be allocated or issued to the Trustee and held for the
benefit of the Optionees for such period of time as required by Section 102 or
any regulations, rules or orders or procedures promulgated thereunder (the “Holding Period”). In the case the requirements for Approved
102 Options are not met, then the Approved 102 Options may be treated as
Unapproved 102 Options, all in accordance with the provisions of Section 102
and regulations promulgated thereunder.

 

(2)           Notwithstanding
anything to the contrary, the Trustee shall not release any Shares allocated or
issued upon exercise of Approved 102 Options prior to the full payment of the
Optionee’s tax liabilities arising from Approved 102 Options which were granted
to him and/or any Shares allocated or issued upon exercise of such Options.

 

(3)           With respect to any
Approved 102 Option, subject to the provisions of Section 102 and any rules or
regulation or orders or procedures promulgated thereunder, an Optionee shall
not sell or release from trust any Share received upon the exercise of an
Approved 102 Option and/or any share received subsequently following any
realization of rights, including without limitation, bonus shares, until the lapse
of the Holding Period required under Section 102 of the Ordinance. Notwithstanding
the above, if any such sale or release occurs during the Holding Period, the
sanctions under Section 102 of the Ordinance and under any rules or regulation
or orders or procedures promulgated thereunder shall apply to and shall be
borne by such Optionee.

 

(4)           Upon receipt of an
Approved 102 Option, the Optionee will sign an undertaking to release the
Trustee from any liability in respect of any action or decision duly taken and
bona fide executed in relation with the Plan, or any Approved 102 Option or
Share granted or issued to him thereunder.

 

9.             Term of Plan 

 

The
Plan shall become effective upon its adoption by the Board. It shall continue
in effect until the U.S. Plan terminates, unless sooner terminated under
Section 17 of the Plan.

 

7

 

10.          Term of Option 

 

The
term of each Option shall be the term stated in the Option Agreement; provided,
however, that the term shall be no more than ten (10) years from the Date of
Grant thereof.

 

11.          Option Exercise Price
and Consideration 

 

(1)           The Exercise Price
shall be determined by the Administrator, in its sole and absolute discretion,
but shall be subject to the following:

 

(i)            In the case of an
Option

 

(1)           granted to an Employee
who, at the time of the grant of such Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of the grant.

 

(2)           granted to any other
Employee, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.

 

Each
Option Agreement will contain the Exercise Price for each Optionee.

 

(2)           The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator. Such consideration
may consist of, without limitation, (1) cash, (2) check, (3) promissory note,
(4) other Shares which (i) in the case of Shares acquired from the Company have
been vested and owned by the Optionee for more than six months on the date of
surrender and (ii) have a Fair Market Value on the date of surrender equal to
the aggregate Exercise Price of the Shares as to which said Option shall be
exercised, (5) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan, or (6) any
combination of the foregoing methods of payment. In making its determination as
to the type of consideration to accept, the Board shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.

 

(3)           The Exercise Price
shall be denominated in the currency of the primary economic environment of,
either the Company or the Optionee (that is the functional currency of the
Company or the currency in which the Optionee is paid) as determined by the
Company.

 

12.          Vesting of Options 

 

(1)           Subject to the
provisions of the Plan, each Option shall vest on the Vesting Dates and for the
number of Shares as shall be provided in the Option Agreement. However, no
Option shall be exercisable after the expiration of the terms of the Option as
set forth in the Option Agreement.

 

(2)           An Option may be
subject to such other terms and conditions on the time or times when it may be
exercised, as the Administrator may deem appropriate. The vesting provisions of
individual Options may vary.

 

 

8

 

(3)           Unless the
Administrator provides otherwise, vesting of Options granted to Officers and
Directors hereunder shall be suspended during any unpaid leave of absence.

 

13.          Term and Exercise of
Option 

 

(1)           Procedure for
Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Except in the case of Options
granted to Officers and Directors, Options shall become exercisable at a rate
of no less than 20% per year over five (5) years from the date the Options are
granted.

 

An Option may not be exercised for a fraction of a
Share.

 

An Option shall be deemed to be exercised when the
Company receives: (i) written or electronic notice of exercise (in accordance
with the Option Agreement) from the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment

 

authorized by the Administrator and permitted by the
Option Agreement and the Plan. Shares issued upon exercise of an Option shall
be issued in the name of the Trustee (if issued on exercise of Options held by
the Trustee at the time of Exercise) or in the name of the Optionee or; if
requested by the Optionee, in the name of the Optionee and his or her spouse.

