Document:

exv10w5

 

EXHIBIT
10.5

CADENCE PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE AWARD PLAN

ARTICLE 1

PURPOSE

     The purpose of the Cadence Pharmaceuticals, Inc. 2006 Equity Incentive Award Plan (the
“Plan”) is to promote the success and enhance the value of Cadence Pharmaceuticals, Inc.
(the “Company”) by linking the personal interests of the members of the Board, Employees,
and Consultants to those of Company stockholders and by providing such individuals with an
incentive for outstanding performance to generate superior returns to Company stockholders. The
Plan is further intended to provide flexibility to the Company in its ability to motivate, attract,
and retain the services of members of the Board, Employees, and Consultants upon whose judgment,
interest, and special effort the successful conduct of the Company’s operation is largely
dependent.

     All numbers of shares of Stock set forth in the Plan give effect to the reverse stock split to
be implemented by the Company in connection with its initial public offering.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

     Wherever the following terms are used in the Plan they shall have the meanings specified
below, unless the context clearly indicates otherwise. The singular pronoun shall include the
plural where the context so indicates.

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

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

     2.3 “Board” means the Board of Directors of the Company.

     2.4 “Change in Control” means and includes each of the following:

          (a) A transaction or series of transactions (other than an offering of Stock to the general
public through a registration statement filed with the Securities and Exchange Commission) whereby
any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2)
of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan
maintained by the Company or any of its subsidiaries or a

 

 

“person” that, prior to such transaction, directly or indirectly controls, is controlled by,
or is under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing
more than 50% of the total combined voting power of the Company’s securities outstanding
immediately after such acquisition; or

          (b) During any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a director designated by
a person who shall have entered into an agreement with the Company to effect a transaction
described in Section 2.4(a) or Section 2.4(c)) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the two year period or
whose election or nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or

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

               (i) Which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted into
voting securities of the Company or the person that, as a result of the transaction, controls,
directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of
the Company’s assets or otherwise succeeds to the business of the Company (the Company or such
person, the “Successor Entity”)) directly or indirectly, at least a majority of the
combined voting power of the Successor Entity’s outstanding voting securities immediately after the
transaction, and

               (ii) After which no person or group beneficially owns voting securities representing 50% or
more of the combined voting power of the Successor Entity; provided, however, that no person or
group shall be treated for purposes of this Section 2.4(c)(ii) as beneficially owning 50% or more
of combined voting power of the Successor Entity solely as a result of the voting power held in the
Company prior to the consummation of the transaction.

     2.5
“Code” means the Internal Revenue Code of 1986, as amended.

     2.6
“Committee” means the committee of the Board described in Article 12.

     2.7
“Consultant” means any consultant or adviser if:

          (a) The consultant or adviser renders bona fide services to the Company or any Parent or
Subsidiary;

          (b) The services rendered by the consultant or adviser are not in connection with the offer or
sale of securities in a capital-raising transaction and do not directly or indirectly promote or
maintain a market for the securities of the Company or of any Parent or Subsidiary; and

2

 

          (c) The consultant or adviser is a natural person.

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

     2.9 “Deferred Stock” means a right to receive a specified number of shares of Stock
during specified time periods pursuant to Article 8.

     2.10 “Disability” means “disability,” as such term is defined in Section 22(e)(3) of
the Code.

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

     2.12 “Effective Date” shall have the meaning set forth in Section 13.1.

     2.13 “Eligible Individual” means any person who is an Employee, a Consultant or a
member of the Board, as determined by the Committee.

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

     2.15 “Equity Restructuring” means a non-reciprocal transaction, as determined by the
Committee, between the Company and its stockholders, such as a stock dividend, stock split,
spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the shares
of Stock (or other securities of the Company) or the share price of Stock (or other securities) and
causes a change in the per share value of the Stock underlying outstanding Awards.

     2.16 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     2.17 “Fair Market Value” means, as of any given date, the fair market value of a share
of Stock on the date determined by such methods or procedures as may be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of a
share of Stock as of any date shall be the closing sales price for a share of Stock as reported on
the NASDAQ National Market (or on any national securities exchange on which the Stock is then
listed) for the date or, if no such prices are reported for that date, the average of the high and
low trading prices on the next preceding date for which such prices were reported.

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

     2.19 “Independent Director” means a member of the Board who is not an Employee of the
Company or of any Parent or Subsidiary.

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

3

 

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

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

     2.23 “Other Stock-Based Award” means an Award granted or denominated in Stock or units
of Stock pursuant to Section 8.7 of the Plan.

     2.24 “Parent” means any “parent corporation, as defined in Section 424(e) of the Code
and any applicable regulations promulgated thereunder, of the Company or any other entity which
beneficially owns, directly or indirectly, a majority of the outstanding voting stock or voting
power of the Company.

     2.25 “Participant” means any Eligible Individual who, as a member of the Board,
Consultant or Employee, has been granted an Award pursuant to the Plan.

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

     2.27 “Performance Bonus Award” has the meaning set forth in Section 8.8.

     2.28 “Performance Criteria” means the criteria that the Committee selects for purposes
of establishing the Performance Goal or Performance Goals for a Participant for a Performance
Period. The Performance Criteria that will be used to establish Performance Goals are limited to
the following: net earnings (either before or after interest, taxes, depreciation and
amortization), economic value-added (as determined by the Committee), sales or revenue, net income
(either before or after taxes), operating earnings, cash flow (including, but not limited to,
operating cash flow and free cash flow), cash flow return on capital, return on net assets, return
on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales,
gross or net profit margin, productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings per share of Stock, price per share of Stock, and market
share, any of which may be measured either in absolute terms or as compared to any incremental
increase or as compared to results of a peer group. To the extent an Award is intended to be
Qualified Performance-Based Compensation, the Committee shall, within the time prescribed by
Section 162(m) of the Code, define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period for such Participant.

     2.29 “Performance Goals” means, for a Performance Period, the goals established in
writing by the Committee for the Performance Period based upon the Performance Criteria. Depending
on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be
expressed in terms of overall Company performance or the performance of a division, business unit,
or an individual. To the extent an Award is intended to be Qualified Performance-Based
Compensation, the Committee, in its discretion, may, within the time prescribed by Section 162(m)
of the Code, adjust or modify the calculation of Performance

4

 

Goals for such Performance Period in order to prevent the dilution or enlargement of the
rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary
corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation
of, any other unusual or nonrecurring events affecting the Company, or the financial statements of
the Company, or in response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

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

     2.31 “Performance Share” means a right granted to a Participant pursuant to Article 8,
to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or
other performance-based targets established by the Committee.

     2.32 “Performance Stock Unit” means a right granted to a Participant pursuant to
Article 8, to receive Stock, the payment of which is contingent upon achieving certain Performance
Goals or other performance-based targets established by the Committee.

     2.33 “Plan” means this Cadence Pharmaceuticals, Inc. 2006 Incentive Award Plan, as it
may be amended from time to time.

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

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

     2.36 “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6
that is subject to certain restrictions and may be subject to risk of forfeiture.

     2.37 “Restricted Stock Unit” means an Award granted pursuant to Section 8.6.

     2.38 “Securities Act” shall mean the Securities Act of 1933, as amended.

     2.39 “Stock” means the common stock of the Company, par value $0.0001 per share, and
such other securities of the Company that may be substituted for Stock pursuant to Article 11.

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

5

 

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

     2.42 “Subsidiary” means any “subsidiary corporation” as defined in Section 424(f) of
the Code and any applicable regulations promulgated thereunder or any other entity of which a
majority of the outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

     3.1 Number of Shares.

          (a) Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which
may be issued or transferred pursuant to Awards under the Plan shall be the sum of: (i) 2,100,000
shares of Stock; plus (ii) the number of shares of Stock remaining available for issuance and not
subject to awards granted under the Cadence Pharmaceuticals, Inc. 2004 Equity Incentive Award Plan
(the “Existing Plan”) as of the Effective Date; plus (iii) with respect to awards granted
under the Existing Plan on or before the Effective Date that expire or are canceled without having
been exercised in full or shares of Stock that are forfeited or repurchased pursuant to the terms
of awards granted under the Existing Plan, the number of shares of Stock subject to each such award
as to which such award was not exercised prior to its expiration or cancellation or which are
forfeited or repurchased by the Company. The aggregate number of shares of Stock authorized for
issuance under the Existing Plan was 2,875,000 shares of Stock and, accordingly, the total number
of shares of Stock under clauses (ii) and (iii) in the
preceding sentence shall not exceed 4,975,000 shares of Stock. In addition, subject to Article 11, commencing on January 1, 2008, and
on each January 1 thereafter during the term of the Plan, the number of shares of Stock which shall
be made available for sale under the Plan shall be increased by that number of shares of Stock
equal to the least of: (i) 4% of the Company’s outstanding shares of Stock on the applicable
January 1; and (ii) a lesser number of shares of Stock as determined by the Board. Accordingly,
the number of shares of Stock which shall be available for sale under the Plan shall be subject to
increase under the preceding sentence only on January 1, 2008 and on each subsequent January 1
through and including January 1, 2016. Notwithstanding anything in this Section 3.1(a) to the
contrary, the number of shares of Stock that may be issued or transferred pursuant to Awards under
the Plan shall not exceed an aggregate of 20,000,000 shares of Stock, subject to Article 11. In
order that the applicable regulations under the Code relating to Incentive Stock Options be
satisfied, the maximum number of shares of Stock that may be delivered upon exercise of Incentive
Stock Options shall be the number specified in the preceding sentence, and, if necessary to satisfy
such regulations, such maximum limit shall apply to the number of shares of Stock that may be
delivered in connection with each other type of Award under the Plan (applicable separately to each
type of Award).

