Document:

exv10w2

    Exhibit 10.2

 

    CYTOKINETICS,
    INCORPORATED

    

 

    2004
    EQUITY INCENTIVE PLAN, AS AMENDED

 

    1. Purposes of the Plan.  The
    purposes of this Plan are:

 

			
	 	    • 
	
    to attract and retain the best available personnel for positions
    of substantial responsibility,

	 
	 	    • 
	
    to provide additional incentive to Employees, Directors and
    Consultants, and

	 
	 	    • 
	
    to promote the success of the Company’s business.

 

    The Plan permits the grant of Incentive Stock Options,
    Nonstatutory Stock Options, Restricted Stock, Restricted Stock
    Units, Stock Appreciation Rights, Performance Units and
    Performance Shares.

 

    2. Definitions.  As used herein,
    the following definitions will apply:

 

    (a) ‘‘Administrator” means the
    Board or any of its Committees as will be administering the
    Plan, in accordance with Section 4 of the Plan.

 

    (b) ‘‘Affiliated SAR” means an
    SAR that is granted in connection with a related Option, and
    which automatically will be deemed to be exercised at the same
    time that the related Option is exercised.

 

    (c) “Applicable Laws” means the
    requirements relating to the administration of equity-based
    awards under U.S. state corporate laws, U.S. federal
    and state securities laws, the Code, any stock exchange or
    quotation system on which the Common Stock is listed or quoted
    and the applicable laws of any foreign country or jurisdiction
    where Awards are, or will be, granted under the Plan.

 

    (d) “Approval Authority” means an
    authority, governmental or otherwise, that regulates pre-market
    approval of goods and services.

 

    (e) “Award” means, individually or
    collectively, a grant under the Plan of Options, SARs,
    Restricted Stock, Restricted Stock Units, Performance Units or
    Performance Shares.

 

    (f) “Award Agreement” means the
    written or electronic agreement setting forth the terms and
    provisions applicable to each Award granted under the Plan. The
    Award Agreement is subject to the terms and conditions of the
    Plan.

 

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

 

    (h) “Cash Position” means the
    Company’s or a business unit’s level of cash, cash
    equivalents, and available for sale marketable securities.

 

    (i) “Change in Control” means the
    occurrence of any of the following events:

 

    (i) Any “person” (as such term is used in
    Sections 13(d) and 14(d) of the Exchange Act) becomes the
    “beneficial owner” (as defined in
    Rule 13d-3
    of the Exchange Act), directly or indirectly, of securities of
    the Company representing fifty percent (50%) or more of the
    total voting power represented by the Company’s then
    outstanding voting securities; or

 

    (ii) The consummation of the sale or disposition by the
    Company of all or substantially all of the Company’s assets;

 

    (iii) A change in the composition of the Board occurring
    within a two-year period, as a result of which fewer than a
    majority of the directors are Incumbent Directors.
    “Incumbent Directors” means directors who either
    (A) are Directors as of the effective date of the Plan, or
    (B) are elected, or nominated for election, to the Board
    with the affirmative votes of at least a majority of the
    Incumbent Directors at the time of such election or nomination
    (but will not include an individual whose election or nomination
    is in connection with an actual or threatened proxy contest
    relating to the election of directors to the Company); or

    

    1

 

    (iv) The consummation of a merger or consolidation of the
    Company with any other corporation, other than a merger or
    consolidation which would result in the voting securities of the
    Company outstanding immediately prior thereto continuing to
    represent (either by remaining outstanding or by being converted
    into voting securities of the surviving entity or its parent) at
    least fifty percent (50%) of the total voting power represented
    by the voting securities of the Company or such surviving entity
    or its parent outstanding immediately after such merger or
    consolidation.

 

    (j) “Clinical Progression” means,
    for any Performance Period, a Product’s entry into or
    completion of a phase of clinical development, such as when a
    Product enters into or completes a Phase 1, Phase 2, Phase 3 or
    other clinical study.

 

    (k) “Code” means the Internal
    Revenue Code of 1986, as amended. Any reference to a section of
    the Code herein will be a reference to any successor or amended
    section of the Code.

 

    (l) “Collaboration Arrangement”
    means, for any Performance Period, entry into an agreement
    or arrangement with a third party for the development,
    commercialization, marketing or distribution of a Product or for
    the conducting of a research program to discover or develop a
    Product or technologies.

 

    (m) “Collaboration Progression”
    means, for any Performance Period, an event that triggers an
    obligation or payment right to accrue under a Collaboration
    Agreement.

 

    (n) “Committee” means a committee
    of Directors appointed by the Board in accordance with
    Section 4 of the Plan.

 

    (o) “Common Stock” means the common
    stock of the Company.

 

    (p) “Company” means Cytokinetics,
    Incorporated, a Delaware corporation, or any successor thereto.

 

    (q) “Consultant” means any person,
    including an advisor, engaged by the Company or a Parent or
    Subsidiary to render services to such entity.

 

    (r) “Determination Date” means the
    latest possible date that will not jeopardize the qualification
    of an Award granted under the Plan as “performance-based
    compensation” under Section 162(m) of the Code.

 

    (s) “Director” means a member of
    the Board.

 

    (t) “Disability” means total and
    permanent disability as defined in Section 22(e)(3) of the
    Code, provided that in the case of Awards other than Incentive
    Stock Options, the Administrator in its discretion may determine
    whether a permanent and total disability exists in accordance
    with uniform and non-discriminatory standards adopted by the
    Administrator from time to time.

 

    (u) “Earnings Per Share” means as
    to any Performance Period, the Company’s or a business
    unit’s Net Income, divided by a weighted average number of
    common shares outstanding and dilutive common equivalent shares
    deemed outstanding, determined in accordance with generally
    accepted accounting principles.

 

    (v) “Employee” means any person,
    including Officers and Directors, employed by the Company or any
    Parent or Subsidiary of the Company. Neither service as a
    Director nor payment of a director’s fee by the Company
    will be sufficient to constitute “employment” by the
    Company.

 

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

 

    (x) “Exchange Program” means a
    program under which (i) outstanding Awards are surrendered
    or cancelled in exchange for Awards of the same type (which may
    have lower exercise prices and different terms), Awards of a
    different type,
    and/or cash,
    (ii) Participants would have the opportunity to transfer
    any outstanding Awards to a financial institution or other
    person or entity selected by the Administrator,
    and/or
    (iii) the exercise price of an outstanding Award is
    reduced. The Administrator will determine the terms and
    conditions of any Exchange Program in its sole discretion,
    subject to the provisions of Section 4(c).

    

    2

 

    (y) “Fair Market Value” means, as
    of any date, the value of Common Stock determined as follows:

 

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

 

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

 

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

 

    (z) “Financing Event” means, for
    any Performance Period, the closing of any financing event for
    capital raising purposes.

 

    (aa) “Fiscal Year” means the fiscal
    year of the Company.

 

    (bb) “Freestanding SAR” means an
    SAR that is granted independently of any Option.

 

    (cc) “Incentive Stock Option” means
    an Option intended to qualify as an incentive stock option
    within the meaning of Section 422 of the Code and the
    regulations promulgated thereunder.

 

    (dd) “Net Income” means as to any
    Performance Period, the income after taxes of the Company or a
    business unit for the Performance Period determined in
    accordance with generally accepted accounting principles.

 

    (ee) “Nonstatutory Stock Option”
    means an Option that by its terms does not qualify or is not
    intended to qualify as an Incentive Stock Option.

 

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

 

    (gg) “Operating Cash Flow” means
    the Company’s or a business unit’s sum of Net Income
    plus depreciation and amortization less capital expenditures
    plus changes in working capital comprised of accounts
    receivable, inventories, other current assets, trade accounts
    payable, accrued expenses, product warranty, advance payments
    from customers and long-term accrued expenses, determined in
    accordance with generally acceptable accounting principles.

 

    (hh) “Operating Expenses” means the
    sum of the Company’s or a business unit’s research and
    development expenses and selling and general and administrative
    expenses during a Performance Period.

 

    (ii) “Operating Income” means the
    Company’s or a business unit’s income from operations
    determined in accordance with generally accepted accounting
    principles.

 

    (jj) “Option” means a stock option
    granted pursuant to the Plan.

 

    (kk) “Outside Director” means a
    Director who is not an Employee.

 

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

 

    (mm) “Participant” means the holder
    of an outstanding Award.

 

    (nn) “Performance Period” means any
    Fiscal Year or such other period as determined by the
    Administrator in its sole discretion.

 

    (oo) “Performance Share” means an
    Award granted to a Participant pursuant to Section 9.

 

    (pp) “Performance Unit” means an
    Award granted to a Participant pursuant to Section 9.

    

    3

 

    (qq) “Period of Restriction” means
    the period during which the transfer of Shares of Restricted
    Stock are subject to restrictions and therefore, the Shares are
    subject to a substantial risk of forfeiture. Such restrictions
    may be based on the passage of time, the achievement of target
    levels of performance, or the occurrence of other events as
    determined by the Administrator.

 

    (rr) “Plan” means this 2004 Equity
    Incentive Plan.

 

    (ss) “Product” means any drug
    candidate or product candidate requiring pre-market approval by
    an Approval Authority.

 

    (tt) “Product Approval” means the
    approval by any Approval Authority of the right to market or
    sell a Product.

 

    (uu) “Product Revenues” means as to
    any Performance Period, the Company’s or a business
    unit’s sales, royalties, license fees, milestones and
    related-party revenues, determined in accordance with generally
    accepted accounting principles.

