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EXHIBIT 10.32




INTRABIOTICS PHARMACEUTICALS, INC.




2004 STOCK INCENTIVE PLAN




ARTICLE ONE




GENERAL PROVISIONS




     I. PURPOSE OF THE PLAN



          This 2004 Stock Incentive Plan is intended to promote the interests of
IntraBiotics Pharmaceuticals, Inc., a Delaware corporation, by providing
eligible persons in the Corporation’s service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.



          Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.



     II. STRUCTURE OF THE PLAN



          A. The Plan shall be divided into three separate equity incentive
programs:



               • the Discretionary Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock or stock appreciation rights tied to the
value of such Common Stock,



               • the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common
Stock pursuant to restricted stock awards, restricted stock units or
other share right awards which vest upon the completion of a designated
service period or the attainment of pre-established performance
milestones, or such shares of Common Stock may be issued through direct
purchase or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary), and



               • the Automatic Option Grant Program under which eligible
non-employee Board members will automatically receive option grants at
designated intervals over their period of continued Board service.



          B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.



 









 





     III. ADMINISTRATION OF THE PLAN



          A. The Compensation Committee is hereby appointed by the Board to serve as
the Plan Administrator and in that capacity shall have the sole and exclusive
authority to administer the Discretionary Grant and Stock Issuance Programs
with respect to Section 16 Insiders. The Board hereby vests the Compensation
Committee with the authority to administer the Discretionary Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs; provided, however, that the Board may at any time, in its
discretion, appoint a secondary committee of one or more Board members to have
separate but concurrent jurisdiction with the Compensation Committee to
administer those programs with respect to persons other than Section 16
Insiders or exercise such separate but concurrent authority itself.



          B. The Compensation Committee as Plan Administrator shall have full power
and authority (subject to the provisions of the Plan) to establish such rules
and regulations as it may deem appropriate for proper administration of the
Discretionary Grant and Stock Issuance Programs and to make such determinations
under, and issue such interpretations of, the provisions of those programs and
any outstanding stock options, stock appreciation rights, stock issuances or
other stock-based awards thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Grant and Stock Issuance Programs or
any stock option, stock appreciation right, stock issuance or other stock-based
award thereunder.



          C. Service as the Plan Administrator shall constitute service as a Board
member, and the individuals serving in that capacity shall accordingly be
entitled to full indemnification and reimbursement as Board members for their
service as Plan Administrator. No individual serving in his or her capacity as
Plan Administrator shall be liable for any act or omission made in good faith
with respect to the Plan or any stock option, stock appreciation right, stock
issuance or other stock-based award made or granted under the Plan.



          D. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of those programs, and the Plan
Administrator shall not exercise any discretionary functions with respect to
any option grants or stock issuances made under such program.



     IV. ELIGIBILITY



          A. The persons eligible to participate in the Discretionary Grant and
Stock Issuance Programs are as follows:



               (i) Employees,



               (ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and



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               (iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).



          B. The Plan Administrator shall have full authority to determine, (i) with
respect to the grant of options or stock appreciation rights under the
Discretionary Grant Program, which eligible persons are to receive such grants,
the time or times when those grants are to be made, the number of shares to be
covered by each such grant, the status of a granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
or stock appreciation right is to become exercisable, the vesting schedule (if
any) applicable to the option or stock appreciation right and the maximum term
for which the option or stock appreciation right is to remain outstanding and
(ii) with respect to stock issuances or other stock-based awards under the
Stock Issuance Program, which eligible persons are to receive such issuances or
awards, the time or times when the issuances or awards are to be made, the
number of shares subject to each such issuance or award, the vesting schedule
(if any) applicable to the shares which are the subject of such issuance or
award and the consideration for those shares.



          C. The Plan Administrator shall have the absolute discretion either to
grant options or stock appreciation right in accordance with the Discretionary
Grant Program or to effect stock issuances and other stock-based awards in
accordance with the Stock Issuance Program.



          D. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Plan Effective Date, whether through
appointment by the Board or election by the Corporation’s stockholders, and
(ii) those individuals who continue to serve as non-employee Board members
after the Plan Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not
be eligible to receive an option grant under the Automatic Option Grant Program
at the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.



     V. STOCK SUBJECT TO THE PLAN



          A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 2,050,000
shares. Such reserve shall consist of (i) the number of shares estimated to be
transferred to this Plan from the Predecessor Plan, including the shares
subject to outstanding options under the Predecessor Plan to be transferred to
this Plan, upon stockholder approval of the Plan at the 2004 Annual Meeting,
(ii) plus an additional increase of approximately 1,200,000 shares.