          (b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of
Stock subject to the Award shall again be available for the grant of an Award

6

 

pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the
grant or exercise price or tax withholding obligation pursuant to any Award shall again be
available for the grant of an Award pursuant to the Plan. To the extent permitted by applicable
law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by the Company or any Parent
or Subsidiary shall not be counted against shares of Stock available for grant pursuant to this
Plan. The payment of Dividend Equivalents in conjunction with any outstanding Awards shall not be
counted against the shares of Stock available for issuance under the Plan.

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

     3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision
in the Plan to the contrary, and subject to Article 11, the maximum number of shares of Stock with
respect to one or more Awards that may be granted to any one Participant during any fiscal year of
the Company (measured from the date of any grant) shall be 1,000,000; provided, however, that the
foregoing limitation shall not apply prior to the Public Trading Date and, following the Public
Trading Date, the foregoing limitation shall not apply until the earliest of: (a) the first
material modification of the Plan (including any increase in the number of shares of Stock reserved
for issuance under the Plan in accordance with Section 3.1); (b) the issuance of all of the shares
of Stock reserved for issuance under the Plan; (c) the expiration of the Plan; (d) the first
meeting of stockholders at which members of the Board are to be elected that occurs after the close
of the third calendar year following the calendar year in which occurred the first registration of
an equity security of the Company under Section 12 of the Exchange Act; or (e) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

     4.1 Eligibility. Each Eligible Individual shall be eligible to be granted one or more
Awards pursuant to the Plan.

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

     4.3 Foreign Participants. In order to assure the viability of Awards granted to
Participants employed in foreign countries, the Committee may provide for such special terms as it
may consider necessary or appropriate to accommodate differences in local law, tax policy, or
custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or
alternative versions of, the Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of the Plan as in effect for any other purpose; provided,
however, that no such supplements, amendments, restatements, or alternative versions shall increase
the limitations on the number of shares of Stock (a) issued or transferred pursuant

7

 

to Awards under the Plan, as detailed in Section 3.1, and (b) issued or transferred pursuant
to Awards granted to any one Participant during any fiscal year of the Company, as detailed in
Section 3.3 of the Plan.

ARTICLE 5

STOCK OPTIONS

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

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

          (b) Time and Conditions of Exercise. The Committee shall determine the time or times
at which an Option may be exercised in whole or in part. The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or part of an Option may
be exercised.

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

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

     5.2 Incentive Stock Options. The terms of any Incentive Stock Options granted
pursuant to the Plan must comply with the conditions and limitations contained in Section 13.2 and
this Section 5.2.

          (a) Eligibility. Incentive Stock Options may be granted only to Employees.

8

 

          (b) Exercise Price. The exercise price per share of Stock shall be set by the
Committee; provided that subject to Section 5.2(e) the exercise price for any Incentive Stock
Option shall not be less than 100% of the Fair Market Value on the date of grant.

          (c) Expiration. Subject to Section 5.2(e), an Incentive Stock Option may not be
exercised to any extent by anyone after the tenth anniversary of the date it is granted, unless an
earlier time is set in the Award Agreement.

          (d) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of
the time the Option is granted) of all shares of Stock with respect to which Incentive Stock
Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such
other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the
extent that Incentive Stock Options are first exercisable by a Participant in excess of such
limitation, the excess shall be considered Non-Qualified Stock Options.

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

          (f) Notice of Disposition. The Participant shall give the Company prompt notice of
any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two
years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of
such shares of Stock to the Participant.

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

     5.3 Substitution of Stock Appreciation Rights. The Committee may provide in the Award
Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have
to right to substitute a Stock Appreciation Right for such Option at any time prior to or upon
exercise of such Option, subject to the provisions of Section 7.2 hereof; provided that such Stock
Appreciation Right shall be exercisable with respect to the same number of shares of Stock for
which such substituted Option would have been exercisable.

     5.4 Paperless Exercise. In the event that the Company establishes, for itself or
using the services of a third party, an automated system for the exercise of Options, such as a
system using an internet website or interactive voice response, then the paperless exercise of
options by a Participant may be permitted through the use of such an automated system.

ARTICLE 6

RESTRICTED STOCK AWARDS

     6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of
Restricted Stock to any Participant selected by the Committee in such amounts and subject to

9

 

such terms and conditions as determined by the Committee. All Awards of Restricted Stock
shall be evidenced by a written Restricted Stock Award Agreement.

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

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

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

ARTICLE 7

STOCK APPRECIATION RIGHTS

     7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to
any Participant selected by the Committee. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be
evidenced by an Award Agreement.

     7.2 Stock Appreciation Rights.

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

          (b) A SAR shall entitle the Participant (or other person entitled to exercise the SAR pursuant
to the Plan) to exercise all or a specified portion of the SAR (to the extent then exercisable
pursuant to its terms) and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the SAR from

10

 

the Fair Market Value of a share of Stock on the date of exercise of the SAR by the number of
shares of Stock with respect to which the SAR shall have been exercised, subject to any limitations
the Committee may impose.

     7.3 Payment and Limitations on Exercise.

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

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

ARTICLE 8

OTHER TYPES OF AWARDS

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

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

     8.3 Dividend Equivalents.

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

          (b) Dividend Equivalents granted with respect to Options or SARs that are

11

 

intended to be Qualified Performance-Based Compensation shall be payable, with respect to
pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised.

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

     8.5 Deferred Stock. Any Participant selected by the Committee may be granted an award
of Deferred Stock in the manner determined from time to time by the Committee. The number of
shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined by the Committee.
Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has
vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a
Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award
has vested and the Stock underlying the Deferred Stock Award has been issued.

     8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted
Stock Units to any Participant selected by the Committee in such amounts and subject to such terms
and conditions as determined by the Committee. At the time of grant, the Committee shall specify
the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable,
and may specify such conditions to vesting as it deems appropriate. At the time of grant, the
Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which
shall be no earlier than the vesting date or dates of the Award and may be determined at the
election of the grantee. On the maturity date, the Company shall, subject to Section 10.5(b),
transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted
Stock Unit scheduled to be paid out on such date and not previously forfeited. The Committee shall
specify the purchase price, if any, to be paid by the grantee to the Company for such shares of
Stock.

     8.7 Other Stock-Based Awards. Any Participant selected by the Committee may be
granted one or more Awards that provide Participants with shares of Stock or the right to purchase
shares of Stock or that have a value derived from the value of, or an exercise or conversion
privilege at a price related to, or that are otherwise payable in shares of Stock and which may be
linked to any one or more of the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, in each case on a specified date or dates or over any
period or periods determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific type of Award) the
contributions, responsibilities and other compensation of the particular Participant.

     8.8 Performance Bonus Awards. Any Participant selected by the Committee may be
granted one or more Performance-Based Awards in the form of a cash bonus (a “Performance 

12

 

Bonus Award”) payable upon the attainment of Performance Goals that are established by
the Committee and relate to one or more of the Performance Criteria, in each case on a specified
date or dates or over any period or periods determined by the Committee. Any such Performance
Bonus Award paid to a Covered Employee shall be based upon objectively determinable bonus formulas
established in accordance with Article 9. The maximum amount of any Performance Bonus Award
payable to a Covered Employee with respect to any fiscal year of the Company shall not exceed
$1,000,000.

     8.9 Term. Except as otherwise provided herein, the term of any Award of Performance
Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted
Stock Units or Other Stock-Based Award shall be set by the Committee in its discretion.

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

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

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

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

ARTICLE 9

PERFORMANCE-BASED AWARDS

     9.1 Purpose. The purpose of this Article 9 is to provide the Committee the ability to
qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as
Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a
Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall

13

 

control over any contrary provision contained in Articles 6 or 8; provided, however, that the
Committee may in its discretion grant Awards to Covered Employees that are based on Performance
Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.

     9.2 Applicability. This Article 9 shall apply only to those Covered Employees
selected by the Committee to receive Performance-Based Awards. The designation of a Covered
Employee as a Participant for a Performance Period shall not in any manner entitle the Participant
to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant
for a particular Performance Period shall not require designation of such Covered Employee as a
Participant in any subsequent Performance Period and designation of one Covered Employee as a
Participant shall not require designation of any other Covered Employees as a Participant in such
period or in any other period.

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

     9.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable
Award Agreement, a Participant must be employed by the Company or a Parent or Subsidiary on the day
a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a
Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a
Performance Period only if the Performance Goals for such period are achieved.

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

14

 

ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

     10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the
discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other
Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards
may be granted either at the same time as or at a different time from the grant of such other
Awards.

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

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

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

15

 

     10.5
Stock Certificates; Book Entry Procedures.

          (a) Notwithstanding anything herein to the contrary, the Company shall not be required to
issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the issuance and delivery
of such certificates is in compliance with all applicable laws, regulations of governmental
authorities and, if applicable, the requirements of any exchange on which the shares of Stock are
listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply
with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and
the rules of any national securities exchange or automated quotation system on which the Stock is
listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the
Board may require that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to comply with any such
laws, regulations, or requirements. The Committee shall have the right to require any Participant
to comply with any timing or other restrictions with respect to the settlement or exercise of any
Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

          (b) Notwithstanding any other provision of the Plan, unless otherwise determined by the
Committee or required by any applicable law, rule or regulation, the Company shall not deliver to
any Participant certificates evidencing shares of Stock issued in connection with any Award and
instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its
transfer agent or stock plan administrator).