 

    (vv) “Profit After Tax” means as to
    any Performance Period, the Company’s or a business
    unit’s income after taxes, determined in accordance with
    generally accepted accounting principles.

 

    (ww) “Projects in Development”
    refers to one or more projects at any or all stages of
    development from conception, discovery,
    and/or
    initial research through Product Approval, including, but not
    limited to, pre-clinical studies, filing of an investigational
    new drug application (IND) or foreign equivalent, Phase 1, Phase
    2, and Phase 3 clinical trials and submission and approval of a
    new drug application (NDA) or foreign equivalent.

 

    (xx) “Regulatory Filings” means as
    to any Performance Period, filings submitted to an Approval
    Authority with respect to a Product for which the Company is
    pursuing Product Approval.

 

    (yy) “Restricted Stock” means
    shares of Common Stock issued pursuant to a Restricted Stock
    award under Section 7 of the Plan, or issued pursuant to
    the early exercise of an Option.

 

    (zz) ‘‘Restricted Stock Unit”
    shall mean a bookkeeping entry representing an amount equal
    to the Fair Market Value of one Share, granted pursuant to
    Section 10. Each Restricted Stock Unit represents an
    unfunded and unsecured obligation of the Company.

 

    (aaa) “Return on Assets” means as
    to any Performance Period, the percentage equal to the
    Company’s or a business unit’s Operating Income before
    incentive compensation, divided by average net Company or
    business unit, as applicable, assets, determined in accordance
    with generally accepted accounting principles.

 

    (bbb) “Return on Equity” means as
    to any Performance Period, the percentage equal to the
    Company’s Profit After Tax divided by average
    stockholder’s equity, determined in accordance with
    generally accepted accounting principles.

 

    (ccc) “Revenue Growth” means as to
    any Performance Period, the Company’s or a business
    unit’s net sales determined in accordance with generally
    accepted accounting principles, compared to the net sales of the
    immediately preceding quarter.

 

    (ddd) “Rule 16b-3”
    means
    Rule 16b-3
    of the Exchange Act or any successor to
    Rule 16b-3,
    as in effect when discretion is being exercised with respect to
    the Plan.

 

    (eee) “Section 16(b)” means
    Section 16(b) of the Exchange Act.

 

    (fff) “Service Provider” means an
    Employee, Director or Consultant.

 

    (ggg) “Share” means a share of the
    Common Stock, as adjusted in accordance with Section 14 of
    the Plan.

 

    (hhh) “Stock Appreciation Right” or
    “SAR” means an Award, granted alone or in
    connection with an Option, that pursuant to Section 8 is
    designated as a SAR.

 

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

    

    4

 

    (jjj) “Tandem SAR” means an SAR
    that is granted in connection with a related Option, the
    exercise of which will require forfeiture of the right to
    purchase an equal number of Shares under the related Option (and
    when a Share is purchased under the Option, the SAR will be
    canceled to the same extent).

 

    (kkk) “Total Stockholder Return”
    means the total return (change in share price plus
    reinvestment of any dividends) of a share of Common Stock.

 

    3. Stock Subject to the Plan.

 

    (a) Stock Subject to the
    Plan.  Subject to the provisions of
    Section 14 of the Plan, the maximum aggregate number of
    Shares that may be optioned and sold under the Plan is
    (A) 15,754,668 Shares plus (B) any Shares
    returned on or after February 28, 2011 to the 1997 Stock
    Option/Stock Issuance Plan as a result of termination of options
    or repurchase of Shares issued under such plan up to a maximum
    of 467,003 Shares. The Shares may be authorized, but
    unissued, or reacquired Common Stock.

 

    (b) Full Value Awards.  Any Shares
    subject to Awards granted with an exercise price less than the
    Fair Market Value on the date of grant of such Awards will be
    counted against the numerical limits of this Section 3 as
    two Shares for every one Share subject thereto. Further, if
    Shares acquired pursuant to any such Award are forfeited or
    repurchased by the Company and would otherwise return to the
    Plan pursuant to Section 3(c), two times the number of
    Shares so forfeited or repurchased will return to the Plan and
    will again become available for issuance.

 

    (c) Lapsed Awards.  If an Award
    expires or becomes unexercisable without having been exercised
    in full, or, with respect to Restricted Stock, Restricted Stock
    Units, Performance Shares or Performance Units, is forfeited to
    or repurchased by the Company due to failure to vest, the
    unpurchased Shares (or for Awards other than Options and Stock
    Appreciation Rights, the forfeited or repurchased Shares) which
    were subject thereto will become available for future grant or
    sale under the Plan (unless the Plan has terminated). Upon
    exercise of a Stock Appreciation Right settled in Shares, the
    gross number of Shares covered by the portion of the Award so
    exercised will cease to be available under the Plan. If the
    exercise price of an Option is paid by tender to the Company, or
    by attestation to the ownership of Shares owned by the
    Participant, the number of Shares available for issuance under
    the Plan will be reduced by the gross number of Shares for which
    the Option is exercised. Shares that have actually been issued
    under the Plan under any Award will not be returned to the Plan
    and will not become available for future distribution under the
    Plan; provided, however, that if unvested Shares of Restricted
    Stock, Restricted Stock Units, Performance Shares or Performance
    Units are repurchased by the Company or are forfeited to the
    Company due to failure to vest, such Shares will become
    available for future grant under the Plan. Shares used to pay
    the tax and exercise price of an Award will not become available
    for future grant or sale under the Plan. To the extent an Award
    under the Plan is paid out in cash rather than Shares, such cash
    payment will not result in reducing the number of Shares
    available for issuance under the Plan. Notwithstanding the
    foregoing provisions of this Section 3(c), subject to
    adjustment provided in Section 14, the maximum number of
    Shares that may be issued upon the exercise of Incentive Stock
    Options will equal the aggregate Share number stated in
    Section 3(a), plus, to the extent allowable under
    Section 422 of the Code, any Shares that become available
    for issuance under the Plan under this Section 3(c).

 

    (d) Share Reserve.  The Company,
    during the term of this Plan, will at all times reserve and keep
    available such number of Shares as will be sufficient to satisfy
    the requirements of the Plan.

 

    4. Administration of the Plan.

 

    (a) Procedure.

 

    (i) Multiple Administrative
    Bodies.  Different Committees with respect to
    different groups of Service Providers may administer the Plan.

 

    (ii) Section 162(m).  To the
    extent that the Administrator determines it to be desirable to
    qualify Awards granted hereunder as “performance-based
    compensation” within the meaning of Section 162(m) of
    the Code, the Plan will be administered by a Committee of two or
    more “outside directors” within the meaning of
    Section 162(m) of the Code.

 

    (iii) Rule 16b-3.  To
    the extent desirable to qualify transactions hereunder as exempt
    under
    Rule 16b-3,
    the transactions contemplated hereunder will be structured to
    satisfy the requirements for exemption under
    Rule 16b-3.

    

    5

 

    (iv) Other Administration.  Other
    than as provided above, the Plan will be administered by
    (A) the Board or (B) a Committee, which committee will
    be constituted to satisfy Applicable Laws.

 

    (b) Powers of the
    Administrator.  Subject to the provisions of
    the Plan, and in the case of a Committee, subject to the
    specific duties delegated by the Board to such Committee, the
    Administrator will have the authority, in its discretion:

 

    (i) to determine the Fair Market Value;

 

    (ii) to select the Service Providers to whom Awards may be
    granted hereunder;

 

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

 

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

 

    (v) to determine the terms and conditions of any, and with
    the approval of the Company’s stockholders, to institute an
    Exchange Program;

 

    (vi) to determine the terms and conditions, not
    inconsistent with the terms of the Plan, of any Award granted
    hereunder. Such terms and conditions include, but are not
    limited to, the exercise price, the time or times when Awards
    may be exercised (which may be based on performance criteria),
    any vesting acceleration or waiver of forfeiture restrictions,
    and any restriction or limitation regarding any Award or the
    Shares relating thereto, based in each case on such factors as
    the Administrator will determine;

 

    (vii) to construe and interpret the terms of the Plan and
    Awards granted pursuant to the Plan;

 

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

 

    (ix) to modify or amend each Award (subject to
    Section 19(c) of the Plan), including the discretionary
    authority to extend the post-termination exercisability period
    of Awards longer than is otherwise provided for in the Plan;

 

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

 

    (xi) to authorize any person to execute on behalf of the
    Company any instrument required to effect the grant of an Award
    previously granted by the Administrator;

 

    (xii) to allow a Participant to defer the receipt of the
    payment of cash or the delivery of Shares that would otherwise
    be due to such Participant under an Award

 

    (xiii) to make all other determinations deemed necessary or
    advisable for administering the Plan.

 

    (c) Prohibition Against
    Repricing.  Subject to adjustments made
    pursuant to Section 14, in no event shall the Administrator
    have the right to amend the terms of any Award to reduce the
    exercise price of such outstanding Award or cancel an
    outstanding Award in exchange for cash or other Awards with an
    exercise price that is less than the exercise price of the
    original Award without stockholder approval.

 

    (d) Effect of Administrator’s
    Decision.  The Administrator’s decisions,
    determinations and interpretations will be final and binding on
    all Participants and any other holders of Awards.

 

    5. Eligibility.  Nonstatutory Stock
    Options, Restricted Stock, Restricted Stock Units, Stock
    Appreciation Rights, Performance Units and Performance Shares
    may be granted to Service Providers. Incentive Stock Options may
    be granted only to Employees.

    

    6

 

    6. Stock Options.

 

    (a) Limitations.