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          B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2005,
by an amount equal to five percent (5%) of the sum of the following share
numbers, calculated as of the last trading day in December of the immediately
preceding calendar year: (i) the total number of shares of Common Stock
outstanding on that date and (ii) the number of shares of Common Stock into
which the outstanding shares of the Corporation’s preferred stock are
convertible on that date. In no event shall any such annual increase exceed
2,000,000 shares.



          C. No one person participating in the Plan may receive stock options,
stand-alone stock appreciation rights, direct stock issuances (whether vested
or unvested) or other stock-based awards (whether in the form of restricted
stock units or other share-right awards) for more than 1,000,000 shares of
Common Stock in the aggregate per calendar year.



          D. Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) or other awards
made under the Plan shall be available for subsequent issuance under the Plan
to the extent (i) those options or awards expire or terminate for any reason
prior to the issuance of the shares of Common Stock subject to those options or
awards or (ii) the awards are cancelled in accordance with the exchange/repricing provisions of Article Two. Unvested shares issued under the Plan and
subsequently forfeited or repurchased by the Corporation, at a price per share
not greater than the original issue price paid per share, pursuant to the
Corporation’s repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for subsequent reissuance. Should the exercise price
of an option under the Plan be paid with shares of Common Stock, then the
authorized reserve of Common Stock under the Plan shall be reduced only by the
net number of shares issued under the exercised stock option. Should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or stock appreciation right or the issuance of
fully-vested shares under the Stock Issuance Program, then the number of shares
of Common Stock available for issuance under the Plan shall be reduced only by
the net number of shares issued under the exercised stock option or stock
appreciation right or the net number of fully-vested shares issued under the
Stock Issuance Program. Such withholding shall in effect be treated under the
Plan as a cash bonus, payable directly to the applicable taxing authorities on
behalf of the individual concerned, in an amount equal to the Fair Market Value
of the withheld shares, and not as an issuance and immediate repurchase of
those shares.



     E. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made
by the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one person may be granted stock options, stand-alone stock
appreciation rights, direct stock issuances and other stock-based awards under
the Plan per



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calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise or base price per share in effect under each
outstanding option or stock appreciation right under the Plan, (v) the number
and/or class of securities subject to each outstanding restricted stock unit or
other stock-based award under the Plan, (vi) the number and/or class of
securities and exercise price per share in effect under each outstanding option
transferred to this Plan from the Predecessor Plan and (vii) the maximum number
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section V.B of
this Article One. Such adjustments to the outstanding options, stock
appreciation rights or other stock-based awards are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
those options, stock appreciation rights or other stock-based awards. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.



     F. Outstanding awards granted pursuant to the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.



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ARTICLE TWO




DISCRETIONARY GRANT PROGRAM




     I. OPTION TERMS



          Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.



          A. Exercise Price.



               1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the option grant date.



               2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of the documents evidencing the
option, be payable in one or more of the forms specified below:




                    (i) cash or check made payable to the Corporation,




                    (ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or




                    (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
instructions to (a) a brokerage firm (reasonably satisfactory to
the Corporation for purposes of administering such procedure in
compliance with the Corporation’s pre-clearance/pre-notification
policies) to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all
applicable income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.



               Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.



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          B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.



          C. Effect of Termination of Service.



     1. The following provisions shall govern the exercise of any options
granted pursuant to the Discretionary Grant Program that are outstanding at the
time of the Optionee’s cessation of Service:




                    (i) Any option outstanding at the time of the Optionee’s
cessation of Service shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such
option shall be exercisable after the expiration of the option
term. However, in the event an Optionee should cease Employee
status by reason of Retirement, Permanent Disability or death, any
outstanding option granted to such Optionee under the
Discretionary Grant Program shall remain exercisable for the
remainder of the option term.




                    (ii) Any option outstanding at the time of the Optionee’s
death and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the
Optionee’s estate or by the person or persons to whom the option
is transferred pursuant to the Optionee’s will or the laws of
inheritance or by the Optionee’s designated beneficiary or
beneficiaries of that option.




                    (iii) Should the Optionee’s Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct
while holding one or more outstanding options granted under this
Article Two, then all of those options shall terminate immediately
and cease to be outstanding.