 

Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly upon exercise
of the Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Share are issued, except as
provided in Section 16 of the Plan.

 

Exercise of an Option shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised.

 

(2)           Termination of
Employment or Hired Services. If an Optionee ceases to be employed by or
provide services to the Company or to any Parent or Subsidiary of the Company,
such Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement (of at least thirty (30) days) to the extent
that the Option is vested on the date of termination (but in no event later
than the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the Optionee’s
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares coved by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.

 

 

9

 

(3)           Disability of
Optionee. If an Optionee ceases to be employed by or provide services to
the Company or to any Parent or Subsidiary of the Company as a result of the
Optionee’s disability, the Optionee may exercise the Option within such period
of time as is specified in the Option Agreement (of at least six (6) months) to
the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee’s
termination. To the extent that Optionee is not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

 

(4)           Death of Optionee.
If an Optionee dies while he or she is employed by or providing services to the
Company or to any Parent or Subsidiary of the Company, the Option may be
exercised at any time within twelve (12) months following the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee’s estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent that the Optionee was entitled to exercise the Option at the date
of death. If, at the time of death, the Optionee is not vested as to the entire
Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If, after death, the Optionee’s estate or a
person who acquired the right to exercise the Option by bequest or inheritance
does not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

 

(5)           For avoidance of any
doubt, if termination of employment or service is for Cause, any outstanding
unexercised Option (whether vested or non-vested), will immediately expire and
terminate, and the Optionee shall not have any right in connection to such
outstanding Options.

 

(6)           Buyout Provisions.
Subject to the provision of Section 102, the Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

 

14.          Dividends

 

With
respect to all Shares (but excluding, for avoidance of any doubt, any
unexercised Options) allocated or issued upon the exercise of Options by the
Optionee and held by the Optionee or by the Trustee, as the case may be, the
Optionee shall be entitled to receive dividends in accordance with the quantity
of such Shares, subject to the provisions of the Company’s Articles of
Association (and all amendments thereto) and subject to any applicable taxation
on distribution of dividends, and when applicable subject to the provisions of
Section 102 and the rules, regulations or orders promulgated thereunder.

 

 

10

 

15.          Non-Transferability
of Options 

 

Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

 

As long as Options and/or Shares are held by the
Trustee on behalf of the Optionee, all rights of the Optionee over the Shares
are personal, can not be transferred, assigned, pledged or mortgaged, other
than by will or pursuant to the laws of descent and distribution.

 

16.          Adjustments Upon
Changes in Capitalization or Merger

 

(1)           Changes in
Capitalization. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, 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 issued
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 Board, 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.

 

(2)           Dissolution or
Liquidation. In the event of the proposed dissolution or liquidation of the
Company, the Administrator shall notify each Optionee as soon as practicable
prior to the effective date of such proposed transaction. The Administrator in
its discretion may provide for an Optionee to have the right to exercise his or
her Option until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may provide that
any Company repurchase option applicable to any Shares purchased upon exercise
of an Option shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed action.

 

(3)           Merger or Asset Sale.
In the event of a merger of the Company with or another corporation, or the
sale of substantially all of the assets of the Company, 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, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable. If an Option becomes fully vested and

 

 

11

 

exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

 

17.          Amendment and
Termination of the Plan 

 

(1)           Amendment and
Termination. The Board may at any time, but when applicable, after
consulting with the Trustee, amend, alter, suspend or terminate the Plan.

 

(2)           Shareholder Approval.
The Board shall obtain Shareholder approval of any Plan amendment to the extent
necessary and desirable to comply with Applicable Laws.

 

(3)           Effect of Amendment
or Termination. No amendment, alteration, suspension or termination of the
Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing
and signed by the Optionee and the Company. Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan prior to the date of
such termination.

 

18.          Conditions Upon
Issuance of Shares 

 

(1)           Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

 

(2)           Investment
Representations. As a condition to the exercise of an Option, the
Administrator may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required.

 

 

12

 

19.          Inability to Obtain
Authority

 

The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

 

20.          Reservation of Shares

 

The
Company, during the term of this Plan, shall at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

 

21.          Information to
Optionees and Purchasers 

 

The
Company shall provide to each Optionee and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the
period such Optionee or purchaser has one or more Options outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.