 

    (i) Each Option will be designated in the Award Agreement
    as either an Incentive Stock Option or a Nonstatutory Stock
    Option. However, notwithstanding such designation, to the extent
    that the aggregate Fair Market Value of the Shares with respect
    to which Incentive Stock Options are exercisable for the first
    time by the Participant during any calendar year (under all
    plans of the Company and any Parent or Subsidiary) exceeds
    $100,000, such Options will be treated as Nonstatutory Stock
    Options. For purposes of this Section 6(a), Incentive Stock
    Options will be taken into account in the order in which they
    were granted. The Fair Market Value of the Shares will be
    determined as of the time the Option with respect to such Shares
    is granted.

 

    (ii) The following limitations will apply to grants of
    Options:

 

    (1) No Service Provider will be granted, in any Fiscal
    Year, Options to purchase more than 1,500,000 Shares.

 

    (2) In connection with his or her initial service, a
    Service Provider may be granted Options to purchase up to an
    additional 1,500,000 Shares, which will not count against
    the limit set forth in Section 6(a)(ii)(1) above.

 

    (3) The foregoing limitations will be adjusted
    proportionately in connection with any change in the
    Company’s capitalization as described in Section 14.

 

    (4) If an Option is cancelled in the same Fiscal Year in
    which it was granted (other than in connection with a
    transaction described in Section 14), the cancelled Option
    will be counted against the limits set forth in
    subsections (1) and (2) above.

 

    (b) Term of Option.  The term of
    each Option will be stated in the Award Agreement and will be
    ten (10) years from the date of grant or such shorter term
    as may be provided in the Award Agreement. Moreover, in the case
    of an Incentive Stock Option granted to a Participant who, at
    the time the Incentive Stock Option is granted, owns stock
    representing more than ten percent (10%) of the total combined
    voting power of all classes of stock of the Company or any
    Parent or Subsidiary, the term of the Incentive Stock Option
    will be five (5) years from the date of grant or such
    shorter term as may be provided in the Award Agreement.

 

    (c) Option Exercise Price and Consideration.

 

    (i) Exercise Price.  The per share
    exercise price for the Shares to be issued pursuant to exercise
    of an Option will be determined by the Administrator, subject to
    the following:

 

    (1) In the case of an Incentive Stock Option

 

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

 

    b) granted to any Employee other than an Employee described
    in paragraph (A) immediately above, the per Share exercise
    price will be no less than 100% of the Fair Market Value per
    Share on the date of grant.

 

    (2) In the case of a Nonstatutory Stock Option, the per
    Share exercise price will be determined by the Administrator,
    but will be no less than 100% of the Fair Market Value per Share
    on the date of grant.

 

    (3) Notwithstanding the foregoing, Options may be granted
    with a per Share exercise price of less than 100% of the Fair
    Market Value per Share on the date of grant pursuant to a
    transaction described in, and in a manner consistent with,
    Section 424(a) of the Code.

 

    (ii) Waiting Period and Exercise
    Dates.  At the time an Option is granted, the
    Administrator will fix the period within which the Option may be
    exercised and will determine any conditions that must be
    satisfied before the Option may be exercised.

    

    7

 

    (iii) Form of Consideration.  The
    Administrator will determine the acceptable form of
    consideration for exercising an Option, including the method of
    payment. In the case of an Incentive Stock Option, the
    Administrator will determine the acceptable form of
    consideration at the time of grant. Such consideration may
    consist entirely of: (1) cash; (2) check;
    (3) promissory note, to the extent permitted by Applicable
    Laws; (4) other Shares, provided that such Shares have a
    Fair Market Value on the date of surrender equal to the
    aggregate exercise price of the Shares as to which said Option
    will be exercised and provided that accepting such Shares, in
    the sole discretion of the Administrator, shall not result in
    any adverse accounting consequences to the Company;
    (5) consideration received by the Company under a cashless
    exercise program implemented by the Company in connection with
    the Plan; (6) a reduction in the amount of any Company
    liability to the Participant, including any liability
    attributable to the Participant’s participation in any
    Company-sponsored deferred compensation program or arrangement;
    (7) such other consideration and method of payment for the
    issuance of Shares to the extent permitted by Applicable Laws;
    or (8) any combination of the foregoing methods of payment.

 

    (d) Exercise of Option.

 

    (i) Procedure for Exercise; Rights as a
    Stockholder.  Any Option granted hereunder
    will be exercisable according to the terms of the Plan and at
    such times and under such conditions as determined by the
    Administrator and set forth in the Award Agreement. An Option
    may not be exercised for a fraction of a Share.

 

    An Option will be deemed exercised when the Company receives:
    (i) written or electronic notice of exercise (in accordance
    with the Award Agreement) from the person entitled to exercise
    the Option, and (ii) full payment for the Shares with
    respect to which the Option is exercised. Full payment may
    consist of any consideration and method of payment authorized by
    the Administrator and permitted by the Award Agreement and the
    Plan. Shares issued upon exercise of an Option will be issued in
    the name of the Participant or, if requested by the Participant,
    in the name of the Participant and his or her spouse. Until the
    Shares are issued (as evidenced by the appropriate entry on the
    books of the Company or of a duly authorized transfer agent of
    the Company), no right to vote or receive dividends or any other
    rights as a stockholder will exist with respect to the Shares,
    notwithstanding the exercise of the Option. The Company will
    issue (or cause to be issued) such Shares promptly after the
    Option is exercised. No adjustment will be made for a dividend
    or other right for which the record date is prior to the date
    the Shares are issued, except as provided in Section 14 of
    the Plan.

 

    Exercising an Option in any manner will decrease the number of
    Shares thereafter available, both for purposes of the Plan and
    for sale under the Option, by the number of Shares as to which
    the Option is exercised.

 

    (ii) Termination of Relationship as a Service
    Provider.  If a Participant ceases to be a
    Service Provider, other than upon the Participant’s death
    or Disability, the Participant may exercise his or her Option
    within such period of time as is specified in the Award
    Agreement to the extent that the Option is vested on the date of
    termination (but in no event later than the expiration of the
    term of such Option as set forth in the Award Agreement). In the
    absence of a specified time in the Award Agreement, the Option
    will remain exercisable for three (3) months following the
    Participant’s termination. Unless otherwise provided by the
    Administrator, if on the date of termination the Participant is
    not vested as to his or her entire Option, the Shares covered by
    the unvested portion of the Option will revert to the Plan. If
    after termination the Participant does not exercise his or her
    Option within the time specified by the Administrator, the
    Option will terminate, and the Shares covered by such Option
    will revert to the Plan.

 

    (iii) Disability of
    Participant.  If a Participant ceases to be a
    Service Provider as a result of the Participant’s
    Disability, the Participant may exercise his or her Option
    within such period of time as is specified in the Award
    Agreement to the extent the Option is vested on the date of
    termination (but in no event later than the expiration of the
    term of such Option as set forth in the Award Agreement). In the
    absence of a specified time in the Award Agreement, the Option
    will remain exercisable for twelve (12) months following
    the Participant’s termination. Unless otherwise provided by
    the Administrator, if on the date of termination the Participant
    is not vested as to his or her entire Option, the Shares covered
    by the unvested portion of the Option will revert to the Plan.
    If after termination the Participant does not exercise his or
    her Option within the time specified herein, the Option will
    terminate, and the Shares covered by such Option will revert to
    the Plan.

 

    (iv) Death of Participant.  If a
    Participant dies while a Service Provider, the Option may be
    exercised following the Participant’s death within such
    period of time as is specified in the Award Agreement to the
    extent that

    

    8

 

    the Option is vested on the date of death (but in no event may
    the option be exercised later than the expiration of the term of
    such Option as set forth in the Award Agreement), by the
    Participant’s designated beneficiary, provided such
    beneficiary has been designated prior to Participant’s
    death in a form acceptable to the Administrator. If no such
    beneficiary has been designated by the Participant, then such
    Option may be exercised by the personal representative of the
    Participant’s estate or by the person(s) to whom the Option
    is transferred pursuant to the Participant’s will or in
    accordance with the laws of descent and distribution. In the
    absence of a specified time in the Award Agreement, the Option
    will remain exercisable for twelve (12) months following
    Participant’s death. Unless otherwise provided by the
    Administrator, if at the time of death Participant is not vested
    as to his or her entire Option, the Shares covered by the
    unvested portion of the Option will immediately revert to the
    Plan. If the Option is not so exercised within the time
    specified herein, the Option will terminate, and the Shares
    covered by such Option will revert to the Plan.

 

    7. Restricted Stock.

 

    (a) Grant of Restricted
    Stock.  Subject to the terms and provisions of
    the Plan, the Administrator, at any time and from time to time,
    may grant Shares of Restricted Stock to Service Providers in
    such amounts as the Administrator, in its sole discretion, will
    determine.

 

    (b) Restricted Stock
    Agreement.  Each Award of Restricted Stock
    will be evidenced by an Award Agreement that will specify the
    Period of Restriction, the number of Shares granted, and such
    other terms and conditions as the Administrator, in its sole
    discretion, will determine. Notwithstanding the foregoing
    sentence, for Restricted Stock intended to qualify as
    “performance-based compensation” within the meaning of
    Section 162(m) of the Code, during any Fiscal Year no
    Participant will receive more than an aggregate of
    1,000,000 Shares of Restricted Stock. Notwithstanding the
    foregoing limitation, in connection with his or her initial
    service as an Employee, for Restricted Stock intended to qualify
    as “performance-based compensation” within the meaning
    of Section 162(m) of the Code, an Employee may be granted
    an aggregate of up to an additional 1,000,000 Shares of
    Restricted Stock. Unless the Administrator determines otherwise,
    Shares of Restricted Stock will be held by the Company as escrow
    agent until the restrictions on such Shares have lapsed.