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

     11.1 Adjustments.

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

16

 

          (b) In the event of any transaction or event described in Section 11.1(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the
financial statements of the Company or any affiliate (including without limitation any Change in
Control), other than an Equity Restructuring, or of changes in applicable laws, regulations or
accounting principles, the Committee, in its sole discretion and on such terms and conditions as it
deems appropriate, either by amendment of the terms of any outstanding Awards or by action taken
prior to the occurrence of such transaction or event, is hereby authorized to take any one or more
of the following actions wherever the Committee determines that action is appropriate in order to
prevent the dilution or enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to any Award under the Plan, to facilitate such
transactions or events or to give effect to such changes in laws, regulations or principles:

                    (i) To provide for either (A) termination of any such Award in exchange for an amount of cash
and/or other property, if any, equal to the amount that would have been attained upon the exercise
of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of
the date of the occurrence of the transaction or event described in this Section 11.1(b) the
Committee determines in good faith that no amount would have been attained upon the exercise of
such Award or realization of the Participant’s rights, then such Award may be terminated by the
Company without payment) or (B) the replacement of such Award with other rights or property
selected by the Committee in its sole discretion;

                    (ii) To provide that such Award be assumed by the successor or survivor corporation, or a
parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards
covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and prices; and

                    (iii) To make adjustments in the number and type of shares of Stock (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock
or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding options, rights and awards and options, rights and awards
which may be granted in the future;

                    (iv) To provide that such Award shall be exercisable or payable or fully vested with respect
to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the
applicable Award Agreement; and

                    (v) To provide that the Award cannot vest, be exercised or become payable after such event.

          (c) In connection with the occurrence of any Equity Restructuring, and notwithstanding
anything to the contrary in Sections 11.1(a) and 11.1(b):

                    (i) The number and type of securities subject to each outstanding Award and the exercise price
or grant price thereof, if applicable, will be proportionately adjusted by the Committee as the
Committee deems appropriate to reflect such

17

 

Equity Restructuring. The adjustments provided under this Section 11(c)(i) shall be
nondiscretionary and shall be final and binding on the affected Participant and the Company.

                    (ii) The Committee shall make such proportionate adjustments, if any, as the Committee in its
discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate
number and kind of shares that may be issued under the Plan (including, but not limited to,
adjustments of the limitations in Article 3).

     11.2 Acceleration Upon a Change in Control. Notwithstanding Section 11.1, and except
as may otherwise be provided in any applicable Award Agreement or other written agreement entered
into between the Company, a Parent, a Subsidiary, or other Company affiliate and a Participant, if
a Change in Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a
successor entity, then immediately prior to the Change in Control such Awards shall become fully
exercisable and all forfeiture restrictions on such Awards shall lapse. Upon, or in anticipation
of, a Change in Control, the Committee may cause any and all Awards outstanding hereunder to
terminate at a specific time in the future, including but not limited to the date of such Change in
Control, and shall give each Participant the right to exercise such Awards during a period of time
as the Committee, in its sole and absolute discretion, shall determine. In the event that the
terms of any agreement between the Company, a Parent, a Subsidiary, or other Company affiliate and
a Participant contains provisions that conflict with and are more restrictive than the provisions
of this Section 11.2, this Section 11.2 shall prevail and control and the more restrictive terms of
such agreement (and only such terms) shall be of no force or effect.

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

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

ARTICLE 12

ADMINISTRATION

     12.1 Committee. Unless and until the Board delegates administration of the Plan to a
Committee as set forth below, the Plan shall be administered by the full Board, and for such
purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The

18

 

Board, at its discretion or as otherwise necessary to comply with the requirements of Section
162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any
other applicable rule or regulation, shall delegate administration of the Plan to a Committee. The
Committee shall consist solely of two or more members of the Board each of whom is a Non-Employee
Director, and with respect to awards that are intended to be Performance-Based Awards, an “outside
director” within the meaning of Section 162(m) of the Code. Notwithstanding the foregoing: (a) the
full Board, acting by a majority of its members in office, shall conduct the general administration
of the Plan with respect to all Awards granted to Independent Directors and for purposes of such
Awards the term “Committee” as used in this Plan shall be deemed to refer to the Board and (b) the
Committee may delegate its authority hereunder to the extent permitted by Section 12.5.
Appointment of Committee members shall be effective upon acceptance of appointment. The Board may
abolish the Committee at any time and revest in the Board the administration of the Plan.
Committee members may resign at any time by delivering written notice to the Board. Vacancies in
the Committee may only be filled by the Board.

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

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

          (a) Designate Participants to receive Awards;

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

          (c) Determine the number of Awards to be granted and the number of shares of Stock to which an
Award will relate;

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

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

19

 

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

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

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

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

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

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

     12.5 Delegation of Authority. To the extent permitted by applicable law, the
Committee may from time to time delegate to a committee of one or more members of the Board or one
or more officers of the Company the authority to grant or amend Awards to Participants other than
(a) senior executives of the Company who are subject to Section 16 of the Exchange Act, (b) Covered
Employees, or (c) officers of the Company (or members of the Board) to whom authority to grant or
amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the
restrictions and limits that the Committee specifies at the time of such delegation, and the
Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all
times, the delegatee appointed under this Section 12.5 shall serve in such capacity at the pleasure
of the Committee.

     12.6 Amendment or Exchange of Awards. The Committee may (i) amend any Award to reduce
the per share exercise price of such an Award below the per share exercise price as of the date the
Award is granted and (ii) grant an Award in exchange for, or in connection with, the cancellation
or surrender of an Award having a higher per share exercise price.

ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

     13.1 Effective Date. The Plan is effective as of the day prior to the Public Trading
Date (the “Effective Date”).

     13.2 Expiration Date. The Plan will expire on, and no Incentive Stock Option or other
Award may be granted pursuant to the Plan after, the tenth anniversary of the date this Plan is
approved by the Board. Any Awards that are outstanding on the tenth anniversary of the Effective
Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

20

 

ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION

     14.1 Amendment, Modification, And Termination. With the approval of the Board, at any
time and from time to time, the Committee may terminate, amend or modify the Plan; provided,
however, that (a) to the extent necessary and desirable to comply with any applicable law,
regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required, and (b) stockholder approval is
required for any amendment to the Plan that increases the number of shares of Stock available under
the Plan.

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

ARTICLE 15

GENERAL PROVISIONS

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

     15.2 No Stockholders Rights. Except as otherwise provided herein, a Participant shall
have none of the rights of a stockholder with respect to shares of Stock covered by any Award until
the Participant becomes the record owner of such shares of Stock.

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

     15.4 No Right to Employment or Services. Nothing in the Plan or any Award

21

 

Agreement shall interfere with or limit in any way the right of the Company or any Parent or
Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any
Participant any right to continue in the employ or service of the Company or any Parent or
Subsidiary.

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

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

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

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

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

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

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

22

 

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

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

     15.13 Section 409A. To the extent that the Committee determines that any Award
granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such
Award shall incorporate the terms and conditions required by Section 409A of the Code. To the
extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section
409A of the Code and Department of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulations or other guidance that may be issued
after the adoption of the Plan. Notwithstanding any provision of the Plan to the contrary, in the
event that following the adoption of the Plan the Committee determines that any Award may be
subject to Section 409A of the Code and related Department of Treasury guidance (including such
Department of Treasury guidance as may be issued after the adoption of the Plan), the Committee may
adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and
procedures (including amendments, policies and procedures with retroactive effect), or take any
other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award
from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided
with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and
related Department of Treasury guidance.

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

23

 

CADENCE PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE AWARD PLAN

STOCK OPTION GRANT NOTICE AND 

STOCK OPTION AGREEMENT 

STOCK OPTION GRANT NOTICE

     Cadence Pharmaceuticals, Inc., a Delaware corporation (the “Company”), pursuant to its 2006
Equity Incentive Award Plan (the “Plan”), hereby grants to the holder listed below (“Participant”),
an option to purchase the number of shares of the Company’s common stock, par value $0.0001
(“Stock”), set forth below (the “Option”). This Option is subject to all of the terms and
conditions set forth herein and in the Stock Option Agreement attached hereto as Exhibit A
(the “Stock Option Agreement”) and the Plan, which are incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in
this Grant Notice and the Stock Option Agreement.

	 	 	 	 	 	 	 	 	 
	Participant:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Grant Date:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	Exercise Price per Share:

	 	$

 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Exercise Price:

	 	$

 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 
	Total Number of Shares
Subject to the Option:

	 	shares 
	 	
	 	 
	 

	 	 
	 	 	 	 	 	 
	Expiration Date:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 	 	 	 
	Type of Option:

	 	o           Incentive Stock Option
	o  	 Non-Qualified Stock Option
	 
	 	 	 	 
	Vesting Schedule:

	 	[To be specified in individual agreements]
	

     By his or her signature, the Participant agrees to be bound by the terms and conditions of the
Plan, the Stock Option Agreement and this Grant Notice. The Participant has reviewed the Stock
Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Grant Notice and fully understands all
provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby
agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee
upon any questions arising under the Plan or relating to the Option.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	CADENCE PHARMACEUTICALS, INC.	 	 	 	PARTICIPANT	 	 	 	 
	 
	By:

	 	 	 	 	 	By:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	Print Name:

	 	 	 	 	 	Print Name:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 	 	 	 	 
	Address:

	 	 	 	 	 	Address:	 	 	 	 	 	 
	 

	 	 

	 	 	 	 
	 	 

	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 	 	 

 

EXHIBIT A

TO STOCK OPTION GRANT NOTICE

STOCK OPTION AGREEMENT

     Pursuant to the Stock Option Grant Notice (the “Grant Notice”) to which this Stock Option
Agreement (this “Agreement”) is attached, Cadence Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), has granted to the Participant an Option under the Company’s 2006 Equity Incentive
Award Plan (the “Plan”) to purchase the number of shares of Stock indicated in the Grant Notice.

ARTICLE I.

GENERAL

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

          (a) “Administrator” shall mean the Committee responsible for conducting the general
administration of the Plan in accordance with Article 12 of the Plan; provided that if the
Participant is an Independent Director, “Administrator” shall mean the Board.