 

22.          Taxes

 

The
Optionee shall bear and timely pay any and all taxes levied in connection with the
granting of the Options and the Shares, from the exercise of the Options, and
from the sale of the Shares. The Company and/or any Parent or Subsidiary of the
Company and/or the Trustee will have the right to withhold any such taxes which
are not duly paid by the Optionee or which are to be withheld pursuant to any
Applicable Law, rules, and regulations, including withholding taxes at source. Furthermore,
the Optionee shall agree to indemnify the Company and/or any Parent or
Subsidiary of the Company and/or the Trustee and hold them harmless against and
from any and all liability for any such tax or interest or penalty thereon,
including without limitation, liabilities relating to the necessity to withhold
any such tax from any payment made to the Optionee.

 

23.          Government
Regulations 

 

The
Plan, and the granting and exercise of Options hereunder, and the obligation of
the Company to sell and deliver Shares under such Options, shall be subject to
all Applicable Laws, whether of the State of Israel or of the United States or
any other State having jurisdiction over the Company and the Optionee,
including the registration of the Shares under the United States Securities Act
of 1933, and the Ordinance and to such approvals by any governmental agencies
or national securities exchanges as may be required. Nothing herein shall be
deemed to require the Company to register the Shares under the securities laws
of any jurisdiction.

 

24.          Continuance of
Employment or Hired Services 

 

Neither
the Plan nor the Option Agreement with the Optionee shall impose any obligation
on the Company or any Parent or Subsidiary of the Company, to continue any
Optionee in its

 

 

13

 

employ or service, and nothing in the Plan or in any
Option granted pursuant thereto shall confer upon any Optionee any right to
continue in the employ or service of the Company or any Parent or Subsidiary of
the Company or restrict the right of the Company or any Parent or Subsidiary of
the Company to terminate such employment or service at any time.

 

25.          Governing Law &
Jurisdiction 

 

The
Plan shall be governed by and construed and enforced in accordance with the
laws of the State of Israel applicable to contracts made and to be performed
therein, without giving effect to the principles of conflict of laws. The
competent courts of Tel-Aviv, Israel shall have sole jurisdiction in any
matters pertaining to the Plan.

 

26.          Non-Exclusivity of
The Plan 

 

The
adoption of the Plan by the Board shall not be construed as amending, modifying
or rescinding any previously approved incentive arrangements or as creating any
limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of options otherwise than under the Plan, and such arrangements may be
either applicable generally or only in specific cases. For the avoidance of
doubt, prior grant of Options to Optionees of the Company under their
employment agreements, and not in the framework of any previous option plan,
shall not be deemed an approved incentive arrangement for the purpose of this
Section.

 

27.          Multiple Agreements 

 

The
terms of each Option may differ from other Options granted under the Plan at
the same time, or at any other time. The Administrator may also grant more than
one Option to a given Optionee during the term of the Plan, either in addition
to, or in substitution for, one or more Options previously granted to that
Optionee.

 

14Exhibit 10.16

 

QUARK BIOTECH, INC.

 

2003 ISRAELI STOCK OPTION PLAN

 

NOTICE OF STOCK OPTION GRANT

 

FOR ISRAELI OPTIONEES

 

Unless otherwise defined herein, the terms defined in
this Option Agreement shall have the same defined meanings in the Plan.

 

Dear:                                                   ,
Trustee for the benefit of «    »

 

The undersigned Optionee has been granted an Option to
purchase Common Stock of the Company, subject to the terms and conditions of
the Plan and this Option Agreement, as follows:

 

	
  Date of Grant:

  	
   

  	
  «                »

  
	
  Vesting Commencement Date:

  	
   

  	
  «                            »

  
	
  Exercise Price per
  Share:

  	
   

  	
  $«        »
  USD

  
	
  Total Number of Shares
  Granted:

  	
   

  	
  «                        »

  
	
  Total Exercise Price:

  	
   

  	
  $«                    »
  USD

  
	
  Type of Option

  	
   

  	
  Approved 102 Option:

  
	
   

  	
   

  	
  Capital Gain Option (CGO) ;or

  Ordinary Income Option (OIO)

  
	
   