 

    (c) Transferability.  Except as
    provided in this Section 7, Shares of Restricted Stock may
    not be sold, transferred, pledged, assigned, or otherwise
    alienated or hypothecated until the end of the applicable Period
    of Restriction.

 

    (d) Other Restrictions.  The
    Administrator, in its sole discretion, may impose such other
    restrictions on Shares of Restricted Stock as it may deem
    advisable or appropriate.

 

    (e) Removal of
    Restrictions.  Except as otherwise provided in
    this Section 7, Shares of Restricted Stock covered by each
    Restricted Stock grant made under the Plan will be released from
    escrow as soon as practicable after the last day of the Period
    of Restriction. The Administrator, in its discretion, may
    accelerate the time at which any restrictions will lapse or be
    removed.

 

    (f) Voting Rights.  During the
    Period of Restriction, Service Providers holding Shares of
    Restricted Stock granted hereunder may exercise full voting
    rights with respect to those Shares, unless the Administrator
    determines otherwise.

 

    (g) Dividends and Other
    Distributions.  During the Period of
    Restriction, Service Providers holding Shares of Restricted
    Stock will be entitled to receive all dividends and other
    distributions paid with respect to such Shares unless otherwise
    provided in the Award Agreement. Any such dividends will be
    subject to the same restrictions on transferability and
    forfeitability as the Shares of Restricted Stock with respect to
    which they were paid.

 

    (h) Return of Restricted Stock to
    Company.  On the date set forth in the Award
    Agreement, the Restricted Stock for which restrictions have not
    lapsed will revert to the Company and again will become
    available for grant under the Plan.

 

    (i) Section 162(m) Performance
    Restrictions.  For purposes of qualifying
    grants of Restricted Stock as “performance-based
    compensation” under Section 162(m) of the Code, the
    Administrator, in its discretion, may set restrictions based
    upon the achievement of Performance Goals. The Performance Goals
    will be set by the Administrator on or before the Determination
    Date. In granting Restricted Stock which is intended to qualify

    

    9

 

    under Section 162(m) of the Code, the Administrator will
    follow any procedures determined by it from time to time to be
    necessary or appropriate to ensure qualification of the Award
    under Section 162(m) of the Code (e.g., in determining the
    Performance Goals).

 

    8. Stock Appreciation Rights.

 

    (a) Grant of SARs.  Subject to the
    terms and conditions of the Plan, a SAR may be granted to
    Service Providers at any time and from time to time as will be
    determined by the Administrator, in its sole discretion. The
    Administrator may grant Affiliated SARs, Freestanding SARs,
    Tandem SARs, or any combination thereof.

 

    (b)Number of Shares.  The Administrator
    will have complete discretion to determine the number of SARs
    granted to any Service Provider; provided, however, no Service
    Provider will be granted, in any Fiscal Year, SARs covering more
    than 1,500,000 Shares. Notwithstanding the limitation in
    the previous sentence, in connection with his or her initial
    service a Service Provider may be granted SARs covering up to an
    additional 1,500,000 Shares. The foregoing limitations will
    be adjusted proportionately in connection with any change in the
    Company’s capitalization as described in Section 14.
    In addition, if a SAR is cancelled in the same Fiscal Year in
    which it was granted (other than in connection with a
    transaction described in Section 14), the cancelled SAR
    will be counted against the numerical share limits set forth
    above.

 

    (c) Exercise Price and Other
    Terms.  The Administrator, subject to the
    provisions of the Plan, will have complete discretion to
    determine the terms and conditions of SARs granted under the
    Plan; provided, however, that the per Share exercise price of a
    SAR will be no less than 100% of the Fair Market Value per Share
    on the date of grant. However, the exercise price of Tandem or
    Affiliated SARs will equal the exercise price of the related
    Option.

 

    (d) Exercise of Tandem
    SARs.  Tandem SARs may be exercised for all or
    part of the Shares subject to the related Option upon the
    surrender of the right to exercise the equivalent portion of the
    related Option. A Tandem SAR may be exercised only with respect
    to the Shares for which its related Option is then exercisable.
    With respect to a Tandem SAR granted in connection with an
    Incentive Stock Option: (a) the Tandem SAR will expire no
    later than the expiration of the underlying Incentive Stock
    Option; (b) the value of the payout with respect to the
    Tandem SAR will be for no more than one hundred percent (100%)
    of the difference between the exercise price of the underlying
    Incentive Stock Option and the Fair Market Value of the Shares
    subject to the underlying Incentive Stock Option at the time the
    Tandem SAR is exercised; and (c) the Tandem SAR will be
    exercisable only when the Fair Market Value of the Shares
    subject to the Incentive Stock Option exceeds the Exercise Price
    of the Incentive Stock Option.

 

    (e) Exercise of Affiliated
    SARs.  An Affiliated SAR will be deemed to be
    exercised upon the exercise of the related Option. The deemed
    exercise of an Affiliated SAR will not necessitate a reduction
    in the number of Shares subject to the related Option.

 

    (f) Exercise of Freestanding
    SARs.  Freestanding SARs will be exercisable
    on such terms and conditions as the Administrator, in its sole
    discretion, will determine.

 

    (g) SAR Agreement.  Each SAR grant
    will be evidenced by an Award Agreement that will specify the
    exercise price, the term of the SAR, the conditions of exercise,
    and such other terms and conditions as the Administrator, in its
    sole discretion, will determine.

 

    (h) Maximum Term/Expiration of
    SARs.  The term of each SAR will be stated in
    the Award Agreement and will be ten (10) years from the
    date of grant or such shorter term as may be provided in the
    Award Agreement.

 

    (i) Payment of SAR Amount.  Upon
    exercise of an SAR, a Participant will be entitled to receive
    payment from the Company in an amount determined by multiplying:

 

    (i) The difference between the Fair Market Value of a Share
    on the date of exercise over the exercise price; times

 

    (ii) The number of Shares with respect to which the SAR is
    exercised.

 

    At the discretion of the Administrator, the payment upon SAR
    exercise may be in cash, in Shares of equivalent value, or in
    some combination thereof.

    

    10

 

    9. Performance Units and Performance Shares.

 

    (a) Grant of Performance
    Units/Shares.  Performance Units and
    Performance Shares may be granted to Service Providers at any
    time and from time to time, as will be determined by the
    Administrator, in its sole discretion. The Administrator will
    have complete discretion in determining the number of
    Performance Units and Performance Shares granted to each
    Participant provided that during any Fiscal Year, for
    Performance Units or Performance Shares intended to qualify as
    “performance-based compensation” within the meaning of
    Section 162(m) of the Code, (i) no Participant will
    receive Performance Units having an initial value greater than
    $4,000,000, and (ii) no Participant will receive more than
    1,000,000 Performance Shares. Notwithstanding the foregoing
    limitation, for Performance Shares intended to qualify as
    “performance-based compensation” within the meaning of
    Section 162(m) of the Code, in connection with his or her
    initial service, a Service Provider may be granted up to an
    additional 1,000,000 Performance Shares.

 

    (b) Value of Performance
    Units/Shares.  Each Performance Unit will have
    an initial value that is established by the Administrator on or
    before the date of grant. Each Performance Share will have an
    initial value equal to the Fair Market Value of a Share on the
    date of grant.

 

    (c) Performance Objectives and Other
    Terms.  The Administrator will set performance
    objectives or other vesting provisions in its discretion which,
    depending on the extent to which they are met, will determine
    the number or value of Performance Units/Shares that will be
    paid out to the Service Providers. Each Award of Performance
    Units/Shares will be evidenced by an Award Agreement that will
    specify the Performance Period, and such other terms and
    conditions as the Administrator, in its sole discretion, will
    determine. The Administrator may set performance objectives
    based upon the achievement of Company-wide, divisional, or
    individual goals, applicable federal or state securities laws,
    or any other basis determined by the Administrator in its
    discretion.

 

    (d) Earning of Performance
    Units/Shares.  After the applicable
    Performance Period has ended, the holder of Performance
    Units/Shares will be entitled to receive a payout of the number
    of Performance Units/Shares earned by the Participant over the
    Performance Period, to be determined as a function of the extent
    to which the corresponding performance objectives or other
    vesting provisions have been achieved. After the grant of a
    Performance Unit/Share, the Administrator, in its sole
    discretion, may reduce or waive any performance objectives or
    other vesting provisions for such Performance Unit/Share.

 

    (e) Form and Timing of Payment of Performance
    Units/Shares.  Payment of earned Performance
    Units/Shares will be made as soon as practicable after the
    expiration of the applicable Performance Period. The
    Administrator, in its sole discretion, may pay earned
    Performance Units/Shares in the form of cash, in Shares (which
    have an aggregate Fair Market Value equal to the value of the
    earned Performance Units/Shares at the close of the applicable
    Performance Period) or in a combination thereof.

 

    (f) Cancellation of Performance
    Units/Shares.  On the date set forth in the
    Award Agreement, all unearned or unvested Performance
    Units/Shares will be forfeited to the Company, and again will be
    available for grant under the Plan.

 

    (g) Section 162(m) Performance
    Restrictions.  For purposes of qualifying
    grants of Performance Units/Shares as “performance-based
    compensation” under Section 162(m) of the Code, the
    Administrator, in its discretion, may set restrictions based
    upon the achievement of Performance Goals. The Performance Goals
    will be set by the Administrator on or before the Determination
    Date. In granting Performance Units/Shares which are intended to
    qualify under Section 162(m) of the Code, the Administrator
    will follow any procedures determined by it from time to time to
    be necessary or appropriate to ensure qualification of the Award
    under Section 162(m) of the Code (e.g., in determining the
    Performance Goals).