          (b) “Termination of Consultancy” shall mean the time when the engagement of the Participant as
a Consultant to the Company or to a Parent or Subsidiary is terminated for any reason, with or
without cause, including, but not by way of limitation, by resignation, discharge, death or
retirement, but excluding: (a) terminations where there is a simultaneous employment or continuing
employment of the Participant by the Company or any Parent or Subsidiary, and (b) terminations
where there is a simultaneous reestablishment of a consulting relationship or continuing consulting
relationship between the Participant and the Company or any Parent or Subsidiary. The
Administrator, in its absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Consultancy, including, but not by way of limitation, the question of
whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding
any other provision of the Plan, the Company or any Parent or Subsidiary has an absolute and
unrestricted right to terminate a Consultant’s service at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.

          (c) “Termination of Directorship” shall mean the time when the Participant, if he or she is or
becomes an Independent Director, ceases to be a Director for any reason, including, but not by way
of limitation, a termination by resignation, failure to be elected, death or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.

          (d) “Termination of Employment” shall mean the time when the employee-employer relationship
between the Participant and the Company or any Parent or Subsidiary is terminated for any reason,
with or without cause, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding: (a) terminations where there is a
simultaneous reemployment or continuing employment of the Participant by the Company or any Parent
or Subsidiary, and (b) terminations where there is a simultaneous establishment of a consulting
relationship or continuing consulting relationship between the Participant and the Company or any
Parent or Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of
all matters and questions relating to Termination of Employment, including, but not by way of
limitation, the question of

B-1

 

whether a particular leave of absence constitutes a Termination of Employment; provided,
however, that, if this Option is an Incentive Stock Option, unless otherwise determined by the
Administrator in its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence, change in status or
other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section.

          (e) “Termination of Services” shall mean the Participant’s Termination of Consultancy,
Termination of Directorship or Termination of Employment, as applicable.

     1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions
of the Plan which are incorporated herein by reference. In the event of any inconsistency between
the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.

GRANT OF OPTION

     2.1 Grant of Option. In consideration of the Participant’s past and/or continued
employment with or service to the Company or a Parent or Subsidiary and for other good and valuable
consideration, effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”), the
Company irrevocably grants to the Participant the Option to purchase any part or all of an
aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and
conditions set forth in the Plan, the Grant Notice and this Agreement. Unless designated as a
Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to
the maximum extent permitted by law.

     2.2 Exercise Price. The exercise price of the shares of Stock subject to the Option
shall be as set forth in the Grant Notice, without commission or other charge; provided, however,
that the price per share of the shares of Stock subject to the Option shall not be less than 100%
of the Fair Market Value of a share of Stock on the Grant Date. Notwithstanding the foregoing, if
this Option is designated as an Incentive Stock Option and the Participant owns (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any “subsidiary corporation” of the Company or any “parent corporation” of
the Company (each within the meaning of Section 424 of the Code), the price per share of the shares
of Stock subject to the Option shall not be less than 110% of the Fair Market Value of a share of
Stock on the Grant Date.

     2.3 Consideration to the Company. In consideration of the grant of the Option by the
Company, the Participant agrees to render faithful and efficient services to the Company or any
Parent or Subsidiary. Nothing in the Plan, the Grant Notice, or this Agreement shall confer upon
the Participant any right to continue in the employ or service of the Company or any Parent or
Subsidiary or shall interfere with or restrict in any way the rights of the Company and any Parent
or Subsidiary, which rights are hereby expressly reserved, to discharge or terminate the services
of the Participant at any time for any reason whatsoever, with or without cause, except to the
extent expressly provided otherwise in a written agreement between the Company or a Parent or
Subsidiary and the Participant.

B-2

 

ARTICLE III.

PERIOD OF EXERCISABILITY

     3.1 Commencement of Exercisability.

          (a) Subject to Sections 3.2, 3.3, 5.8 and 5.10, the Option shall become vested and exercisable
in such amounts and at such times as are set forth in the Grant Notice.

          (b) No portion of the Option which has not become vested and exercisable at the date of the
Participant’s Termination of Employment, Termination of Directorship or Termination of Consultancy
shall thereafter become vested and exercisable, except as may be otherwise provided by the
Administrator or as set forth in a written agreement between the Company and the Participant.

     3.2 Duration of Exercisability. The installments provided for in the vesting schedule
set forth in the Grant Notice are cumulative. Each such installment which becomes vested and
exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and
exercisable until it becomes unexercisable under Section 3.3.

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

          (a) The expiration of [ten years] from the Grant Date;

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

          (c) The expiration of [three months] from the date of the Participant’s Termination of
Services, unless such termination occurs by reason of the Participant’s death or Disability; or

          (d) The expiration of [one year] from the date of the Participant’s Termination of Services by
reason of the Participant’s death or Disability.

     [The Participant acknowledges that an Incentive Stock Option exercised more that three months
after the Participant’s Termination of Employment, other than by reason of death or Disability,
will be taxed as a Non-Qualified Stock Option.]

     3.4 Special Tax Consequences. The Participant acknowledges that, to the extent that
the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of
Stock with respect to which Incentive Stock Options, including the Option, are exercisable for the
first time by the Participant in any calendar year exceeds $100,000, the Option and such other
options shall be Non-Qualified Stock Options to the extent necessary to comply with the limitations
imposed by Section 422(d) of the Code. The Participant further acknowledges that the rule set
forth in the preceding sentence shall be applied by taking the Option and other “incentive stock
options” into account in the order in which they were granted, as determined under Section 422(d)
of the Code and the Treasury Regulations thereunder.

B-3

 

ARTICLE IV.

EXERCISE OF OPTION

     4.1 Person Eligible to Exercise. Except as provided in Section 5.2(b), during
the lifetime of the Participant, only the Participant may exercise the Option or any portion
thereof. After the death of the Participant, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section 3.3, be exercised by the Participant’s
personal representative or by any person empowered to do so under the deceased the Participant’s
will or under the then applicable laws of descent and distribution.

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

     4.3 Manner of Exercise. The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary of the Company (or any third party administrator or
other person or entity designated by the Company) of all of the following prior to the time when
the Option or such portion thereof becomes unexercisable under Section 3.3:

          (a) An exercise notice in a form specified by the Administrator, stating that the Option or
portion thereof is thereby exercised, such notice complying with all applicable rules established
by the Administrator;

          (b) The receipt by the Company of full payment for the shares of Stock with respect to which
the Option or portion thereof is exercised, including payment of any applicable withholding tax,
which may be in one or more of the forms of consideration permitted under Section 4.4;

          (c) Any other written representations as may be required in the Administrator’s reasonable
discretion to evidence compliance with the Securities Act or any other applicable law, rule, or
regulation; and

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

Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of
the manner of exercise, which conditions may vary by country and which may be subject to change
from time to time.

     4.4 Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Participant:

          (a) Cash;

          (b) Check;

          (c) With the consent of the Administrator, delivery of a notice that the Participant has
placed a market sell order with a broker with respect to shares of Stock then issuable upon
exercise of the Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale

B-4

 

to the Company in satisfaction of the aggregate exercise price; provided, that payment of such
proceeds is then made to the Company upon settlement of such sale;

          (d) With the consent of the Administrator, surrender of other shares of Stock which (A) in the
case of shares of Stock acquired from the Company, have been owned by the Participant 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 aggregate exercise price of the shares of Stock with respect to which the Option or
portion thereof is being exercised;

          (e) With the consent of the Administrator, surrendered shares of Stock issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of the shares of Stock with respect to which the Option or portion thereof is being
exercised; or

          (f) With the consent of the Administrator, property of any kind which constitutes good and
valuable consideration.

     4.5 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable
upon the exercise of the Option, or any portion thereof, may be either previously authorized but
unissued shares of Stock or issued shares of Stock which have then been reacquired by the Company.
Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof
prior to fulfillment of all of the following conditions:

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

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

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

          (d) The receipt by the Company of full payment for such shares of Stock, including payment of
any applicable withholding tax, which may be in one or more of the forms of consideration permitted
under Section 4.4; and

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

     4.6 Rights as Stockholder. The holder of the Option shall not be, nor have any of the
rights or privileges of, a stockholder of the Company in respect of any shares of Stock purchasable
upon the exercise of any part of the Option unless and until such shares of Stock shall have been
issued by the Company to such holder (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a
dividend or other right for which the record date is prior to the date the shares of Stock are
issued, except as provided in Section 11.1 of the Plan.

B-5

 

ARTICLE V.

OTHER PROVISIONS

     5.1 Administration. The Administrator shall have the power to interpret the
Plan, the Grant Notice and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to interpret, amend or
revoke any such rules. All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon Participant, the Company and all other
interested persons. No member of the Committee or the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the Plan, the Grant
Notice, this Agreement or the Option.

     5.2 Option Not Transferable.

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

          (b) Unless determined otherwise by the Administrator, during the lifetime of Participant, only
Participant may exercise the Option or any portion thereof. After the death of Participant, any
exercisable portion of the Option may, prior to the time when the Option becomes unexercisable
under Section 3.3, be exercised by Participant’s personal representative or by any person empowered
to do so under the deceased Participant’s will or under the then applicable laws of descent and
distribution.

     5.3 Adjustments. The Participant acknowledges that the Option is subject to
modification and termination in certain events as provided in this Agreement and Article 11 of the
Plan.

     5.4 Notices. Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of the Secretary of the Company at the address given
beneath the signature of the Company’s authorized officer on the Grant Notice, and any notice to be
given to Participant shall be addressed to Participant at the address given beneath Participant’s
signature on the Grant Notice. By a notice given pursuant to this Section 5.4, either party may
hereafter designate a different address for notices to be given to that party. Any notice which is
required to be given to Participant shall, if Participant is then deceased, be given to the person
entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section
5.4. Any notice shall be deemed duly given when sent via email or when sent by certified mail
(return receipt requested) and deposited (with postage prepaid) in a post office or branch post
office regularly maintained by the United States Postal Service.