                    (iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which that option is at the time
exercisable. No additional shares shall vest under the option
following the Optionee’s cessation of Service, except to the
extent (if any) specifically authorized by the Plan Administrator
in its sole discretion pursuant to an express written agreement
with the Optionee. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any shares
for which the option has not been exercised.



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     2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:




                    (i) extend the period of time for which the option is to
remain exercisable following the Optionee’s cessation of Service
from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of
the option term, and/or




                    (ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number
of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee’s cessation of Service but
also with respect to one or more additional installments in which
the Optionee would have vested had the Optionee continued in
Service.



               D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of
record of the purchased shares.



               E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while such shares are unvested, the
Corporation shall have the right to repurchase any or all of those unvested
shares at a price per share equal to the lower of (i) the exercise price paid
per share or (ii) the Fair Market Value per share of Common Stock at the time
of repurchase. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.



               F. Limited Transferability of Options. During the lifetime of the
Optionee, options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of inheritance
following the Optionee’s death. However, the Plan Administrator may permit an
assignment, in whole or in part, during the Optionee’s lifetime, of a
Non-Statutory Option, if such assignment is in connection with the Optionee’s
estate plan and is to one or more Family Members of the Optionee or to a trust
established exclusively for the Optionee and/or one or more such Family Members
or is pursuant to a domestic relations order covering the option as marital
property. The assigned portion may only be exercised by the person or persons
who acquire a proprietary interest in the option pursuant to the assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for the option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and the options shall, in



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accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee’s death.



     II. INCENTIVE OPTIONS



          The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
the Plan shall not be subject to the terms of this Section II.



          A. Eligibility. Incentive Options may only be granted to Employees.



          B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).



          To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.



          C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.



     III. STOCK APPRECIATION RIGHTS



          A. Authority. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion, to grant stock appreciation rights in
accordance with this Section III to selected Optionees or other individuals
eligible to receive option grants under the Discretionary Grant Program.



          B. Types. Three types of stock appreciation rights shall be authorized
for issuance under this Section III: (i) tandem stock appreciation rights
(“Tandem Rights”), (ii) stand-alone stock appreciation rights (“Stand-alone
Rights”) and (iii) limited stock appreciation rights (“Limited Rights”).



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          C. Tandem Rights. The following terms and conditions shall govern the
grant and exercise of Tandem Rights.



               1. One or more Optionees may be granted a Tandem Right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock or the
surrender of that option in exchange for a distribution from the Corporation in
an amount equal to the excess of (i) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is at the time
vested under the surrendered option (or surrendered portion thereof) over (ii)
the aggregate exercise price payable for such vested shares.



               2. No such option surrender shall be effective unless it is approved by
the Plan Administrator, either at the time of the actual option surrender or at
any earlier time. If the surrender is so approved, then the distribution to
which the Optionee shall accordingly become entitled under this Section III may
be made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.



               3. If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii)
the last day on which the option is otherwise exercisable in accordance with
the terms of the instrument evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the date of the option
grant.



     D. Stand-Alone Rights. The following terms and conditions shall govern
the grant and exercise of Stand-alone Rights:



               1. One or more individuals eligible to participate in the Discretionary
Grant Program may be granted a Stand-alone Right not tied to any underlying
option under this Discretionary Grant Program. The Stand-alone Right shall
relate to a specified number of shares of Common Stock and shall be exercisable
upon such terms and conditions as the Plan Administrator may establish. In no
event, however, may the Stand-alone Right have a maximum term in excess of ten
(10) years measured from the grant date. Upon exercise of the Stand-alone
Right, the holder shall be entitled to receive a distribution from the
Corporation in an amount equal to the excess of (i) the aggregate Fair Market
Value (on the exercise date) of the shares of Common Stock underlying the
exercised right over (ii) the aggregate base price in effect for those shares.



               2. The number of shares of Common Stock underlying each Stand-alone Right
and the base price in effect for those shares shall be determined by the Plan
Administrator in its sole discretion at the time the Stand-alone Right is
granted. In no event, however, may the base price per share be less than the
Fair Market Value per underlying share of Common Stock on the grant date. In
the event outstanding Stand-alone Rights are to be assumed



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in connection with a Change in Control transaction or otherwise continued
in effect, the shares of Common Stock underlying each such Stand-alone Right
shall be adjusted immediately after such Change in Control so as to apply to
the number and class of securities into which those shares of Common Stock
would have been converted in consummation of such Change in Control had those
shares actually been outstanding at that time. Appropriate adjustments to
reflect such Change in Control shall also be made to the base price per share
in effect under each outstanding Stand-alone Right, provided the aggregate
base price shall remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor
corporation may, in connection with the assumption or continuation of the
outstanding Stand-alone Rights under the Discretionary Grant Program,
substitute, for the securities underlying those assumed rights, one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in the Change in Control
transaction.