 

    10. Restricted Stock Units.

 

    (a) Grant of Restricted Stock
    Units.  Restricted Stock Units may be granted
    to Service Providers at any time and from time to time, as will
    be determined by the Administrator, in its sole discretion. The
    Administrator will have complete discretion in determining the
    number of Restricted Stock Units granted to each Participant
    provided that during any Fiscal Year, for Restricted Stock Units
    intended to qualify as “performance-based
    compensation” within the meaning of Section 162(m) of
    the Code, no Participant will receive more than 1,000,000
    Restricted Stock Units.

    

    11

 

    Notwithstanding the foregoing limitation, for Restricted Stock
    Units intended to qualify as “performance-based
    compensation” within the meaning of Section 162(m) of
    the Code, in connection with his or her initial service, a
    Service Provider may be granted up to an additional 1,000,000
    Performance Shares.

 

    (b) Vesting Provisions and Other
    Terms.  The Administrator will set
    service-based or other vesting provisions in its discretion
    which, depending on the extent to which they are met, will
    determine the number of Restricted Stock Units that will be paid
    out to the Service Providers. Each Award of Restricted Stock
    Units will be evidenced by an Award Agreement that will specify
    the vesting schedule, and such other terms and conditions as the
    Administrator, in its sole discretion, will determine.

 

    (c) Earning of Restricted Stock
    Units.  Upon vesting, the holder of Restricted
    Stock Units will be entitled to receive a payout of the number
    of Restricted Stock Units earned by the Participant. After the
    grant of Restricted Stock Units the Administrator, in its sole
    discretion, may reduce or waive any vesting provisions for such
    Restricted Stock Units.

 

    (d) Form and Timing of Payment of Restricted Stock
    Units.  Payment of earned Restricted Stock
    Units will be made as soon as practicable after vesting, but in
    no event more than ten business days later. The Administrator
    shall pay earned Restricted Stock Units in the form of Shares.

 

    (e) Cancellation of Restricted Stock
    Units.  On the date set forth in the Award
    Agreement, all unvested Restricted Stock Units Shares will be
    forfeited to the Company, and again will be available for grant
    under the Plan.

 

    (f) Section 162(m) Performance
    Restrictions.  For purposes of qualifying
    grants of Restricted Stock Units as “performance-based
    compensation” under Section 162(m) of the Code, the
    Administrator, in its discretion, may set restrictions based
    upon the achievement of Performance Goals. The Performance Goals
    will be set by the Administrator on or before the Determination
    Date. In granting Restricted Stock Units which are intended to
    qualify under Section 162(m) of the Code, the Administrator
    will follow any procedures determined by it from time to time to
    be necessary or appropriate to ensure qualification of the Award
    under Section 162(m) of the Code (e.g., in determining the
    Performance Goals).

 

    11. Performance Goals.  The
    granting
    and/or
    vesting of Awards of Restricted Stock, Restricted Stock Units,
    Performance Shares and Performance Units and other incentives
    under the Plan may be made subject to the attainment of
    performance goals relating to one or more business criteria
    within the meaning of Section 162(m) of the Code and may
    provide for a targeted level or levels of achievement
    (“Performance Goals” ) including: (i) Cash
    Position, (ii) Clinical Progression,
    (iii) Collaboration Arrangement, (iv) Collaboration
    Progression, (v) Earnings Per Share, (vi) Financing
    Event, (vii) Net Income, (viii) Operating Cash Flow,
    (ix) Operating Expenses, (x) Operating Income,
    (xi) Product Approval, (xii) Product Revenues,
    (xiii) Profit After Tax, (xiv) Projects in
    Development, (xv) Regulatory Filings, (xvi) Return on
    Assets, (xvii) Return on Equity, (xviii) Revenue
    Growth, and (xix) Total Stockholder Return. Prior to the
    Determination Date, the Administrator will determine whether any
    significant element(s) will be included in or excluded from the
    calculation of any Performance Goal with respect to any
    Participant. Any Performance Goals may be used to measure the
    performance of the Company as a whole or a business unit of the
    Company and may be measured relative to a peer group or index or
    to another Performance Goal. With respect to any Award,
    Performance Goals may be used alone or in combination. The
    Performance Goals may differ from Participant to Participant and
    from Award to Award. Prior to the Determination Date, the
    Administrator will determine whether any significant element(s)
    will be included in or excluded from the calculation of any
    Performance Goal with respect to any Participant. In all other
    respects, Performance Goals will be calculated in accordance
    with the Company’s financial statements, generally accepted
    accounting principles, or under a methodology established by the
    Administrator prior to the issuance of an Award, which is
    consistently applied and identified in the financial statements,
    including footnotes, or the management discussion and analysis
    section of the Company’s annual report. In determining the
    amounts earned by a Participant pursuant to an Award intended to
    qualified as “performance-based compensation” under
    Section 162(m) of the Code, the Administrator will 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 Administrator may deem relevant to
    the assessment of individual or corporate performance for the
    Performance Period. A Participant will be eligible to receive
    payment pursuant to an Award intended to qualify as
    “performance-based compensation” under
    Section 162(m) of the Code for a Performance Period only if
    the Performance Goals for such period are achieved.

    

    12

 

    12. Leaves of Absence.  Unless the
    Administrator provides otherwise, vesting of Awards granted
    hereunder will be suspended during any unpaid leave of absence.
    A Service Provider will not cease to be an Employee in the case
    of (i) any leave of absence approved by the Company or
    (ii) transfers between locations of the Company or between
    the Company, its Parent, or any Subsidiary. For purposes of
    Incentive Stock Options, no such leave may exceed ninety
    (90) days, unless reemployment upon expiration of such
    leave is guaranteed by statute or contract. If reemployment upon
    expiration of a leave of absence approved by the Company is not
    so guaranteed, then six months and a day following the
    1st day of such leave any Incentive Stock Option held by
    the Participant will cease to be treated as an Incentive Stock
    Option and will be treated for tax purposes as a Nonstatutory
    Stock Option.

 

    13. Transferability of
    Awards.  Unless determined otherwise by the
    Administrator, an Award may not be sold, pledged, assigned,
    hypothecated, transferred, or disposed of in any manner other
    than by will or by the laws of descent or distribution and may
    be exercised, during the lifetime of the Participant, only by
    the Participant. If the Administrator makes an Award
    transferable, such Award will contain such additional terms and
    conditions as the Administrator deems appropriate; provided,
    however, that the Administrator may only make an Award
    transferable to one or more of the following: (i) the
    Participant’s spouse, children or grandchildren (including
    any adopted and step children or grandchildren), parents,
    grandparents, siblings or any “Family Member” (as
    defined pursuant to Rule 701 of the Securities Act of 1933,
    as amended) of the Participant; (ii) a trust for the
    benefit of one or more of the Participant or the persons
    referred to in clause (i); (iii) a partnership, limited
    liability company or corporation in which the Participant or the
    persons referred to in clause (i) are the only partners,
    members or stockholders; or (iv) charitable donations.

 

    14. Adjustments; Dissolution or Liquidation; Merger
    or Change in Control.

 

    (a) Adjustments.  In the event that
    any dividend or other distribution (whether in the form of cash,
    Shares, other securities, or other property), recapitalization,
    stock split, reverse stock split, reorganization, merger,
    consolidation,
    split-up,
    spin-off, combination, repurchase, or exchange of Shares or
    other securities of the Company, or other change in the
    corporate structure of the Company affecting the Shares occurs,
    the Administrator, in order to prevent diminution or enlargement
    of the benefits or potential benefits intended to be made
    available under the Plan, shall appropriately adjust the number
    and class of Shares that may be delivered under the Plan
    and/or the
    number, class, and price of Shares covered by each outstanding
    Award, the numerical Share limits in Sections 3, 6, 7, 8, 9
    and 10 of the Plan.

 

    (b) Dissolution or Liquidation.  In
    the event of the proposed dissolution or liquidation of the
    Company, the Administrator will notify each Participant as soon
    as practicable prior to the effective date of such proposed
    transaction. To the extent it has not been previously exercised,
    an Award will terminate immediately prior to the consummation of
    such proposed action.

 

    (c) Change in Control.  In the
    event of a Change in Control, each outstanding Award will be
    assumed or an equivalent option or right substituted by the
    successor corporation or a Parent or Subsidiary of the successor
    corporation. In the event that the successor corporation refuses
    to assume or substitute for the Award, the Participant will
    fully vest in and have the right to exercise all of his or her
    outstanding Options and Stock Appreciation Rights, including
    Shares as to which such Awards would not otherwise be vested or
    exercisable, all restrictions on Restricted Stock shall lapse,
    and, with respect to Performance Shares, Restricted Stock Units
    and Performance Units, all performance goals or other vesting
    criteria will be deemed achieved at target levels and all other
    terms and conditions met. In addition, if an Option or Stock
    Appreciation Right is not assumed or substituted for in the
    event of a Change in Control, the Administrator will notify the
    Participant in writing or electronically that the Option or
    Stock Appreciation Right will be fully vested and exercisable
    for a period of time determined by the Administrator in its sole
    discretion, and the Option or Stock Appreciation Right will
    terminate upon the expiration of such period.