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

B-6

 

     5.6 Governing Law; Severability. The laws of the State of Delaware shall govern the
interpretation, validity, administration, enforcement and performance of the terms of this
Agreement regardless of the law that might be applied under principles of conflicts of laws.

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

     5.8 Amendments, Suspension and Termination. To the extent permitted by the Plan, this
Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any
time or from time to time by the Committee or the Board, provided, that, except as may otherwise be
provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall
adversely effect the Option in any material way without the prior written consent of the
Participant.

     5.9 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 in
Section 5.2, this Agreement shall be binding upon Participant and his or her heirs, executors,
administrators, successors and assigns.

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

     5.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other
provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange
Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set
forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended
to the extent necessary to conform to such applicable exemptive rule.

     5.12 Not a Contract of Employment. Nothing in this Agreement, the Grant Notice, or
the Plan shall confer upon the Participant any right to continue to serve as an employee or other
service provider of the Company or any Parent or Subsidiary.

     5.13 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all
exhibits thereto) constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof.

     5.14 Section 409A. Notwithstanding any other provision of the Plan, this Agreement or
the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance
with, and

B-7

 

incorporate the terms and conditions required by, Section 409A of the U.S. Internal Revenue
Code of 1986, as amended (together with any Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such regulations or other
guidance that may be issued after the date hereof, “Section 409A”). The Committee may, in its
discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other
policies and procedures (including amendments, policies and procedures with retroactive effect), or
take any other actions, as the Committee determines are necessary or appropriate to comply with the
requirements of Section 409A.

B-8

 

CADENCE PHARMACEUTICALS, INC.

2006 EQUITY INCENTIVE AWARD PLAN

RESTRICTED STOCK AWARD GRANT NOTICE AND

RESTRICTED STOCK AWARD AGREEMENT

     Cadence Pharmaceuticals, Inc., a Delaware corporation, (the “Company”), pursuant to its 2006
Equity Incentive Award Plan (the “Plan”), hereby grants to the individual listed below
(“Participant”), the number of shares of the Company’s Common Stock set forth below (the “Shares”).
This Restricted Stock Award is subject to all of the terms and conditions as set forth herein and
in the Restricted Stock Award Agreement attached hereto as Exhibit A (the “Restricted Stock
Agreement”) (including without limitation the Restrictions on the Shares set forth in the
Restricted Stock Agreement) and the Plan, each of which are incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings
in this Grant Notice and the Restricted Stock Agreement.

	 	 	 
	Participant:
	 	 

	 	 	 
	 
	 	 

	Grant Date:
	 	 

	 	 	 
	 
	 	 

	Total Number of
Shares of
Restricted Stock:
	 	shares

	 	 	 
	 
	 	 

	Purchase Price:
	 	$

	 	 	 
	 
	 	 

	Vesting Schedule:
	 	 

	 	 	 

     By his or her signature and the Company’s signature below, Participant agrees to be bound by
the terms and conditions of the Plan, the Restricted Stock Agreement and this Grant Notice.
Participant has reviewed the Restricted Stock Agreement, the Plan and this Grant Notice in their
entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant
Notice and fully understands all provisions of this Grant Notice, the Restricted Stock Agreement
and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator of the Plan upon any questions arising under the Plan, this
Grant Notice or the Restricted Stock Agreement.

	 	 	 	 	 	 	 
	CADENCE PHARMACEUTICALS, INC.:	 	PARTICIPANT:
	 
	 	 
	 	 	 	 
	By:
	 	 

	 	By:
	 	 
	 	 	 	 	 	 	 
	Print Name:
	 	 

	 	Print Name:
	 	 
	 	 	 	 	 	 	 
	Title:
	 	 
	 	 	 	 
	 	 	 	 	 	 	 
	Address:
	 	 

	 	Address:
	 	 
	 	 	 	 	 	 	 
	 	 	 

	 	 	 	 
	 	 	 	 	 	 	 

 

 

EXHIBIT A

TO RESTRICTED STOCK AWARD GRANT NOTICE

CADENCE PHARMACEUTICALS, INC. RESTRICTED STOCK AWARD AGREEMENT

     Pursuant to the Restricted Stock Award Grant Notice (the “Grant Notice”) to which this
Restricted Stock Award Agreement (the “Agreement”) is attached, Cadence Pharmaceuticals, Inc., a
Delaware corporation (the “Company”) has granted to Participant the right to purchase the number of
shares of Restricted Stock under the 2006 Equity Incentive Award Plan, as amended from time to time
(the “Plan”), as set forth in the Grant Notice.

ARTICLE I.

GENERAL

     1.1 Definitions. All capitalized terms used in this Agreement without definition
shall have the meanings ascribed in the Plan and the Grant Notice.

     1.2 Incorporation of Terms of Plan. The Award is subject to the terms and conditions
of the Plan which are incorporated herein by reference. In the event of any inconsistency between
the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.

AWARD OF RESTRICTED STOCK

     2.1 Award of Restricted Stock.

          (a) Award. In consideration of the Participant’s agreement to remain in the service
or employ of the Company or one of its Subsidiaries, and for other good and valuable consideration
which the Committee has determined exceeds the aggregate par value of the Stock subject to the
Award (as defined below), as of the Grant Date, the Company issues to the Participant the Award
described in this Agreement (the “Award”). The number of shares of Restricted Stock (the “Shares”)
subject to the Award is set forth in the Grant Notice. The Participant is an Employee, Director or
other Eligible Individual.

          (b) Purchase Price; Book Entry Form. The purchase price of the Shares is set forth on
the Grant Notice. The Shares will be issued in uncertificated form. At the sole discretion of the
Committee, the Shares will be issued in either (i) uncertificated form, with the Shares recorded in
the name of the Participant in the books and records of the Company’s transfer agent with
appropriate notations regarding the restrictions on transfer imposed pursuant to this Agreement,
and upon vesting and the satisfaction of all conditions set forth in Section 2.2(d), the Company
shall cause certificates representing the Shares to be issued to the Participant; or (ii)
certificate form pursuant to the terms of Sections 2.1(c) and (d).

          (c) Legend. Certificates representing Shares issued pursuant to this Agreement shall,
until all restrictions on transfer imposed pursuant to this Agreement lapse or shall have been
removed and new certificates are issued, bear the following legend (or such other legend as shall
be determined by the Committee):

B-1

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING
REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF THAT CERTAIN
RESTRICTED STOCK AWARD AGREEMENT, DATED [___, 200_], BY AND BETWEEN
CADENCE PHARMACEUTICALS, INC. AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH
SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT
PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”

          (d) Escrow. The Secretary of the Company or such other escrow holder as the Committee
may appoint may retain physical custody of the certificates representing the Shares until all of
the restrictions on transfer imposed pursuant to this Agreement lapse or shall have been removed;
in such event the Participant shall not retain physical custody of any certificates representing
unvested Shares issued to him.

     2.2 Restrictions.

          (a) Forfeiture. Any Award which is not vested as of the date the Participant ceases
to be an employee of the Company or one of its Subsidiaries or other Eligible Individual shall
thereupon be forfeited immediately and without any further action by the Company. For purposes of
this Agreement, “Restrictions” shall mean the restrictions on sale or other transfer set forth in
Section 3.2 and the exposure to forfeiture set forth in this Section 2.2(a).

          (b) Vesting and Lapse of Restrictions. Subject to Section 2.2(a), the Award shall
vest and Restrictions shall lapse in accordance with the vesting schedule set forth on the Grant
Notice.

          (c) Tax Withholding; Conditions to Issuance of Certificates. Notwithstanding any
other provision of this Agreement (including without limitation Section 2.1(b)):

               (i) No new certificate shall be delivered to the Participant or his legal representative
unless and until the Participant or his legal representative shall have paid to the Company the
full amount of all federal and state withholding or other taxes applicable to the taxable income of
Participant resulting from the grant of Shares or the lapse or removal of the Restrictions.

               (ii) The Company shall not be required to issue or deliver any certificate or certificates for
any Shares prior to the fulfillment of all of the following conditions: (A) the admission of the
Shares to listing on all stock exchanges on which such Common Stock is then listed, (B) the
completion of any registration or other qualification of the Shares under any state or federal law
or under rulings or regulations of the Securities and Exchange Commission or other governmental
regulatory body, which the Committee shall, in its sole and absolute discretion, deem necessary and
advisable, (C) the obtaining of any approval or other clearance from any state or federal
governmental agency that the Committee shall, in its absolute discretion, determine to be necessary
or advisable and (D) the lapse of any such reasonable period of time following the date the
Restrictions lapse as the Committee may from time to time establish for reasons of administrative
convenience.

B-2

 

ARTICLE III.

OTHER PROVISIONS

     3.1 Section 83(b) Election. Participant understands that Section 83(a) of the Code
taxes as ordinary income the difference between the amount, if any, paid for the shares of Common
Stock and the Fair Market Value of such shares at the time the Restrictions on such shares lapse.
Participant understands that, notwithstanding the preceding sentence, Participant may elect to be
taxed at the time of the Grant Date, rather that at the time the Restrictions lapse, by filing an
election under Section 83(b) of the Code (an “83(b) Election”) with the Internal Revenue Service
within 30 days of the Grant Date. In the event Participant files an 83(b) Election, Participant
will recognize ordinary income in an amount equal to the difference between the amount, if any,
paid for the shares of Common Stock and the Fair Market Value of such shares as of the Grant Date.
Participant further understands that an additional copy of such 83(b) Election form should be filed
with his or her federal income tax return for the calendar year in which the date of this Agreement
falls. Participant acknowledges that the foregoing is only a summary of the effect of United
States federal income taxation with respect to the award of Restricted Stock hereunder, and does
not purport to be complete. PARTICIPANT FURTHER ACKNOWLEDGES THAT THE COMPANY IS NOT RESPONSIBLE
FOR FILING THE PARTICIPANT’S 83(b) ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK
INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE, THE INCOME TAX
LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH PARTICIPANT MAY RESIDE, AND THE TAX
CONSEQUENCES OF PARTICIPANT’S DEATH.