               3. Stand-alone Rights shall be subject to the same transferability
restrictions applicable to Non-Statutory Options and may not be transferred
during the holder’s lifetime, except if such assignment is in connection with
the holder’s estate plan and is to one or more Family Members of the holder or
to a trust established for the holder and/or one or more such Family Members or
pursuant to a domestic relations order covering the Stand-alone Right as
marital property. In addition, one or more beneficiaries may be designated for
an outstanding Stand-alone Right in accordance with substantially the same
terms and provisions as set forth in Section I.F of this Article Two.



               4. The distribution with respect to an exercised Stand-alone Right may be
made in shares of Common Stock valued at Fair Market Value on the exercise
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.



               5. The holder of a Stand-alone Right shall have no stockholder rights with
respect to the shares subject to the Stand-alone Right unless and until such
person shall have exercised the Stand-alone Right and become a holder of record
of the shares of Common Stock issued upon the exercise of such Stand-alone
Right.



     E. Limited Rights. The following terms and conditions shall govern the
grant and exercise of Limited Rights:



               1. One or more Section 16 Insiders may, in the Plan Administrator’s sole
discretion, be granted Limited Rights with respect to their outstanding options
under this Article Two.



               2. Upon the occurrence of a Hostile Tender-Offer, the Section 16 Insider
shall have the unconditional right (exercisable for a thirty (30)-day period
following such Hostile Tender-Offer) to surrender each option with such a
Limited Right to the Corporation. The Section 16 Insider shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Tender-Offer Price of the number of shares in which the



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Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (ii) the aggregate exercise price payable for
those vested shares. Such cash distribution shall be made within five (5) days
following the option surrender date.



               3. The Plan Administrator shall pre-approve, at the time such Limited
Right is granted, the subsequent exercise of that right in accordance with the
terms of the grant and the provisions of this Section III. No additional
approval of the Plan Administrator or the Board shall be required at the time
of the actual option surrender and cash distribution. Any unsurrendered
portion of the option shall continue to remain outstanding and become
exercisable in accordance with the terms of the instrument evidencing such
grant.



          F. Post-Service Exercise. The provisions governing the exercise of
Tandem, Stand-alone and Limited Stock Appreciation Rights following the
cessation of the recipient’s Service shall be substantially the same as those
set forth in Section I.C of this Article Two for the options granted under the
Discretionary Grant Program.



          G. Net Counting. Upon the exercise of any Tandem, Stand-alone or Limited
Right under this Section III, the share reserve under Section V of Article One
shall only be reduced by the net number of shares actually issued by the
Corporation upon such exercise, and not by the gross number of shares as to
which such Tandem, Stand-alone or Limited Right is exercised. Accordingly, upon
the exercise of any such stock appreciation right, the number of shares
available for issuance under the Plan shall increase by the amount by which the
shares subject to that exercised stock appreciation right exceeds the number of
shares actually issued in connection with the exercise.



     IV. CHANGE IN CONTROL/HOSTILE TAKE-OVER



          A. In the event of a Change in Control, each outstanding option or stock
appreciation right under the Discretionary Grant Program shall automatically
accelerate so that each such option or stock appreciation right shall,
immediately prior to the effective date of that Change in Control, become
exercisable as to all the shares of Common Stock at the time subject to such
option or stock appreciation right and may be exercised as to any or all of
those shares as fully vested shares of Common Stock. However, except as
otherwise provided in Section IV.B of this Article Two, an outstanding option
or stock appreciation right shall not become exercisable on such an accelerated
basis if and to the extent: (i) such option or stock appreciation right is to
be assumed by the successor corporation (or parent thereof) or is otherwise to
continue in full force and effect pursuant to the terms of the Change in
Control transaction or (ii) such option or stock appreciation right is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on any
shares as to which the option or stock appreciation right is not otherwise at
that time exercisable and provides for subsequent payout of that spread in
accordance with the same exercise/vesting schedule applicable to those shares
or (iii) the acceleration of such option or stock appreciation right is subject
to other limitations imposed by the Plan Administrator at the time of the
grant.