  	
   

  	
  Unapproved 102 Option

  
	
   

  	
   

  	
  3(i) Option

  
	
  Term/Expiration Date:

  	
   

  	
  «                »

  

 

Vesting Schedule:

 

This Option shall be exercisable, in whole or in part,
according to the following schedule:

 

«                    »

 

 

1

 

Termination Period:

 

The Option shall be exercisable for three (3) months
after Optionee ceases to be employed by or provide services to the Company or
to any Parent or Subsidiary of the Company to the extent the Option is vested
on the date of such termination. If Optionee ceases to be employed by or
provide services to the Company or to any Parent or Subsidiary of the Company
as the result of Optionee’s death or Disability, the Option may be exercised
for one (1) year after the date of such termination to the extent the Option is
vested on the date of such termination. In no event may the this Option be
exercised after the Term/Expiration Date as provided above.

 

 

2

 

QUARK BIOTECH, INC.

 

STOCK OPTION AGREEMENT (the
“Option Agreement”)

 

1.             Grant of Option.
Quark Biotech, Inc., a California corporation (the “Company”),
hereby grants to the Optionee named in the Notice of Grant (the “Optionee”), an option (the “Option”)
to purchase the number of Shares of Common Stock (the “Shares”)
set forth in the Notice of Grant, at the exercise price per Share set forth in
the Notice of Grant (the “Exercise Price”)
subject to the terms, definitions and provisions of the 2003 Israeli Stock
Option Plan (the “Plan”) adopted
by the Company, which is incorporated herein by reference. Unless otherwise
defined herein, the terms defined in this Option Agreement shall have the same
defined meanings in the Plan. In the event of a conflict between the terms and
conditions of the Plan and this Option Agreement, the terms and conditions of
the Plan shall prevail.

 

2.             Exercise of Option.

 

(1)           Right to Exercise.
This Option shall be exercisable during its term in accordance with the Vesting
Schedule set out in the Notice of Grant and with the applicable provisions of
the Plan and this Option Agreement.

 

(2)           Method of Exercise.
This Option shall be exercisable by delivery of an exercise notice in the form
attached as Exhibit A (the “Exercise Notice”)
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements may be required by the Company. Such Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by the aggregate Exercise Price.

 

No Shares will be issued pursuant to the exercise of
an Option unless such issuance and such exercise shall comply with Applicable
Laws.

 

3.             Application of
Section 102.

 

(1)           It is the intention of
QBI Enterprises Ltd. (“QBI Ltd.”) and the Company that the provisions and tax
benefits of Section 102 apply to this Option and any Optioned Stock issued
pursuant to this Option. With respect to Approved 102 Options, the Optionee
hereby acknowledges that he is familiar with the provisions of Section 102 and
the regulations and rules promulgated thereunder, including without limitations
the type of Option granted hereunder and the tax implications applicable to
such grant. The Optionee shall comply with the provisions of Section 102 and
the Escrow Agreement between the Trustee, the Company and QBI Ltd., attached as
Exhibit C hereto.

 

(2)           In accordance with the
provisions of Section 102, Approved 102 Options and any Shares issued upon the
exercise of Approved 102 Options shall be issued to a Trustee and held by such
Trustee for the benefit of Optionee for such period of time as required by Section
102 or any regulations, rules or orders or procedures promulgated thereunder
(the “Holding Period”).

 

 

1

 

(3)           With respect to any
Approved 102 Option, subject to the provisions of Section 102 and any rules or
regulation or orders or procedures promulgated thereunder, an Optionee shall
not sell or release from trust any Share received upon the exercise of an
Approved 102 Option and/or any share received subsequently following any
realization of rights, including without limitation, bonus shares, until the
lapse of the Holding Period required under Section 102 of the Ordinance. Notwithstanding
the above, if any such sale or release occurs during the Holding Period, the
sanctions under Section 102 of the Ordinance and under any rules or regulation
or orders or procedures promulgated thereunder shall apply to and shall be
borne by such Optionee.

 

(4)           At the lapse of the
Holding Period the Trustee shall not release or transfer the Option or any
Shares issued upon exercise of an Option before (i) withholding any applicable
tax due pursuant to the Ordinance and the regulations and rules promulgated
thereunder; or (ii) receipt of an authorization from the Israeli Tax
Authorities certifying that all such applicable taxes have been paid.

