STOCK OPTION PLAN

A well-drafted stock option plan ("Plan") is essential to attracting and retaining key employees, directors, consultants and scientific advisors. The Plan should provide the Board of Directors with as much latitude as the Internal Revenue Code allows and specifically, permit the Board to accelerate vesting in the event of a merger, consolidation or initial public offering. A cashless exercise provision is also essential. In addition, it is important that the qualified and non-qualified grant agreements contain the customary investment representations to insure that the exercise of the options and purchase of the shares does not constitute a distribution in violation of the Securities Act of 1933, as amended (the "Act"). 15 U.S.C. § 77a et seq. A form of a Plan, an Incentive Stock Option Agreement, and a NonStatutory Stock Option Agreement are available for download from Evelexa.

The Plan should be adopted when the founder's shares are granted. Generally, 15%-20% percent (depending on whether the key executives are already incentivized) of the shares then issued and outstanding are allocated to the Plan. The parties will also need to agree on a number of key issues including: 1) the length of the vesting period; 2) the strike price for the granting of non-qualified options; and 3) the approximate number of options that will be granted to employees at each level of employment. It is also important that the company work closely with the firm's accountants to ensure that the accountants treat the options issued, for both tax and accounting purposes, in the manner expected by the company. The tax and accounting rules governing the treatment of options are complex and fact specific; as such, careful planning and coordination are essential.