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          B. Notwithstanding Section IV.A of this Article Two, the following special
vesting acceleration provisions shall be in effect for all options and stock
appreciation rights granted under the Discretionary Grant Program:




                    (i) Each outstanding option or stock appreciation right under
this Discretionary Grant Program which is at the time held by a
then current Employee shall, immediately prior to the effective
date of a Change in Control, automatically vest and become
exercisable as to fifty percent (50%) of the total number of
unvested shares of Common Stock at the time subject to such
outstanding option or stock appreciation right, and each such
option or stock appreciation right may accordingly be exercised as
to any or all of those accelerated shares as fully vested shares
of Common Stock.




                    (ii) Should an Executive’s Service terminate by reason of an
Involuntary Termination within thirteen (13) months following a
Change in Control, then each outstanding option or stock
appreciation right under this Discretionary Grant Program held by
that Executive shall immediately vest and become exercisable as to
all the securities at the time subject to such outstanding option
or stock appreciation right, and each such option or stock
appreciation right may be exercised as to any or all of those
securities as fully-vested shares.




                    (iii) Each outstanding option or stock appreciation right
under this Discretionary Grant Program which is at the time held
by a then current non-employee Board member shall, immediately
prior to the effective date of a Change in Control, automatically
vest and become exercisable as to all the unvested shares of
Common Stock at the time subject to such outstanding option or
stock appreciation right, and each such option or stock
appreciation right may accordingly be exercised for any or all of
those shares as fully vested shares of Common Stock.



               C. All outstanding repurchase rights under the Discretionary Grant Program
shall automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of a Change in
Control, except to the extent: (i) those repurchase rights are to be assigned
to the successor corporation (or parent thereof) or are otherwise to continue
in full force and effect pursuant to the terms of the Change in Control
transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.



               D. Immediately following the consummation of the Change in Control, all
outstanding options or stock appreciation rights under the Discretionary Grant
Program shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control
transaction.



13









 





               E. Each option which is assumed in connection with a Change in Control or
otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change
in Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments to reflect such Change in Control shall also
be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, stand-alone stock appreciation rights, direct stock issuances and
other stock-based awards under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor
corporation may, in connection with the assumption or continuation of the
outstanding options under the Discretionary Grant Program, substitute one or
more shares of its own common stock with a fair market value equivalent to the
cash consideration paid per share of Common Stock in such Change in Control
transaction.



               F. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options or stock appreciation rights under
the Discretionary Grant Program so that those options or stock appreciation
rights shall, immediately prior to the effective date of a Change in Control,
become exercisable as to all the shares of Common Stock at the time subject to
those options or stock appreciation rights and may be exercised as to any or
all of those shares as fully vested shares of Common Stock, whether or not
those options or stock appreciation rights are to be assumed in the Change in
Control transaction or otherwise continued in effect. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation’s repurchase rights under the Discretionary Grant Program so
that those rights shall immediately terminate upon the consummation of the
Change in Control transaction, and the shares subject to those terminated
rights shall thereupon vest in full.



               G. The Plan Administrator shall have full power and authority to structure
one or more outstanding options or stock appreciation rights under the
Discretionary Grant Program so that those options or stock appreciation rights
shall become exercisable as to all the shares of Common Stock at the time
subject to those options or stock appreciation rights in the event the
Optionee’s Service is subsequently terminated by reason of an Involuntary
Termination within a designated period following the effective date of any
Change in Control transaction in which those options or stock appreciation
rights do not otherwise fully accelerate. In addition, the Plan Administrator
may structure one or more of the Corporation’s repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of such Involuntary Termination, and the shares subject to
those terminated repurchase rights shall accordingly vest in full at that time.



14









 





               H. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options or stock appreciation rights under
the Discretionary Grant Program so that those options or stock appreciation
rights shall, immediately prior to the effective date of a Hostile Take-Over,
become exercisable as to all the shares of Common Stock at the time subject to
those options or stock appreciation rights and may be exercised as to any or
all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation’s repurchase rights under the Discretionary Grant
Program so that those rights shall terminate automatically upon the
consummation of such Hostile Take-Over, and the shares subject to those
terminated rights shall thereupon vest in full. Alternatively, the Plan
Administrator may condition the automatic acceleration of one or more
outstanding options or stock appreciation rights under the Discretionary Grant
Program and the termination of one or more of the Corporation’s outstanding
repurchase rights under such program upon the subsequent termination of the
Optionee’s Service by reason of an Involuntary Termination within a designated
period following the effective date of such Hostile Take-Over.



