<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 3 TO
HYSEQ, INC. NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
WHEREAS, the Board of Directors and the Stockholders of Hyseq, Inc. has
approved that certain Amendment No. 3 to the Hyseq, Inc. Non-Employee Director
Stock Option Plan (the "Plan"), to become effective with respect to all Initial
and Subsequent Option grants made on or after May 23, 2000. All Initial Options
and Subsequent Options granted prior to the effective date of this Amendment No.
3 shall continue to be governed by the terms of the Plan as in existence prior
to the effective date of this Amendment No. 3.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Article 2.1 shall be amended to read as follows:
Effective on the date on which a director first becomes a member of
the Board of Directors of the Company, commencing with directors who first
become members on or after May 23, 2000 ("New Directors"), each New Director who
satisfies the conditions set forth in Section 1.3 will automatically be awarded
a stock option (an "Initial Option" or the "Initial Options") under the Plan to
purchase a number of shares of Common Stock (subject to adjustment pursuant to
Section 3.2) equal to the lesser of (i) the number determined by dividing
$200,000 by the Fair Market Value of a share of Common Stock (as determined
pursuant to Section 3.6(a) of the Plan) as of the date the Initial Option is
granted, or (ii) 10,000. Commencing with the Annual Meeting of the Stockholders
held in 2000, effective on the date of each Annual Meeting of the Stockholders,
each director of the Company then in office who satisfies the conditions set
forth in Section 1.3, will automatically be awarded a stock option (a
"Subsequent Option" or the "Subsequent Options") to purchase a number of shares
of Common Stock (subject to adjustment pursuant to Section 3.2) equal to the
lesser of (i) the number determined by dividing $200,000 by the Fair Market
Value of a share of Common Stock (as determined pursuant to Section 3.6(a) of
the Plan) as of the date the Subsequent Option is granted, or (ii) 10,000;
provided, however, that a director who is granted an Initial Option at an Annual
Meeting of the Stockholders shall not be entitled to receive his or her first
Subsequent Option until the next Annual Meeting of the Stockholders.
(Collectively, the Subsequent Option(s) and the Initial Option(s) may be
referred to herein as an "Option" or "Options".)
2. Article 2.4(c) shall be amended to read as follows:
c. With respect to Initial Options granted prior to May 23, 2000,
one half of the Participant's Initial Option shall be exercisable on the date of
grant and one fourth of the Initial Option shall become exercisable on the date
of the Annual Meeting of the Stockholders held in each of the two years
following the year in which the Participant receives the Initial Option. For
Initial Options granted on or after May 23, 2000, the Participant's Initial
Option shall be exercisable as follows: Fifty percent (50%) of the Initial
Option shall be exercisable on the first anniversary of the date of grant and
the remaining fifty percent (50%) of the Initial Option shall become exercisable
on the second anniversary of the date of grant. All Initial Options shall be
exercisable until the tenth anniversary of the date of grant. Each director's
first Subsequent Option shall vest on the later of (i) the first anniversary of
the date on which the New Director becomes a member of the Company's Board of
Directors, or (ii) the grant date of the Subsequent Option. All other Subsequent
Options shall become exercisable on the date of grant (the date of each Annual
Meeting.) Subsequent Options shall be exercisable until the tenth anniversary of
the date on which the Subsequent Option(s) was granted. The foregoing
notwithstanding, (i) in the event a Participant's status as a non-employee
director ceases as the result of his termination for cause, all of the
Participant's outstanding Options shall immediately terminate and (ii) upon the
date the Participant ceases to serve as a non employee director of the Company
for any reason or for no reason, all vesting of Options under this Plan shall
cease.