 

(5)           The Option and Optioned
Stock shall be subject to the terms and conditions of Section 102 and the
regulations and rules promulgated thereunder.

 

(6)           With respect to
Unapproved 102 Option, if the Optionee ceases to be employed by the Company or
any Parent or Subsidiary of the Company, the Optionee shall extend to the
Company and/or to a Parent or Subsidiary of the Company a security or guarantee
for the payment of tax due at the time of sale of Shares, all in accordance
with the provisions of Section 102 and the rules, regulation or orders
promulgated thereunder.

 

(7)           In the event a stock
split or stock dividend is declared on Shares, all post-split or post-dividend
Shares held by the Trustee for the benefit of Optionee shall be subject to the
provisions of this Section.

 

4.             Currency Control
Act Restrictions. Any payment made by the Optionee to the Company or QBI
Ltd. in connection with the exercise of this Option shall be made through an
account in the Optionee’s name (the “Account”) with
such commercial bank as is designated by the Company from time to time, and
shall comply in all respects with the Currency Control Law, 1978 of Israel (the
“CCL”). Any shares or other proceeds to
be delivered to the Optionee by the Company upon exercise of this Option shall
also be delivered to the Account. Similarly, all sales of Shares by the
Optionee will be made out of the Account. OPTIONEE REPRESENTS THAT OPTIONEE HAS
READ, UNDERSTANDS AND AGREES TO BE BOUND BY THE PROVISIONS OF THIS SECTION 4,
AND UNDERSTANDS AND AGREES THAT THIS SECTION 4 MAY BE AMENDED FROM TIME TO TIME
TO COMPLY WITH CHANGES IN THE CCL.

 

5.             Optionee’s
Representations. In the event the Shares have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.

 

 

2

 

6.             Lock-Up Period.
Optionee hereby agrees that, if so requested by the Company or any
representative of the underwriters (the “Managing Underwriter”)
in connection with any registration of the offering of any securities of the
Company under the Securities Act Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or
such other period as may be requested in writing by the Managing Underwriter
and agreed to in writing by the Company) (the “Market
Standoff Period”) following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.

 

7.             Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the following, or a
combination thereof (in U.S. currency), at the election of the Optionee:

 

(1)           cash (including wire
transfer); or

 

(2)           certified check; or

 

(3)           consideration received
by the Company under a formal cashless exercise program adopted by the Company
in connection with the Plan; or

 

(4)           surrender of other
shares of Common Stock of the Company which (A) in the case of Shares acquired
from the Company , have been vested and owned by the Optionee for more than six
(6) months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the Exercise Price of the Shares as to which the
Option is being exercised.

 

8.             Restrictions on
Exercise. This Option may not be exercised until such time as the U.S. Plan
has been approved by the shareholders of the Company, or if the issuance of
such Shares upon such exercise or the method of payment of consideration for
such Shares would constitute a violation of any Applicable Law.

 

9.             Non-Transferability
of Option. This Option may not be transferred in any manner otherwise than
by will or by the laws of descent or distribution and may be exercised during
the lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.

 

10.           Term of Option. This
Option may be exercised only within the term set out in the Notice of Grant,
and may be exercised during such term only in accordance with the Plan and the
terms of this Option.

 

11.           Tax Consequences.
Any tax consequences arising in connection with the grant or exercise of any
Option, from the payment for Shares covered thereby, from the exercise of the

 

 

3

 

Options, and from the sale of the Shares, hereunder,
shall be borne solely by the Optionee. The Company and/or any Parent or
Subsidiary of the Company and/or the Trustee shall withhold taxes according to
the requirements under the Applicable Laws, including withholding taxes at
source. Furthermore, the Optionee hereby agrees to indemnify the Company and/or
any Parent or Subsidiary of the Company and/or the Trustee and hold them
harmless against and from any and all liability for any such tax or interest or
penalty thereon, including without limitation, liabilities relating to the
necessity to withhold any such tax from any payment made to the Optionee.

 

The Optionee will not be
entitled to receive from the Company and/or the Trustee any Shares allocated or
issued upon the exercise of Options prior to the full payments of the
Optionee’s tax liabilities arising from Options which were granted to him
and/or Shares issued upon the exercise of Options. For the avoidance of doubt,
neither the Company nor the Trustee shall be required to release any share
certificate to the Optionee until all payments required to be made by the
Optionee have been fully satisfied.