               I. The portion of any Incentive Option accelerated in connection with a
Change in Control or Hostile Take-Over shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-statutory
Option under the Federal tax laws.



     V. EXCHANGE/REPRICING PROGRAMS



          A. The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected holders but without any
requirement for stockholder approval, the cancellation of any or all
outstanding options or stock appreciation right under the Discretionary Grant
Program (including outstanding options transferred from the Predecessor Plan)
and to grant in exchange one or more of the following: (i) new options or stock
appreciation rights covering the same or a different number of shares of Common
Stock but with an exercise or base price per share not less than the Fair
Market Value per share of Common Stock on the new grant date or (ii) cash or
shares of Common Stock, whether vested or unvested, equal in value to the value
of the cancelled options or stock appreciation rights.



          B. The Plan Administrator shall also have the authority, exercisable at
any time and from time to time, with the consent of the affected holders but
without any requirement for stockholder approval, to reduce the exercise or
base price of one or more outstanding options or stock appreciation rights to
the then current Fair Market Value per share of Common Stock or issue new
options or stock appreciation rights with a lower exercise or base price in
immediate cancellation of outstanding options or stock appreciation rights with
a higher exercise or base price.



15









 





ARTICLE THREE




STOCK ISSUANCE PROGRAM




     I. STOCK ISSUANCE TERMS



          Shares of Common Stock may be issued under the Stock Issuance Program,
either as vested or unvested shares, through direct and immediate issuances
without any intervening option grants. Each such stock issuance shall be
evidenced by a Stock Issuance Agreement which complies with the terms specified
below. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards or restricted stock units which entitle
the recipients to receive the shares underlying those awards or units upon the
attainment of designated performance goals or the satisfaction of specified
Service requirements or upon the expiration of a designated time period
following the vesting of those awards or units.



          A. Issue Price.



               1. The issue price per share shall be fixed by the Plan Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the issuance date.



               2. Shares of Common Stock may be issued under the Stock Issuance Program
for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:




                    (i) cash or check made payable to the Corporation,




                    (ii) past services rendered to the Corporation (or any Parent
or Subsidiary); or




                    (iii) any other valid consideration under the Delaware
General Corporation Law.



          B. Vesting Provisions.



               1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon the attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program shall be determined by the Plan
Administrator and incorporated into the Stock Issuance Agreement. Shares of
Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards or restricted stock units which entitle the recipients to
receive the shares



16









 







underlying those awards or units upon the attainment of designated
performance goals or the satisfaction of specified Service requirements or upon
the expiration of a designated time period following the vesting of those
awards or units, including (without limitation) a deferred distribution date
following the termination of the Participant’s Service.



               2. The Plan Administrator shall also have the discretionary authority,
consistent with Code Section 162(m), to structure one or more stock issuances
or restricted stock unit or share right awards so that the shares of Common
Stock subject to those issuances or awards shall vest (or vest and become
issuable) upon the achievement of certain pre-established corporate performance
goals based on one or more of the following criteria: (1) return on total
stockholder equity; (2) earnings per share of Common Stock; (3) net income
(before or after taxes); (4) earnings before interest, taxes, depreciation and
amortization; (5) sales or revenue targets; (6) return on assets, capital or
investment; (7) cash flow: (8) market share; (9) cost reduction goals; (10)
budget comparisons; (11) implementation or completion of projects or processes
strategic or critical to the Corporation’s business operations; (12) measures
of customer satisfaction; (13) any combination of, or a specified increase in,
any of the foregoing; (14) achievement of advances in research; new product
development; development of products to pre-clinical phase; commencement,
advancement or completion of clinical trials for a product; FDA or other
regulatory body approval for commercialization of products; and (15) the
formation of joint ventures, research or development collaborations, or the
completion of other corporate transactions intended to enhance the
Corporation’s revenue or profitability or expand its customer base. In
addition, such performance goals may be based upon the attainment of specified
levels of the Corporation’s performance under one or more of the measures
described above relative to the performance of other entities and may also be
based on the performance of any of the Corporation’s business units or
divisions or any Parent or Subsidiary. Performance goals may include a minimum
threshold level of performance below which no award will be earned, levels of
performance at which specified portions of an award will be earned and a
maximum level of performance at which an award will be fully earned.