     3.2 Restricted Stock Not Transferable. No Shares or any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the Participant or his
successors in interest or shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect; provided, however, that this Section 3.2 notwithstanding, with the
consent of the Committee, the Shares may be transferred to certain persons or entities related to
Participant, including but not limited to members of Participant’s family, charitable institutions
or trusts or other entities whose beneficiaries or beneficial owners are members of Participant’s
family or to such other persons or entities as may be expressly approved by the Committee, pursuant
to any such conditions and procedures the Committee may require.

     3.3 Rights as Stockholder. Except as otherwise provided herein, upon the Grant Date
the Participant shall have all the rights of a stockholder with respect to the Shares, subject to
the Restrictions herein, including the right to vote the Shares and the right to receive any cash
or stock dividends paid to or made with respect to the Shares; provided, however, that at the
discretion of the Company, and prior to the delivery of Shares, the Participant may be required to
execute a stockholders agreement in such form as shall be determined by the Company. 

     3.4 Not a Contract of Employment. Nothing in this Agreement or in the Plan shall
confer upon the Participant any right to continue to serve as an employee or other service provider
of the Company or any of its Subsidiaries.

     3.5 Governing Law. The laws of the State of Delaware shall govern the
interpretation, validity, administration, enforcement and performance of the terms of this
Agreement regardless of the law that might be applied under principles of conflicts of laws.

B-3

 

     3.6 Conformity to Securities Laws. The Participant acknowledges that the Plan and
this Agreement are intended to conform to the extent necessary with all provisions of the
Securities Act of 1933, as amended, and the Exchange Act, and any and all regulations and rules
promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule
16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Awards are granted, only in such a manner as to conform to such laws, rules
and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be
deemed amended to the extent necessary to conform to such laws, rules and regulations.

     3.7 Amendment, Suspension and Termination. To the extent permitted by the Plan, this
Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any
time or from time to time by the Committee or the Board, provided, that, except as may otherwise be
provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall
adversely effect the Award in any material way without the prior written consent of the
Participant.

     3.8 Notices. Notices required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in the United States mail
by certified mail, with postage and fees prepaid, addressed to the Participant to his address shown
in the Company records, and to the Company at its principal executive office.

     3.9 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 Participant and his or her heirs, executors, administrators,
successors and assigns.

B-4EX-10.1

 

Exhibit 10.1

AETNA INC.

2000 STOCK INCENTIVE PLAN

STOCK APPRECIATION RIGHT TERMS OF AWARD

Pursuant to its 2000 Stock Incentive Plan, Aetna Inc. has granted a stock appreciation right
on shares of Aetna Inc. Common Stock. The number of shares represented by this right, the Grant
Price and vesting information is included on the website of the designated broker, currently UBS
Financial Services, Inc. and in the Notice of Stock Appreciation Right Grant, if applicable. The
Stock Appreciation Right is issued on the terms and conditions hereinafter set forth.

ARTICLE I

DEFINITIONS

	(a)	 	“Affiliate” means an entity at least a majority of the total voting power of the
then-outstanding voting securities of which is held, directly or indirectly, by the Company
and/or one or more other Affiliates.
	 
	(b)	 	“Board” means the Board of Directors of Aetna Inc.
	 
	(c)	 	“Change in Control” means the happening of any of the following:

	 	(i)	 	When any “person” as defined in Section 3(a)(9) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) and as used in Sections 13(d) and 14(d) thereof,
including a “group” as defined in Section 13(d) of the Exchange Act but excluding the
Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained
by the Company or any Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company
representing 20 percent or more of the combined voting power of the Company’s then
outstanding securities;
	 
	 	(ii)	 	When, during any period of 24 consecutive months, the individuals who, at the
beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any
reason other than death to constitute at least a majority thereof, provided
that a director who was not a director at the beginning of such 24-month period
shall be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the beginning of such 24-month
period) or by prior operation of this paragraph (ii); or
	 
	 	(iii)	 	The occurrence of a transaction requiring stockholder approval for the
acquisition of the Company by an entity other than the Company or a Subsidiary through
purchase of assets, or by merger, or otherwise.

1

 

	 	 	Notwithstanding the foregoing, in no event shall a “Change in Control” be deemed to have
occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to
Grantee, if Grantee is part of a “group,” within the meaning of Section 13(d)(3) of the
Exchange Act as in effect on the effective date, which consummates the Change in Control
transaction. In addition, for purposes of the definition of “Change in Control” a person
engaged in business as an underwriter of securities shall not be deemed to be the “beneficial
owner” of, or to “beneficially own,” any securities acquired through such person’s
participation in good faith in a firm commitment underwriting until the expiration of forty
days after the date of such acquisition.
	 
	(d)	 	“Committee” means the Board’s Committee on Compensation and Organization or any successor
thereto.
	 
	(e)	 	“Common Stock” means shares of the Company’s Common Stock, $.01 par value per share.
	 
	(f)	 	“Company” means Aetna Inc.
	 
	(g)	 	“Disability” means long-term disability as defined under the terms of the Company’s
applicable long-term disability plans or policies.
	 
	(h)	 	“Effective Date” means the date of grant of this Stock Appreciation Right, as approved by the
Committee.
	 
	(i)	 	“Exercise Date” means the date the Grantee has notified the designated broker to exercise all
or a portion of the Stock Appreciation Right.
	 
	(j)	 	“Fair Market Value” means the closing price of the Common Stock as reported by the
Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be
determined, or, if no shares were traded on such day, on the next day on which the Common
Stock was traded.
	 
	(k)	 	“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination,
exchange of shares, warrants or rights offering to purchase Common Stock at a price
substantially below fair market value, or similar event.
	 
	(l)	 	“Grantee” means the person to whom this Stock Appreciation Right has been granted.
	 
	(m)	 	“Grant Price” means the dollar amount per share of Common Stock that is the basis for
determining the appreciation in value of the Common Stock.
	 
	(n)	 	“Holding Company” means an entity that becomes a holding company for the Company or its
businesses as a part of any reorganization, merger, consolidation or other transaction,
provided that the outstanding shares of common stock of such entity and the combined voting
power of the then outstanding voting securities of such entity entitled to vote generally in
the election of directors is, immediately after such reorganization, merger, consolidation or
other transaction, beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively of the voting stock
outstanding immediately prior to such reorganization, merger, consolidation or other
transaction in substantially the same proportions as their ownership, immediately prior to
such reorganization, merger, consolidation or other transaction, of such outstanding voting
stock.
	 
	(o)	 	“Plan” means the Aetna Inc. 2000 Stock Incentive Plan.
	 
	(p)	 	“Retirement” means the termination of employment of a Grantee from active service with the
Company, a Subsidiary or Affiliate provided the Grantee’s age and completed years of service
total 65 or more points at termination of employment.

2

 

	(q)	 	“SAR” means Stock Appreciation Right.
	 
	(r)	 	“Shares Granted” means the number of shares of Common Stock represented by the Stock
Appreciation Right, or such other amount as may result by operation of Article IV of this
Agreement.
	 
	(s)	 	“Shares of Stock” or “Stock” means the Common Stock.
	 
	(t)	 	“Stock Appreciation Right” means the right granted herein to be paid the excess, as of the
Exercise Date, of (i) the Fair Market Value of the shares of Common Stock associated with this
Stock Appreciation Right (or the portion thereof that is surrendered on exercise) over (ii)
the Grant Price of such Stock Appreciation Right.
	 
	(u)	 	“Stock Appreciation Rights Vested” means number of Stock Appreciation Rights exercisable on
any given date.
	 
	(v)	 	“Subsidiary” means any entity of which, at the time such subsidiary status is to be
determined, at least 50% of the total combined voting power of all classes of stock in such
entity is held by the Company and its Subsidiaries (exclusive of ownership by the entity whose
subsidiary status is being determined).
	 
	(w)	 	“Successor” means the legal representative of the estate of a deceased Grantee or the person
or persons who shall acquire the right to exercise a SAR by bequest or inheritance or by
reason of the death of the Grantee.
	 
	(x)	 	“Term” means the period during which the SAR granted hereby may be exercised.
	 
	(y)	 	“Vest Date” means the date on which a portion of the SAR becomes exercisable pursuant to the
Terms of the Award and, as set forth on the website of the designated broker and in the Notice
of Stock Appreciation Right Grant, if applicable.

ARTICLE II

TERM OF SAR AND EXERCISE

	(a)	 	Subject to the terms of this Agreement, the term of the SAR shall commence on the first Vest
Date and shall terminate, unless sooner terminated by the terms of the Plan or this Terms of
Award Agreement, at:

	 	(i)	 	The close of the Company’s business on the day preceding the ___anniversary of
the Effective Date, if the Company is open for business on such day; or
	 
	 	(ii)	 	The close of the Company’s business on the next preceding day that the Company is
open for business.

	(b)	 	The SAR is exercisable in installments, each installment to become exercisable as of the Vest
Date in accordance with the terms of the Plan and this Terms of Award Agreement. Once an
installment is vested, it may be exercised in whole or in part only during the Term of the
SAR.

3

 

ARTICLE III

METHOD OF SAR EXERCISE

In order to exercise this SAR, Grantee must comply with procedures adopted by the Company from time
to time. Under current procedures, the Grantee must exercise the SAR through the Company’s
designated broker.

In addition, if the Grantee has been notified that he or she must consult with a member of the
Company’s Law Department prior to engaging in transactions in Aetna stock, Grantee must consult
with the Law Department prior to exercising the SAR.