 

The receipt of the
Options and the acquisition of the Shares to be issued upon the exercise of the
Options may result in tax consequences. OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE ENTERING THIS AGREEMENT AND EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.

 

12.           Entire Agreement;
Governing Law. The Plan is incorporated herein by reference. The Plan and
this Option Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee’s
interest except by means of a writing signed by the Company and Optionee. This
agreement is governed by the internal substantive laws but not the choice of
law rules of Israel.

 

13.           No Guarantee of
Continued Employment or Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS AN EMPLOYEE OR A SERVICE PROVIDER, AT THE WILL OF QBI LTD OR THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR A SERVICE PROVIDER OF THE COMPANY FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH
OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS
AN EMPLOYEE OR A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 

Optionee acknowledges receipt of a copy of the Plan
and represents that he or she is familiar with the terms and provisions thereof
and of Section 102 and any rules or regulation or orders or procedures
promulgated thereunder, and hereby accepts this Option subject to all of the

 

 

4

 

terms and provisions
thereof Optionee has reviewed the Plan and this Option 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 Option. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator 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.

 

	
  OPTIONEE:

  	
   

  	
  QUARK BIOTECH, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  By:

  	
  Daniel Zurr

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print Name

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Residence Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

5

 

EXHIBIT A

 

2003 ISRAELI STOCK OPTION PLAN

 

EXERCISE NOTICE

 

FOR ISRAELI OPTIONEES

 

Quark Biotech, Inc.

6501 Dumbarton Circle

Fremont, CA 94555

Attention: President

 

1.             Exercise of Option.
Effective as of today,                        ,
      , the undersigned (“Optionee”)
hereby elects to exercise Optionee’s option to purchase              shares
of the Common Stock (the “Shares”) of
Quark Biotech, Inc. (the “Company”) under
and pursuant to the 2003 Israeli Stock Option Plan (the “Plan”,
as amended and restated) and the Stock Option Agreement dated                      ,         (the
“Option Agreement”).

 

2.             Delivery of
Payment. Optionee herewith delivers to the Company the full exercise price
of the Shares, as set forth in the Option Agreement, together with any and all
withholding taxes due in connection with the exercise of the Option.

 

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

 

4.             Rights as
Shareholder. Until the issuance of the Shares (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 shareholder shall exist with respect to the Shares, notwithstanding
the exercise of the Option. The Shares shall be issued to the Optionee as soon
as practicable after the Option is exercised. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date of
issuance, except as provided in Section 16 of the Plan.

 

5.             Company’s Right of
First Refusal. Before any Shares held by Optionee or any transferee (either
being sometimes referred to herein as the “Holder”) may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the “Right of First Refusal”).

 

(1)           Notice of Proposed
Transfer. The Holder of the Shares shall deliver to the Company a written
notice (the “Notice”) stating: (i) the Holder’s
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee (“Proposed
Transferee”); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the “Offered Price”),
and the Holder shall offer the Shares at the Offered Price to the Company or
its assignee(s).

 

 

1

 

(2)           Exercise of Right of
First Refusal. At any time within thirty (30) days after receipt of the Notice,
the Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with subsection (c) below.

 

(3)           Purchase Price. The
purchase price (“Purchase Price”) for the Shares
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.

 

(4)           Payment. Payment
of the Purchase Price shall be made, at the option of the Company or its
assignee(s), in cash (by check), by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within 30 days after receipt of the Notice or in the manner and at the times
set forth in the Notice.

 

(5)           Holder’s Right to
Transfer. If all of the Shares proposed in the Notice to be transferred to
a given Proposed Transferee are not purchased by the Company and/or its
assignee(s) as provided in this Section, then the Holder may sell or otherwise
transfer such Shares to that Proposed Transferee at the Offered Price or at a
higher price, provided that such sale or other transfer is consummated within
120 days after the date of the Notice and provided further that any such sale
or other transfer is effected in accordance with any applicable securities laws
and the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed Transferee.
If the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, a new Notice shall be given to the Company, and
the Company and/or its assignees shall again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.