               3. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant’s
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant’s unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.



               4. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. The Participant shall
not have any stockholder rights with respect to the shares of Common Stock
subject to a restricted stock unit or share right award until that award vests
and



17









 







the shares of Common Stock are actually issued thereunder. However,
dividend-equivalent units may be paid or credited, either in cash or in actual
or phantom shares of Common Stock, on outstanding restricted stock unit or
share right awards, subject to such terms and conditions as the Plan
Administrator may deem appropriate.



               5. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent, the Corporation shall repay to the Participant
the lower of (i) the cash consideration paid for the surrendered shares or (ii)
the Fair Market Value of those shares at the time of cancellation.



               6. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant’s Service or the
non-attainment of the performance objectives applicable to those shares. Any
such waiver shall result in the immediate vesting of the Participant’s interest
in the shares of Common Stock as to which the waiver applies. Such waiver may
be effected at any time, whether before or after the Participant’s cessation of
Service or the attainment or non-attainment of the applicable performance
objectives. However, no vesting requirements tied to the attainment of
performance objectives may be waived with respect to shares which were intended
at the time of issuance to qualify as performance-based compensation under Code
Section 162(m).



               7. Outstanding share right awards or restricted stock units under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards or units, if the
performance goals or Service requirements established for such awards or units
are not attained or satisfied. The Plan Administrator, however, shall have the
discretionary authority to issue vested shares of Common Stock under one or
more outstanding share right awards or restricted stock units as to which the
designated performance goals or Service requirements have not been attained or
satisfied. However, no vesting requirements tied to the attainment of
performance goals may be waived with respect to awards or units which were
intended, at the time those awards or units were granted, to qualify as
performance-based compensation under Code Section 162(m).



     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER



          A. All of the Corporation’s outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or



18









 







parent thereof) or are otherwise to continue in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.



          B. Each outstanding restricted stock unit or share right award assumed in
connection with a Change in Control or otherwise continued in effect shall be
adjusted immediately after the consummation of that Change in Control so as to
apply to the number and class of securities into which the shares of Common
Stock subject to the award immediately prior to the Change in Control would
have been converted in consummation of such Change in Control had those shares
actually been outstanding at that time.



          C. The Plan Administrator shall have the discretionary authority to
structure one or more unvested stock issuances or one or more restricted stock
unit or other share right awards under the Stock Issuance Program so that the
shares of Common Stock subject to those issuances or awards shall automatically
vest (or vest and become issuable) in whole or in part immediately upon the
occurrence of a Change in Control or upon the subsequent termination of the
Participant’s Service by reason of an Involuntary Termination within a
designated period following the effective date of that Change in Control
transaction.



          D. The Plan Administrator shall also have the discretionary authority to
structure one or more unvested stock issuances or one or more restricted stock
unit or other share right awards under the Stock Issuance Program so that the
shares of Common Stock subject to those issuances or awards shall automatically
vest (or vest and become issuable) in whole or in part immediately upon the
occurrence of a Hostile Take-Over or upon the subsequent termination of the
Participant’s Service by reason of an Involuntary Termination within a
designated period following the effective date of that Hostile Take-Over.



          E. The Plan Administrator’s authority under Paragraphs C and D of this
Section II shall also extend to any stock issuances, restricted stock units or
other share right awards intended to qualify as performance-based compensation
under Code Section 162(m), even though the automatic vesting of those
issuances, units or awards pursuant to Paragraph C or D of this Section II may
result in their loss of performance-based status under Code Section 162(m).



19









 





ARTICLE FOUR




AUTOMATIC OPTION GRANT PROGRAM




     I. OPTION TERMS



          A. Automatic Grants. Option grants shall be made pursuant to the
Automatic Option Grant Program in effect under this Plan as follows:



               Initial Grant: Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Plan Effective Date shall
automatically be granted, on the date of such initial election or appointment,
a Non-Statutory Option to purchase twenty-five thousand (25,000) shares of
Common Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.



               Annual Grants: On the first trading day in January each year, beginning
with the 2005 calendar year, the following automatic option grants shall be
made to each individual serving at that time as a non-employee Board member:



               1. Each individual serving as a non-employee Board member on such grant
date shall receive an automatic option grant for ten thousand (10,000) shares
of Common Stock, provided that such individual has served as a non-employee
Board member for a period of at least six (6) months.