Upon exercise of the SAR, payment (net of federal, state, local, social security and medicare
taxes, if applicable) shall be paid in Common Stock as soon as administratively possible. The
resulting shares of Common Stock will be deposited in a brokerage account established in Grantee’s
name at the designated broker.

ARTICLE IV

CAPITAL CHANGES

In the event that the Committee shall determine that any Fundamental Corporate Event affects the
Common Stock such that an adjustment is required to preserve, or to prevent enlargement of, the
benefits or potential benefits made available under this SAR or the Plan, then the Committee shall,
in such manner as the Committee may deem equitable, adjust the (i) the number and kind of shares
subject to the SAR on or (ii) the SAR Grant Price. Additionally, the Committee may make provision
for a cash payment to a Grantee or the Successor of the Grantee in satisfaction of all or any
portion of the SAR. The number of Shares of Stock subject to the SAR shall always be a whole
number.

ARTICLE V

CHANGE IN CONTROL

Upon the occurrence of a Change in Control, each unvested SAR shall become vested and immediately
exercisable and shall be exercisable in accordance with the terms of this Agreement.

ARTICLE VI

TERMINATION OF SAR

	(a)	 	Except as provided in (e) below, if the Grantee shall, for reason of death or long term
disability, cease to be employed by the Company, its Subsidiaries or Affiliates after the
Effective Date, the SAR shall become vested and immediately exercisable and the Grantee or
Successor of the Grantee may exercise the SAR until the earlier of:

	 	(i)	 	The expiration of the Term of the SAR; or
	 
	 	(ii)	 	A period not to exceed                      years following such cessation of employment.

4

 

	(b)	 	Except as provided in (e) below, if Grantee shall, for reason of Retirement, cease to be
employed by the Company, its Subsidiaries or Affiliates after the Effective Date, the Grantee
will become immediately vested and may immediately exercise any SAR that would have otherwise
become vested within                      year(s) from the Grantee’s termination of employment, and the
Grantee or Successor of the Grantee may exercise the SAR until the earlier of:

	 	(i)	 	The expiration of the Term of the SAR; or
	 
	 	(ii)	 	A period not to exceed ___years following such cessation of employment.

	(c)	 	Except as provided in (d) and (e) below, if the Grantee shall, for a reason other than death,
Disability or Retirement, cease to be employed by the Company, its Subsidiaries or Affiliates
during the Term of the SAR, the Grantee may exercise a vested SAR until the earlier of:

	 	(i)	 	The expiration of the term of the SAR; or
	 
	 	(ii)	 	A period not to exceed                      days following such cessation of employment.

	(d)	 	Except as provided in (a) or (b) above, any SAR, or portion of a SAR that has not become
vested and exercisable at the time of cessation of employment shall terminate immediately upon
such cessation of employment and may not be exercised thereafter. Provided, however, if
Grantee’s employment is terminated by the Company other than for cause and Grantee has not
previously, or does not subsequently, vest to any portion of the SAR in accordance with its
terms, then upon the forfeiture of the entire SAR, the Company shall pay Grantee an amount
equal to the SAR value on a single share of Common Stock, whether or not the forfeited SAR
related to more than a single share of Common Stock, calculated as of the date of termination
of employment under the same method as the Company calculates its SAR expense charge for
purposes of its financial statement reporting, if requested by Grantee, within 30 days of such
cessation of employment.
	 
	(e)	 	No SAR may be exercised after the Company has terminated the employment of the Grantee for
cause, except that the Committee may, in its sole discretion, permit the exercise of a vested
SAR for a period of up to                      days in cases where the Committee shall determine such
exercise period is warranted under the particular circumstances. The Company may terminate
the SAR (including a vested SAR) if Grantee has willfully engaged in gross misconduct or other
serious impropriety which the Company determines is likely to be damaging or detrimental to
the Company, any Subsidiary or Affiliate.
	 
	(f)	 	If the Grantee shall die after termination of employment, such termination being for a reason
other than Disability or Retirement, but while the SAR is still in effect and such termination
occurs after the Term of the SAR has commenced, a vested SAR may be exercised by the Successor
of the Grantee until the earlier of:

	 	(i)	 	The expiration of the Term of the SAR; or
	 
	 	(ii)	 	                     year(s) from the date of termination of employment of the Grantee.

	(g)	 	Employment for purposes of determining the vesting rights of the Grantee under this Article
VI shall mean continuous full-time salaried employment with the Company, a Subsidiary or an
Affiliate, except that the period during which the Grantee is on vacation, sick leave, or
other pre-approved leave of absence (provided there is no actual termination of employment),
or in receipt of nine weeks salary continuation or severance pay shall not interrupt the
continuous employment of the Grantee.
	 
	(h)	 	Except as otherwise herein provided, exercise of the SAR, whether by the Grantee or the
Successor of the Grantee, shall be subject to all terms and conditions of this Agreement.

5

 

ARTICLE VII

OTHER TERMS

	(a)	 	Grantee understands that the Grantee shall not have any rights as stockholder by virtue of
the grant of an SAR but only with respect to shares of Common Stock actually issued to the
Grantee in accordance with the terms hereof.
	 
	(b)	 	Anything herein to the contrary notwithstanding, the Company may postpone the exercise of the
SAR or any portion thereof for such time as the Committee in its discretion may deem
necessary, in order to permit the Company with reasonable diligence (i) to effect or maintain
registration under the Securities Act of 1933, as amended, of the Plan or the shares of Common
Stock issuable upon the exercise of the SAR or (ii) to determine that the Plan and such shares
are exempt from registration; and the Company shall not be obligated by virtue of this
Agreement or any provision of the Plan to recognize the exercise of the SAR or to sell or
issue shares of Common Stock in violation of said Act or of the law of any government having
jurisdiction thereof. Any such postponement shall not extend the Term of the SAR; and neither
the Company nor its Board shall have any obligation or liability to the Grantee, or to the
Grantee’s Successor, with respect to any shares of Common Stock as to which the SAR shall
lapse because of such postponement.
	 
	(c)	 	The SAR shall be nontransferable and nonassignable except by will and by the laws of descent
and distribution. During the Grantee’s lifetime, the SAR may be exercised only by the
Grantee.
	 
	(d)	 	The SAR is not an incentive stock option as described in the Internal Revenue Code of 1986,
as amended, Section 422A (b).
	 
	(e)	 	This Agreement is subject to the 2000 Stock Incentive Plan heretofore adopted by the Company
and approved by its shareholders. The terms and provisions of the Plan (including any
subsequent amendments thereto) are hereby incorporated herein by reference. In the event of a
conflict between any term or provision contained herein and a term or provision of the Plan,
the applicable terms and provisions of the Plan will govern and prevail.
	 
	(f)	 	Anything herein to the contrary notwithstanding, a Grantee whose SAR has been forfeited as a
result of termination of employment due to U.S. Military Service and who is later re-employed
(in a full-time active status) after discharge within the time period set in 38 U.S.C. Section
4312 will be eligible to have the forfeited SAR reinstated for the original Term pursuant to
procedures established by the Company for this purpose.
	 
	(g)	 	Nothing in this Agreement shall interfere with a limit in anyway the right of the Company or
any Subsidiary or Affiliate to terminate the Grantee’s employment at any time. Neither the
execution and delivery of this Agreement nor the granting of the SAR shall constitute or be
evidence of any agreement or understanding, express or implied, on the part of the Company or
any of its Subsidiaries to employ Grantee for any period.
	 
	(h)	 	This SAR is an unfunded obligation of the Company and nothing in this Agreement shall be
construed to create any claim against particular assets or require the Company to segregate or
otherwise set aside any assets or create any fund to meet its obligations hereunder.
	 
	(i)	 	The Company shall have the power to withhold, an amount sufficient to satisfy Federal, state
and local, social security and medicare withholding tax requirements, if applicable. Any
social security calculation or other adjustments discovered after the net share payment will
be settled in cash in the Grantee’s paystub not in Common Stock.

ARTICLE VIII

EMPLOYEE COVENANTS

6

 

	(a)	 	As consideration for the grant of the SAR, without prior written consent of the Company:

	 	(i)	 	Grantee will not (except to the extent required by an order of a court having
competent jurisdiction or under subpoena from an appropriate government agency) disclose
to any third person, whether during or subsequent to Grantee’s Employment, any trade
secrets, confidential information and proprietary materials, which may include, but are
not limited to, the following categories of information and materials: customer lists and
identities; provider lists and identities; employee lists and identities; product
development and related information; marketing plans and related information; sales plans
and related information; premium or other pricing information; operating policies and
manuals; research; payment rates; methodologies; procedures;
contractual forms; business plans; financial records; computer programs; database; or
other financial, commercial, business or technical information related to the Company or
any Subsidiary or Affiliate unless such information has been previously disclosed to the
public by the Company or has become public knowledge other than by a breach of this
Agreement; provided, however, that this limitation shall not apply to any such disclosure
made while Grantee is employed by the Company, any Subsidiary or Affiliate if such
disclosure occurred in connection with the performance of Grantee’s job as an employee of
the Company, any Subsidiary or Affiliate;
	 
	 	(ii)	 	Grantee will not, during and for a period of 12 months following Grantee’s
termination of Employment, directly or indirectly induce or attempt to induce any
employee to be employed by or to perform services elsewhere;
	 
	 	(iii)	 	Grantee will not, during and for a period of 12 months following Grantee’s
termination of Employment, directly or indirectly, induce or attempt to induce any agent
or agency, broker, supplier or health care provider of the Company or any Subsidiary to
cease or curtail providing services to the Company or any Subsidiary; and
	 
	 	(iv)	 	Grantee will not, during and for a period of 12 months following Grantee’s
termination of Employment, directly or indirectly solicit or attempt to solicit the trade
of any individual or entity which, at the time of such solicitation, is a customer of the
Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate
is undertaking reasonable steps to procure as a customer at the time of or immediately
preceding termination of Employment; provided, however, that this limitation shall only
apply to any product or service which is in competition with a product or service of the
Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or
prospective customer with whom the Grantee has been directly or indirectly involved.