 

(6)           Exception for
Certain Family Transfers. Anything to the contrary contained in this
Section notwithstanding, the transfer of any or all of the Shares during the
Optionee’s lifetime or on the Optionee’s death by will or intestacy to the
Optionee’s immediate family or a trust for the benefit of the Optionee’s
immediate family shall be exempt from the provisions of this Section. “Immediate Family” as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.

 

(7)           Termination of Right
of First Refusal. The Right of First Refusal shall terminate as to any
Shares 90 days after the first sale of Common Stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended.

 

 

2

 

6.             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.

 

7.             Restrictive
Legends and Stop-Transfer Orders.

 

(1)           Legends. Optionee
understands and agrees that the Company shall cause the legends set forth below
or legends substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by state or federal securities laws:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER FOR A PERIOD NOT TO EXCEED 180 DAYS FOLLOWING THE
EFFECTIVE DATE OF UNDERWRITTEN PUBLIC OFFERING OF THE COMPANY’S SECURITIES AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT THE CONSENT OF
THE COMPANY OR THE MANAGING UNDERWRITER.

 

(2)           Stop-Transfer
Notices. 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.

 

 

3

 

(3)           Refusal to Transfer.
The Company shall not be required (i) to transfer on its books any Shares 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 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.

 

8.             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 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.

 

9.             Interpretation.
Any dispute regarding the interpretation of this Agreement shall be submitted
by Optionee or by the Company forthwith to the Administrator 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 all parties.

 

10.           Governing Law;
Severability. This Agreement is governed by the internal substantive laws
but not the choice of law rules, of Israel.

 

11.           Entire Agreement.
The Plan and Notice of Grant/Option Agreement are incorporated herein by
reference. This Agreement, the Plan, the Option Agreement and the Investment
Representation Statement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee’s
interest except by means of a writing signed by the Company and Optionee.

 

	
  Submitted by:

  	
   

  	
  Accepted by:

  
	
   

  	
   

  	
   

  
	
  OPTIONEE

  	
   

  	
  QUARK BIOTECH, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  By:

  	
  Daniel Zurr

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

4

 

EXHIBIT B

 

INVESTMENT REPRESENTATION
STATEMENT

 

	
  OPTIONEE

  	
  :

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPANY

  	
  :

  	
  QUARK BIOTECH, INC.

  
	
   

  	
   

  	
   

  
	
  SECURITY

  	
  :

  	
  COMMON STOCK

  
	
   

  	
   

  	
   

  
	
  AMOUNT

  	
  :

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE

  	
  :

  	
   

  

 

 

In connection with the
purchase of the above-listed Securities, the undersigned Optionee represents to
the Company the following:

 

(1)           Optionee is aware of
the Company’s business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Securities. Optionee is acquiring these Securities for
investment for Optionee’s own account only and not with a view to, or for
resale in connection with, any “distribution” thereof within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”).

 

(2)           Optionee acknowledges
and understands that the Securities constitute “restricted securities” under
the Securities Act and have not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of Optionee’s investment intent as
expressed herein. In this connection, Optionee understands that, in the view of
the Securities and Exchange Commission, the statutory basis for such exemption
may be unavailable if Optionee’s representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future. Optionee further understands that the
Securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available. Optionee
further acknowledges and understands that the Company is under no obligation to
register the Securities. Optionee understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, a legend prohibiting
their transfer without the consent of the Commissioner of Corporations of the
State of California and any other legend required under applicable state
securities laws.

 

(3)           Optionee is familiar
with the provisions of Rule 701 and Rule 144, each promulgated under the
Securities Act, which, in substance, permit limited public resale of
“restricted securities” acquired, directly or indirectly from the issuer
thereof, in a non-public offering subject to the satisfaction of certain conditions.
Rule 701 provides that if the issuer

 

 

1

 

qualifies under Rule 701 at the time of the grant of
the Option to the Optionee, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
“broker’s transaction” or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.

 

In the event that the Company does not qualify under
Rule 701 at the time of grant of the Option, then the Securities may be resold
in certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than two years after the later of the
date the Securities were sold by the Company or the date they were sold by an
affiliate of the Company, within the meaning of Rule 144, the Securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.

 

(4)           Optionee further
understands that in the event all of the applicable requirements of Rule 701 or
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to
sell private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee understands
that no assurances can be given that any such other registration exemption will
be available in such event.

 

	
   

  	
   

  	
  Signature
  of Optionee:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
					

 

 

2

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