 

    With respect to Awards granted to an Outside Director that are
    assumed or substituted for, if on the date of or following such
    assumption or substitution the Participant’s status as a
    Director or a director of the successor corporation, as
    applicable, is terminated other than upon a voluntary
    resignation by the Participant not at the request of the
    successor, then the Participant will fully vest in and have the
    right to exercise Options
    and/or Stock
    Appreciation Rights as to all of the Shares subject to the
    Award, including Shares as to which such Awards would not
    otherwise be vested or exercisable, all restrictions on
    Restricted Stock shall lapse, and, with respect to

    

    13

 

    Performance Shares, Restricted Stock Units and Performance
    Units, all performance goals or other vesting criteria will be
    deemed achieved at target levels and all other terms and
    conditions met.

 

    For the purposes of this subsection (c), an Award will be
    considered assumed if, following the Change in Control, the
    Award confers the right to purchase or receive, for each Share
    subject to the Award immediately prior to the Change in Control,
    the consideration (whether stock, cash, or other securities or
    property) or, in the case of a Stock Appreciation Right upon the
    exercise of which the Administrator determines to pay cash or a
    Performance Share or Performance Unit which the Administrator
    can determine to pay in cash, the fair market value of the
    consideration received in the merger or Change in Control by
    holders of Common Stock for each Share held on the effective
    date of the transaction (and if holders were offered a choice of
    consideration, the type of consideration chosen by the holders
    of a majority of the outstanding Shares); provided, however,
    that if such consideration received in the Change in Control is
    not solely common stock of the successor corporation or its
    Parent, the Administrator may, with the consent of the successor
    corporation, provide for the consideration to be received upon
    the exercise of an Option or Stock Appreciation Right or upon
    the payout of a Performance Share or Performance Unit, for each
    Share subject to such Award (or in the case of Performance
    Units, the number of implied shares determined by dividing the
    value of the Performance Units by the per share consideration
    received by holders of Common Stock in the Change in Control),
    to be solely common stock of the successor corporation or its
    Parent equal in fair market value to the per share consideration
    received by holders of Common Stock in the Change in Control.

 

    Notwithstanding anything in this Section 14(c) to the
    contrary, an Award that vests, is earned or paid-out upon the
    satisfaction of one or more performance goals will not be
    considered assumed if the Company or its successor modifies any
    of such performance goals without the Participant’s
    consent; provided, however, a modification to such performance
    goals only to reflect the successor corporation’s
    post-Change in Control corporate structure will not be deemed to
    invalidate an otherwise valid Award assumption.

 

    15. Tax Withholding

 

    (a) Withholding
    Requirements.  Prior to the delivery of any
    Shares or cash pursuant to an Award (or exercise thereof), the
    Company will have the power and the right to deduct or withhold,
    or require a Participant to remit to the Company, an amount
    sufficient to satisfy federal, state, local, foreign or other
    taxes (including the Participant’s FICA obligation)
    required to be withheld with respect to such Award (or exercise
    thereof).

 

    (b) Withholding Arrangements.  The
    Administrator, in its sole discretion and pursuant to such
    procedures as it may specify from time to time, may permit a
    Participant to satisfy such tax withholding obligation, in whole
    or in part by (without limitation) (i) paying cash,
    (ii) electing to have the Company withhold otherwise
    deliverable cash or Shares having a Fair Market Value equal to
    the amount required to be withheld, (iii) delivering to the
    Company already-owned Shares having a Fair Market Value equal to
    the amount required to be withheld, or (iv) selling a
    sufficient number of Shares otherwise deliverable to the
    Participant through such means as the Administrator may
    determine in its sole discretion (whether through a broker or
    otherwise) equal to the amount required to be withheld. The
    amount of the withholding requirement will be deemed to include
    any amount which the Administrator agrees may be withheld at the
    time the election is made, not to exceed the amount determined
    by using the maximum federal, state or local marginal income tax
    rates applicable to the Participant with respect to the Award on
    the date that the amount of tax to be withheld is to be
    determined. The Fair Market Value of the Shares to be withheld
    or delivered will be determined as of the date that the taxes
    are required to be withheld.

 

    16. No Effect on Employment or
    Service.  Neither the Plan nor any Award will
    confer upon a Participant any right with respect to continuing
    the Participant’s relationship as a Service Provider with
    the Company, nor will they interfere in any way with the
    Participant’s right or the Company’s right to
    terminate such relationship at any time, with or without cause,
    to the extent permitted by Applicable Laws.

 

    17. Date of Grant.  The date of
    grant of an Award will be, for all purposes, the date on which
    the Administrator makes the determination granting such Award,
    or such later date as is determined by the Administrator. Notice
    of the determination will be provided to each Participant within
    a reasonable time after the date of such grant.

    

    14

 

    18. Term of Plan.  Subject to
    Section 22 of the Plan, and subject to stockholder approval
    at the Company’s 2011 annual stockholder meeting, the Plan
    will continue in effect until February 9, 2021 unless
    terminated earlier under Section 19 of the Plan.

 

    19. Amendment and Termination of the Plan.

 

    (a) Amendment and Termination.  The
    Administrator may at any time amend, alter, suspend or terminate
    the Plan.

 

    (b) Stockholder Approval.  The
    Company will obtain stockholder approval of any Plan amendment
    to the extent necessary and desirable to comply with Applicable
    Laws.

 

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

 

    20. Conditions Upon Issuance of Shares.

 

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

 

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

 

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

 

    22. Stockholder Approval.  The Plan
    will be subject to approval by the stockholders of the Company
    within twelve (12) months after the date the Plan is
    adopted. Such stockholder approval will be obtained in the
    manner and to the degree required under Applicable Laws.

    

    15exv4w1

EXHIBIT 4.1

ASTRONICS CORPORATION

2011 EMPLOYEE STOCK OPTION PLAN

SECTION 1. PURPOSE

The purpose of the 2011 Employee Stock Option Plan (the “Plan”) of ASTRONICS CORPORATION, a
New York corporation (the “Company”), is to enable the Company to attract, retain, and motivate key
employees responsible for the success and growth of the Company by offering selected officers and
other key employees of the Company and its Subsidiaries an opportunity to purchase Shares of
Company Stock. The Plan provides for the grant of Options to purchase Shares. Options granted
under the Plan may include Non-Qualified Stock Options (“NQSOs”) as well as options that are
intended to qualify as Incentive Stock Options (“ISOs”) under Section 422 of the Internal Revenue
Code of 1986, as amended (the “Code”). The Company intends that Options granted pursuant to the
Plan be exempt from Section 409A of the Code, and the Options granted will be so construed.

Certain capitalized terms used in this Plan are defined in Section 2.

SECTION 2. DEFINITIONS

	 	a.	 	“Board” means the Board of Directors of the Company.
	 
	 	b.	 	“Cause” has the meaning set forth in Section 6(i).
	 
	 	c.	 	“Change in Control” means

	 	i.	 	The consummation of a merger or consolidation of the Company with or into
another entity, or any other corporate reorganization, if more than 50% of the
combined voting power of the continuing or surviving entity’s securities
outstanding immediately after the merger, consolidation or other reorganization
is owned by persons who were not stockholders of the Company immediately prior
to the merger, consolidation or other reorganization; or
	 
	 	ii.	 	The sale, transfer or other disposition of all or substantially all of the
Company’s assets.

A transaction will not constitute a Change in Control if its sole purpose is to
change the state of the Company’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company’s securities immediately before the transaction, or if it is a
Designated Exchange Transaction. A “Designated Exchange Transaction” is any
reorganization, share exchange or other transaction so designated by the Board,
following the occurrence of which (i) the Options remain outstanding or (ii) the
Options are assumed by a surviving or new corporation and new options with
substantially the same terms are substituted in accordance with Section 424(a)
of the Code, and only to the extent permitted without subjecting such Options to
Section 409A of the Code.

	 	d.	 	“Committee” means the Stock Option Committee of the Board, consisting of at
least 2 Directors who are not eligible to participate in the Plan and who are appointed
to the Committee by the Board.
	 
	 	e.	 	“Director” means a member of the Board.
	 
	 	f.	 	“Exercise Price” means the amount for which one Share may be purchased when an
Option is exercised, as specified by the Committee in the applicable Stock Option
Agreement.
	 
	 	g.	 	“Fair Market Value” has the meaning set forth in Section 6(c).
	 
	 	h.	 	“Option” means an ISO or NQSO granted under the Plan that entitles the holder
to purchase Shares.
	 
	 	i.	 	“Optionee” means a person who holds an Option.
	 
	 	j.	 	“Share” means one share of Stock, as adjusted in accordance with Section 8 (if
applicable).
	 
	 	k.	 	“Stock” means the Common Stock or Class B Stock of the Company.

 

 

 

	 	l.	 	“Stock Option Agreement” means the agreement or other instrument between the
Company and an Optionee that evidences and sets forth the terms, conditions and
restrictions pertaining to the Optionee’s Option.
	 
	 	m.	 	“Subsidiary” means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain. A corporation that attains the status of a Subsidiary on a
date after the adoption of the Plan will be considered a Subsidiary commencing as of
the date.