	 	 	In addition:

	 	(v)	 	Following the termination of Grantee’s Employment, Grantee shall provide
assistance to and shall cooperate with the Company or a Subsidiary or Affiliate, upon its
reasonable request and without additional compensation, with respect to matters within
the scope of Grantee’s duties and responsibilities during Employment, provided that any
reasonable out-of-pocket expenses Grantee incurs in connection with any assistance
Grantee has been requested to provide under this provision for items including, but not
limited to, transportation, meals, lodging and telephone, shall be reimbursed by the
Company. The Company agrees and acknowledges that it shall, to the maximum extent
possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or
Affiliate to coordinate, any such request with Grantee’s other commitments and
responsibilities to minimize the degree to which such request interferes with such
commitments and responsibilities;
	 
	 	(vi)	 	Grantee shall promptly notify the Company’s General Counsel if Grantee is
contacted by a regulatory or self-regulatory agency with respect to matters pertaining to
the Company or by an attorney or other individual who informs you that he/she has filed,
intends to file, or is considering filing a claim or complaint against the Company; and

7

 

	 	(vii)	 	Grantee acknowledges that all original works of authorship that are created by
Grantee (solely or jointly with others) within the scope of Grantee’s employment which
are protectable by copyright are “works made for hire” as that term is defined in the
United States Copyright Act (17 U.S.C., Section 101). Grantee further acknowledges that
while employed by the Company, Grantee may develop ideas, inventions, discoveries,
innovations, procedures, methods, know-how or other works which relate to the Company’s
current or are reasonably expected to relate to the Company’s future business that may be
patentable or subject to trade secret protection. Grantee agrees that all such works of
authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how
and other works shall belong exclusively to the Company and the Grantee hereby assigns
all right, title and interest therein to the Company. To the extent any of the foregoing
works may be patentable, Grantee agrees that the Company may file and prosecute any
application for patents for such works and that the Grantee will, on request, execute
assignments to the Company relating
to (and take all such further steps as may be reasonably necessary to perfect the
Company’s sole and exclusive ownership of) any such application and any patents resulting
therefrom.

	(b)	 	If any provision of Article VIII(a) is determined by a court of competent jurisdiction not to
be enforceable in the manner set forth herein, the Company and Grantee agree that it is the
intention of the parties that such provision should be enforceable to the maximum extent
possible under applicable law and that such court shall reform such provision to make it
enforceable in accordance with the intent of the parties.
	 
	(c)	 	Grantee acknowledges that a material part of the inducement for the Company to grant the SAR
is Grantee’s covenants set forth in Article VIII(a) and that the covenants and obligations of
Grantee with respect to nondisclosure, nonsolicitation, cooperation and intellectual property
rights relate to special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable injury for which
adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall
breach any of those covenants or obligations, Grantee shall not be entitled to exercise the
SAR or be entitled to retain any income therefrom and the Company shall be entitled to an
injunction, restraining order or such other equitable relief (without the requirement to post
bond) restraining Grantee from committing any violation of the covenants and obligations
contained in Article VIII. The remedies in the preceding sentence are cumulative and are in
addition to any other rights and remedies the Company may have at law or in equity as a court
or arbitrator shall reasonably determine.
	 
	(d)	 	Employment Dispute Arbitration Program — Mandatory Binding Arbitration of Employment 
Disputes.

	 	(i)	 	Except as otherwise specified in this Agreement, the Grantee and the Company agree
that all employment-related legal disputes between them will be submitted to and resolved
by binding arbitration, and neither the Grantee nor the Company will file or participate
as an individual party or member of a class in a lawsuit in any court against the other
with respect to such matters. This shall apply to claims brought on or after the date
the Grantee accepts this Agreement, even if the facts and circumstances relating to the
claim occurred prior to that date and regardless of whether Grantee or the Company
previously filed a complaint/charge with a government agency concerning the claim.

8

 

	 	 	 	For purposes of Article VIII (d) of this Agreement, “the Company” includes Aetna Inc.,
its subsidiaries and related companies, their predecessors, successors and assigns, and
those acting as representatives or agents of those entities. THE GRANTEE UNDERSTANDS
THAT, WITH RESPECT TO CLAIMS SUBJECT TO THE ARBITRATION REQUIREMENT, ARBITRATION REPLACES
THE RIGHT OF THE GRANTEE AND THE COMPANY TO SUE OR PARTICIPATE IN A LAWSUIT. THE GRANTEE
ALSO UNDERSTANDS THAT IN ARBITRATION, A DISPUTE IS RESOLVED BY AN ARBITRATOR INSTEAD OF A
JUDGE OR JURY, AND THE DECISION OF THE ARBITRATOR IS FINAL AND BINDING.
	 
	 	(ii)	 	THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT
THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS
BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE
SIGNING THIS AGREEMENT.
	 
	 	(iii)	 	Article VIII (d) of this Agreement does not apply to workers’ compensation claims,
unemployment compensation claims, and claims under the Employee Retirement Income
Security Act of 1974 (“ERISA”) for employee benefits. A dispute as to whether Article
VIII (d) of this Agreement applies must be submitted to the binding arbitration process
set forth in this Agreement.
	 
	 	(iv)	 	The Grantee and/or the Company may seek emergency or temporary injunctive relief
from a court (including with respect to claims arising out of Article VIII (a) in
accordance with applicable law). However, except as provided in Article VIII (c) of this
Agreement, after the court has issued a ruling concerning the emergency or temporary
injunctive relief, the Grantee and the Company shall be required to submit the dispute to
binding arbitration pursuant to this Agreement.
	 
	 	(v)	 	Unless otherwise agreed, the arbitration will be administered by the American
Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s National
Rules for Resolution of Employment Disputes (the “Rules”), as modified in this Agreement,
in effect at the time the request for arbitration is filed. The AAA’s Rules are
available on the AAA’s website at www.adr.org. THE GRANTEE ACKNOWLEDGES THAT THE COMPANY
HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE
GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.
	 
	 	(vi)	 	If the Company initiates a request for arbitration, the Company will pay all of the
administrative fees and costs charged by the AAA, including the arbitrator’s compensation
and charges for hearing room rentals, etc. If the Grantee initiates a request for
arbitration or submits a counterclaim to the Company’s request for arbitration, the
Grantee shall be required to contribute One Hundred Dollars ($100.00) to those
administrative fees and costs, payable to the AAA at the time the Grantee’s request for
arbitration or counterclaim is submitted. The Company may increase the contribution
amount in the future without amending this Agreement, but not to exceed the maximum
permitted under the AAA rules then in effect. In all cases, the Grantee and the Company
shall be responsible for payment of any fees assessed by the arbitrator as a result of
that party’s delay, request for postponement, failure to comply with the arbitrator’s
rulings and for other similar reasons.
	 
	 	(vii)	 	The Grantee and the Company may choose to be represented by legal counsel in the
arbitration process and shall be responsible for their own legal fees, expenses and
costs. However, the arbitrator shall have the same authority as a court to order the
Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs,
in accordance with applicable law.
	 
	 	(viii)	 	Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee
and the Company from a list of qualified neutrals furnished by the AAA. If the Grantee
and the Company cannot agree on an arbitrator, one will be selected by the AAA.

9

 

	 	(ix)	 	Unless otherwise agreed, the arbitration hearing will take place in the city where
the Grantee works or last worked for the Company. If the Grantee and the Company
disagree as to the proper locale, the AAA will decide.
	 
	 	(x)	 	The Grantee and the Company shall be entitled to conduct limited pre-hearing
discovery. Each may take the deposition of one person and anyone designated by the other
as an expert witness. The party taking the deposition shall be responsible for all
associated costs, such as the cost of a court reporter and the cost of an original
transcript. Each party also has the right to submit one set of ten written questions
(including subparts) to the other party, which must be answered under oath, and to
request and obtain all documents on which the other party relies in support of its
answers to the written questions. Additional discovery may be permitted by the
arbitrator upon a showing that it is necessary for that party to have a fair opportunity
to present a claim or defense.
	 
	 	(xi)	 	The arbitrator shall apply the same substantive law that would apply if the matter
were heard by a court and shall have the authority to order the same remedies (but no
others) as would be available in a court proceeding. The time limits for requesting
arbitration or submitting a counterclaim and the administrative prerequisites for filing
an arbitration claim or counterclaim are the same as they would be in a court proceeding.
The arbitrator shall have the authority to consider and decide dispositive motions
(motions seeking a decision on some or all of the claims or counterclaims without an
arbitration hearing).
	 
	 	(xii)	 	All proceedings, including the arbitration hearing and decision, are private and
confidential, unless otherwise required by law. Arbitration decisions may not be
published or publicized without the consent of both the Grantee and the Company.
	 
	 	(xiii)	 	Unless otherwise agreed, the arbitrator’s decision will be in writing with a brief
summary of the arbitrator’s opinion.
	 
	 	(xiv)	 	The arbitrator’s decision is final and binding on the Grantee and the Company.
After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order
of judgment from a court and may obtain a court order enforcing the decision. The
arbitrator’s decision may be appealed to the courts only under the limited circumstances
provided by law.
	 
	 	(xv)	 	If the Grantee previously signed an agreement, including but not limited to an
employment agreement, containing arbitration provisions, those provisions are superseded
by the arbitration provisions of this Agreement.
	 
	 	(xvi)	 	If any provision of Article VIII (d) is found to be void or otherwise
unenforceable, in whole or in part, this shall not affect the validity of the remainder
of Article VIII (d) and the remainder of the Agreement. All other provisions shall
remain in full force and effect.

For purposes of this Article VIII, the term “Employment” shall refer to active employment with the
Company, any Subsidiary or Affiliate, and shall not include severance periods.

10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]