SECTION 3. ADMINISTRATION

	 	a.	 	Stock Option Committee. The Plan will be administered by the
Committee. Subject to and not inconsistent with the provisions of the Plan, the
Committee has the full authority and responsibility to administer the Plan and to
exercise all the powers and authorities either specifically granted to it under the
Plan or necessary or advisable in the administration of the Plan, including the power
to;

	 	i.	 	Determine and designate those employees selected to receive
Options, the time at which each Option will be granted, and the number of
Shares subject to each Option;

	 	ii.	 	Determine the time and manner of exercise, the duration of the
exercise periods, and the exercise price of the Options granted;

	 	iii.	 	Prescribe, amend, or rescind any rules and regulations
necessary or appropriate for the administration of the Plan;

	 	iv.	 	Correct any defect, supply any deficiency, and reconcile any
inconsistency in the Plan or in any related Option or agreement; and

	 	v.	 	Make other determinations and take such other action in
connection with the administration of the Plan as it deems necessary or
advisable.

	 	b.	 	Delegation of Duties. The Committee may direct appropriate officers of
the Company to implement its rules, regulations and determinations and to execute and
deliver on behalf of the Company such documents, forms, agreements and other
instruments as are deemed by the Committee to be necessary for the administration and
implementation of the Plan.

	 	c.	 	Interpretation of Plan. The Committee has the power to interpret and
construe the Plan and all related Options and agreements. All decisions,
interpretations and determinations of the Committee with respect to the Plan will be
final and binding on all Optionees and all persons deriving their rights from
Optionees.

	 	d.	 	Indemnification. Each member of the Board and the Committee is
indemnified and held harmless by the Company against any cost or expense (including any
sum paid in settlement of a claim with the approval of the Company) arising out of any
act or omission to act in connection with the Plan to the extent permitted by
applicable law. This indemnification is in addition to any rights of indemnification a
member may have as a Director or otherwise under the by-laws of the Company or a
Subsidiary, any agreement, any vote of shareholders or disinterested directors, or
otherwise.

SECTION 4. ELIGIBILITY

	 	a.	 	General Rule. Options may be granted to full-time salaried officers
and key employees of the Company or any Subsidiary.

	 	b.	 	Ten-Percent Stockholders. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company or any
of its Subsidiaries (as determined in accordance with Section 424(d) of the Code) will
not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110%
of the Fair Market Value of a Share on the date of grant and (ii) the Option by its
terms is not exercisable after the expiration of 5 years from the date of grant.

 

 

 

SECTION 5. STOCK SUBJECT TO PLAN

	 	a.	 	Basic Limitation. Shares offered under the Plan may be authorized but
unissued Shares or Shares reacquired by the Company. The aggregate number of Shares
that may be issued under the Plan on exercise of Options may not exceed 500,000 Shares,
subject to adjustment as provided in Section 8. The aggregate number of Shares that
may be issued as ISOs is 500,000 Shares. The number of Shares that are subject to
Options outstanding at any time under the Plan must not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the term
of the Plan, at all times will reserve and keep available sufficient Shares to satisfy
the requirements of the Plan.

	 	b.	 	Additional Shares. If any outstanding Option expires, is canceled or
otherwise terminates for any reason, the Shares allocable to the unexercised portion of
that Option will be available again for purposes of the Plan. Shares which are used to
pay the exercise price of an Option and Shares withheld to satisfy tax withholding
obligations will not be available for further grants of Options under the Plan.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS

	 	a.	 	Stock Option Agreement. Each grant of an Option under the Plan will be
evidenced by a Stock Option Agreement between the Optionee and the Company. The Option
will be subject to terms and conditions that are consistent with the Plan and that the
Board deems appropriate for inclusion in the Stock Option Agreement. The provisions of
Stock Option Agreements entered into under the Plan need not be identical.

	 	b.	 	Number of Shares. Each Stock Option Agreement will specify the number
of Shares that are subject to the Option and will provide for the adjustment of that
number in accordance with Section 8. The Stock Option Agreement also will specify
whether the Option is an ISO or NQSO. However, if any portion of an Option does not
meet the requirements to qualify as an ISO, that portion will be a NQSO.

	 	c.	 	Exercise Price. Each Stock Option Agreement will specify the Exercise
Price. The Exercise Price under any Option will be determined by the Committee in its
sole discretion, except that the Exercise Price may not be less than 100% of the Fair
Market Value of a Share on the date of grant, and any higher percentage required by
Section 4(b).

For purposes of the Plan, “Fair Market Value” will be determined in the following
manner:

	 	i.	 	If the Shares are then listed or admitted to trading on a nationally
recognized U.S. securities exchange or such other regulated market, or reported
on NASDAQ, the Fair Market Value will be determined with reference to the
closing price of a Share on such exchange or on NASDAQ as of the last trading
day on which the Shares were sold or reported prior to the date of grant.
	 
	 	ii.	 	If the Shares are not then listed or admitted to trading on a
nationally recognized U.S. securities exchange or such other regulated market,
or reported on NASDAQ, the Fair Market Value will be determined by the Board,
acting in good faith and in its sole discretion, subject to the applicable
requirements, if any, of Section 409A of the Code. The determination of the
Board will be conclusive and binding.

	 	d.	 	Limitation on Amount. The aggregate Fair Market Value (determined with
respect to each ISO as of the time the ISO is granted) of the Stock with respect to
which ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or any other ISO plan of the Company or any Subsidiary) may not exceed
$100,000, or any higher value as may be permitted by 422(d) of the Code. To the extent
the limitation is exceeded, the option or portions of the option that exceed the limit
will be treated as NQSOs.

	 	e.	 	Withholding Taxes. The Optionee will make such arrangements as the
Committee may require for the satisfaction of any withholding tax obligations that may
arise in connection with any taxable event concerning the Optionee that occurs as a
result of this Plan. Subject to Section 7(b), the Optionee
may pay any or all required withholding taxes by delivering to the Company shares of
Stock already owned. The Company may authorize the Optionee to pay any or all required
withholding taxes by directing that Shares otherwise deliverable upon exercise of an
Option be withheld.

 

 

 

	 	f.	 	Exercisability. Each Stock Option Agreement will specify when all or
any installment of the Option becomes exercisable. The exercisability provisions of
any Stock Option Agreement will be determined by the Committee in its sole discretion.

	 	g.	 	Accelerated Exercisability Upon Retirement. Unless the applicable
Stock Option Agreement provides otherwise, all of an Optionee’s Options will become
exercisable in full upon the Optionee’s termination of employment due to retirement on
or after the Optionee’s attainment of age 65 with 15 years of service with the Company
or a Subsidiary.

	 	h.	 	Basic Term. The Stock Option Agreement will specify the term of the
Option. The Committee, in its sole discretion, will determine when an Option is to
expire, except that the term may not exceed 10 years from the date of grant, and any
shorter term required by Section 4(b).

	 	i.	 	Nontransferability. No Option may be transferred by the Optionee other
than by beneficiary designation, will or the laws of descent and distribution, except
as may otherwise be determined by the Board with respect to NQSOs only. An Option may
be exercised during the lifetime of the Optionee only by the Optionee or by the
Optionee’s guardian or legal representative or, with respect to NQSOs only, by any
permitted transferee of the Optionee or by that permitted transferee’s guardian or
legal representative. No Option or interest in it may be pledged or hypothecated by
the Optionee during the Optionee’s lifetime, whether by operation of law or otherwise,
or be made subject to execution, attachment or similar process. The Committee, in its
sole discretion, may restrict transferability in any Stock Option Agreement further
than otherwise provided in this subsection.

	 	j.	 	Termination of Employment (Except by Death). If an Optionee’s
employment terminates for any reason other than the Optionee’s death, then the
Optionee’s Options will expire on the earliest of the following:

	 	i.	 	The expiration date determined pursuant to
subsection (h) above;
	 
	 	ii.	 	The date 90 days after the termination of the
Optionee’s employment for any reason other than Cause or permanent
disability within the meaning of Section 22(e)(3) of the Code
(“Disability”);
	 
	 	iii.	 	The date of the termination of the Optionee’s
employment for Cause; or
	 
	 	iv.	 	The date 12 months after the termination of the
Optionee’s employment by reason of Disability.

Notwithstanding the provisions of subsection (j)(ii) above, and subject to subsection (h), the
Committee in its sole discretion, may permit an Optionee to exercise his or her Options on a date
more than 90 days after the termination of the Optionee’s employment for reasons other than Cause,
Disability or Death. If the Option is exercised after that date, the exercised Option may not
qualify for favorable tax treatment as an ISO.

For purposes of the Plan, “Cause” means (i) the unauthorized use or disclosure of the
confidential information or trade secrets of the Company, (ii) conviction of, or a plea of “guilty”
or “no contest” to, a felony under the laws of the United States or any state, (iii) negligence or
misconduct in the performance of Optionee’s duties or (iv) material breach of Optionee’s
obligations under any agreement or arrangement with the Company, a Subsidiary or any affiliate
thereof (including under the terms of any loan made to the Optionee).

The Optionee may exercise all or part of his or her Options at any time before the expiration
of the Options under this subsection, but only to the extent that the Options had become
exercisable before the Optionee’s employment terminated (or became exercisable as a result of the
termination). If the Optionee dies after termination of employment but before the expiration of
the Optionee’s Options, all or part of the Options may be exercised (prior to expiration) by the
executors or administrators of the Optionee’s estate or by any person who has acquired the Options
directly from the Optionee by beneficiary designation, bequest or inheritance, or in the case of
NQSOs only, by other transfer, if permitted, but in any event only to the extent that the Options
had become exercisable before the Optionee’s employment terminated (or became exercisable as a
result of the termination).

 

 

 

	 	k.	 	Leaves of Absence. For purposes of subsection (j) above, a bona fide
leave of absence will not be deemed a termination of employment if the leave was
approved by the Company in writing and if continued crediting of service for this
purpose is expressly required by the terms of the leave or by applicable law (as
determined by the Company).

	 	l.	 	Death of Optionee. If an Optionee dies while employed by the Company,
then his or her Options expire on the earlier of the following dates:

	 	i.	 	The expiration date determined pursuant to
subsection (h) above;

or

	 	ii.	 	The date 12 months after the Optionee’s death.

At any time before the expiration of the Options under the preceding sentence, all or part of
the Optionee’s Options may be exercised by the executors or administrators of the Optionee’s estate
or by any person who has acquired the Options directly from the Optionee by beneficiary
designation, bequest or inheritance, or in the case of NQSOs only, by other transfer, if permitted,
but in any event only to the extent that the Options had become exercisable before the Optionee’s
death or became exercisable as a result of death.

	 	m.	 	No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, has no rights as a stockholder with respect to any Shares covered by an
Option until the person becomes entitled to receive the Shares by filing a notice of
exercise and paying the Exercise Price pursuant to the terms of the Option.

	 	n.	 	Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify or extend outstanding Options.
However, without the consent of the Optionee, no modification may impair the Optionee’s
rights or increase the Optionee’s obligations under the Option.

	 	o.	 	Restrictions on Transfer of Shares. Any Shares issued on exercise of
an Option will be subject to such special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions as the Committee may determine.
The restrictions will be set forth in the applicable Stock Option Agreement and will
apply in addition to any restrictions that may apply to holders of Shares generally.
The Company will be under no obligation to sell or deliver Shares on exercise of
Options under the Plan unless the Optionee executes an agreement giving effect to the
restrictions in the form prescribed by the Company.

	 	p.	 	Additional Grants. If otherwise eligible, and within the discretion of
the Committee, an Optionee may be granted an additional Option or Options under this
Plan or any other share option or purchase plan of the Company.

	 	q.	 	No Repricing. Absent shareholder approval, neither the Committee nor
the Board shall have any authority, with or without the consent of the affected
Optionee, to “reprice” an Optionee’s Option in the event of a decline in the price of
Company Stock after the date of its initial grant either by reducing the exercise price
from the original exercise price or through cancellation of an outstanding Option in
connection with regranting of a new Option at a lower price to the same individual.
This paragraph may not be amended, altered or repealed by the Board or the Committee
without approval of the shareholders of the Company.

	 	r.	 	No Reloading. No Option shall provide for the automatic grant of
replacement or reload Options upon the Optionee exercising the Option and paying the
Exercise Price by tendering Shares of Company Stock, net exercise or otherwise. This
paragraph may not be amended, altered or repealed by the Board or the Committee without
approval of the shareholders of the Company.

	 	s.	 	Notification Upon Disqualifying Disposition Under Section 421(b) of the
Code. Each Stock Option Agreement with respect to an ISO will require the Optionee
to notify the Company of any disposition of Shares of Company Stock issued pursuant to
the exercise of such Option under the circumstances described in Section 421(b) of the
Code (relating to certain disqualifying dispositions) within ten days of such
disposition.

 

 

 

	 	t.	 	Option Recoupment Pursuant to Compensation Recovery Policy. All
Options granted under this Plan are subject to recoupment pursuant to any compensation
recovery policy now or hereafter adopted by the Company, and the acceptance of any
Option grant and the exercise of any Option are deemed to be agreement by the Optionee
to the terms of such policy or policies.

SECTION 7. PAYMENT FOR SHARES

	 	a.	 	General Rule. The entire Exercise Price of Shares issued under the
Plan is payable in cash or cash equivalents when the Shares are purchased, except as
otherwise provided in this Section.

	 	b.	 	Surrender of Stock. All or any part of the Exercise Price, plus the
amount of any withholding taxes for which such payment is permitted by the Company, may
be paid by surrendering, or attesting to the ownership of, Shares that are already
owned by the Optionee and that are acceptable to the Committee. These Shares will be
surrendered to the Company in good form for transfer and will be valued at their Fair
Market Value on the date the Option is exercised. The Optionee will not surrender, or
attest to the ownership of, Shares in payment of the Exercise Price or any withholding
taxes if the Committee determines that action would result in adverse accounting
consequences for the Company.

	 	c.	 	Exercise/Sale. Payment may be made all or in part by the delivery (on
a form prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell the Shares and to deliver all or part of the sales
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.

	 	d.	 	Exercise/Pledge. Payment may be made all or in part by the delivery
(on a form prescribed by the Company) of an irrevocable direction to pledge the Shares
to a securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company in payment of all or part of
the Exercise Price and any withholding taxes.

SECTION 8. ADJUSTMENT OF SHARES

	 	a.	 	Adjustment for Change in Capitalization. If the outstanding shares of
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the Company through a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the Committee will make such
appropriate and proportionate adjustments as it deems necessary or appropriate in one
or more of (i) the number of Shares specified in Section 5, (ii) the number of Shares
covered by each outstanding Option and (iii) the Exercise Price under each outstanding
Option.

	 	b.	 	Other Adjustments. Except as may otherwise be provided in any
applicable Stock Option Agreement, in the event of any transaction or event described
in Section 8(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), or of changes in
applicable laws, regulations or accounting principles, and whenever the Committee
determines that action is appropriate with respect to any Options granted under the
Plan to facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles, the Committee, in its sole discretion and on such
terms and conditions as it deems appropriate (except for any action which would subject
affected Options to, or result in a violation of, Section 409A of the Code), is hereby
authorized to take any one or more of the following actions prior to the occurrence of
such transaction or event: 

	 	i.	 	To provide for either (A) cancellation of
outstanding Options 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 such Options (and, for the avoidance of doubt, if as
of the date of the occurrence of the transaction or event described in
this Section 8(b) the Committee determines in good faith that no amount
would have been attained upon the exercise of such Options, then such
Options may be cancelled by the
Company without payment) or (B) the replacement of such Options with
other rights or property selected by the Committee in its sole
discretion;

 

 

 

	 	ii.	 	To provide that outstanding Options be assumed
by the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options 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;

	 	iii.	 	To make adjustments in the number and type of
Shares of Company Stock subject to outstanding Options and/or in the
terms and conditions (including the grant and exercise price) of
outstanding Options and options which may be granted in the future;

	 	iv.	 	To provide that outstanding Options will be
exercisable or fully vested with respect to all Shares covered thereby;
and

	 	v.	 	To provide that outstanding Options cannot vest
or be exercised after such event.

	 	c.	 	Reservation of Rights. Except as provided in this Section, an Optionee
has no rights by reason of (i) any subdivision or consolidation of shares of stock of
any class, (ii) the payment of any dividend or (iii) any other increase or decrease in
the number of shares of stock of any class. Any issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class, will
not affect, and no adjustment by reason of it will be made with respect to, the number
or Exercise Price of Shares subject to an Option. The grant of an Option will not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business structure, to
merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

SECTION 9. SECURITIES LAW REQUIREMENTS

Shares may not be issued under the Plan unless the issuance and delivery of these Shares
comply with (or are exempt from) all applicable requirements of law, including (without limitation)
the Securities Act of 1933, as amended, the rules and regulations promulgated under it, state
securities laws and regulations, and the regulations of any stock exchange or other securities
market on which the Company’s securities then may be traded.

SECTION 10. NO RETENTION RIGHTS

Nothing in the Plan or in any Option granted under the Plan will confer on the Optionee any
right to continue in the employ of the Company for any period of time or will interfere with or
otherwise restrict the rights of the Company (or any Subsidiary) or of the Optionee, which rights
are expressly reserved by each, to terminate his or her employment at any time and for any reason.

SECTION 11. DURATION AND AMENDMENTS

	 	a.	 	Term of the Plan. Subject to the approval of the Company’s
shareholders, the Plan is effective as of March 8, 2011, the date of its adoption by
the Board. If the shareholders fail to approve the Plan within 12 months after its
adoption by the Board, any grants of Options that have already occurred will be
rescinded, and no additional grants will be made. The Plan will terminate
automatically on March 8, 2021, 10 years after its adoption by the Board, and may be
terminated on any earlier date pursuant to subsection (b) below.

	 	b.	 	Right to Amend or Terminate the Plan. The Board or the Committee may
amend, suspend or terminate the Plan at any time and for any reason. However, any
amendment of the Plan that increases the number of Shares available for issuance under
the Plan (except as provided in Section 8) or materially changes the class of persons
who are eligible for the grant of Options, and any amendment to the repricing provision
of Section 6(q) or the reloading provision of Section 6(r), is subject to the approval
of the Company’s shareholders. Shareholder approval will not be required for any other
amendment of the Plan.

	 	c.	 	Effect of Amendment or Termination. No Shares will be issued or sold
under the Plan after its termination, except on exercise of an Option granted prior to
the termination. No amendment,
suspension, or termination of the Plan will, without the consent of the holder, alter
or impair any rights or obligations under any Option previously granted under the Plan.

 

 

 

SECTION 12. APPLICABLE LAW

The Plan and all Options granted under it will be construed and interpreted in accordance
with, and governed by, the laws of the State of New York, other than its laws regarding choice of
law.

SECTION 13. SECTION 409A

All Options granted under this Plan are intended to be exempt from Section 409A of the Code
and will be construed accordingly. Notwithstanding any other provision of the Plan, the Committee
reserves the right to unilaterally amend or modify any Stock Option Agreement under the Plan to the
minimum extent necessary so that any Option granted qualifies for an exemption under Section 409A
of the Code. However, the Company will not be liable to any Optionee or beneficiary with respect
to any benefit related adverse tax consequences arising under Section 409A or other provision of
the Code.

SECTION 14. EXECUTION

To record the adoption of the Plan by the Board of Directors, the Company has caused its
authorized officer to execute it this
 _____ day of
 _____, 2011.

	 	 	 	 	 	 	 	 	 
	 	 	ASTRONICS CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Its:

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