               2. Each non-employee Board member who is serving as a member of any of the
Board committees on such grant date shall receive an additional automatic
option grant for two thousand five hundred (2,500) shares of Common Stock for
each Board committee on which he or she is serving on that grant date, except
that the option grant for the Chair of the Audit Committee shall cover seven
thousand five hundred (7,500) shares and the option grant for the Chair of each
other Board committee shall cover five thousand (5,000) shares.



               There shall be no limit on the number of such annual share option grants
any one continuing non-employee Board member may receive over his or her period
of Board or Board committee service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have otherwise received one or more stock option grants from the
Corporation prior to the Plan Effective Date shall be eligible to receive one
or more such annual option grants over their period of continued Board service.



          B. Exercise Price.



               1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.



20









 





               2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.



          C. Option Term. Each option shall have a maximum term of ten (10) years
measured from the option grant date, subject to earlier termination following
the Optionee’s cessation of Board service.



          D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation,
at the lower of (i) the exercise price paid per share or (ii) the Fair Market
Value per share of Common Stock at the time of repurchase, upon the Optionee’s
cessation of Board service prior to vesting in those shares. The shares
subject to each initial 25,000-share grant shall vest, and the Corporation’s
repurchase right shall lapse, in a series of thirty-six (36) successive equal
monthly installments upon the Optionee’s completion of each month of service as
a Board member over the three (3)-year period measured from the option grant
date. The shares subject to each annual option grant made to a non-employee
Board member for his or her continued Board or Board committee service shall
vest, and the Corporation’s repurchase right shall lapse, in one installment
upon the Optionee’s completion of one (1) year of Board service measured from
the grant date.



          E. Limited Transferability of Options. Each option under this Article
Four may be assigned in whole or in part during the Optionee’s lifetime to one
or more of his or her Family Members or to a trust established exclusively for
the Optionee and/or one or more such Family Members, to the extent such
assignment is in connection with the Optionee’s estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee’s death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee’s death.



          F. Termination of Board Service. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:



21









 






                    (i) The Optionee (or, in the event of Optionee’s death while
holding the option, the personal representative of the Optionee’s
estate or the person or persons to whom the option is transferred
pursuant to the Optionee’s will or the laws of inheritance or the
designated beneficiary or beneficiaries of such option) shall have
a twelve (12)-month period following the date of such cessation of
Board service in which to exercise such option. However, should
the Optionee cease Board service by reason of Retirement,
Permanent Disability or death, the option will remain exercisable
for the balance of the option term.




                    (ii) During the applicable post-Board service exercise
period, the option may not be exercised in the aggregate for more
than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee’s cessation of
Board service.




                    (iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such
option may, during the remainder of the option term, be exercised
for any or all of those shares as fully vested shares of Common
Stock.




                    (iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the
applicable post-Board service exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately
upon the Optionee’s cessation of Board service for any reason
other than death or Permanent Disability, terminate and cease to
be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.



     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER/HOSTILE TENDER-OFFER



          A. In the event of a Change in Control while the Optionee remains a Board
member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock
and may be exercised for any or all of those vested shares. Immediately
following the consummation of the Change in Control, each automatic option
grant shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) or otherwise continued in
effect pursuant to the terms of the Change in Control transaction.



22









 





          B. In the event of a Hostile Take-Over while the Optionee remains a Board
member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, become
exercisable for all the option shares as fully vested shares of Common Stock
and may be exercised for any or all of those vested shares. Each such option
shall remain exercisable for such fully vested option shares until the
expiration or sooner termination of the option term or the surrender of the
option in connection with a Hostile Tender-Offer.



          C. All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control or Hostile Take-Over.



          D. Upon the occurrence of a Hostile Tender-Offer while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each of his or her outstanding options
under this Automatic Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Tender-Offer Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.



          E. Each option which is assumed in connection with a Change in Control or
otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change
in Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the
extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in
Control, the successor corporation may, in connection with the assumption of
the outstanding options under the Automatic Option Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in such Change in
Control transaction.



     III. REMAINING TERMS



               The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Grant Program.



23









 





ARTICLE FIVE




MISCELLANEOUS




     I. TAX WITHHOLDING



          A. The Corporation’s obligation to deliver shares of Common Stock upon the
exercise of options or stock appreciation rights or the issuance or vesting of
such shares under the Plan shall be subject to the satisfaction of all
applicable income and employment tax withholding requirements.



          B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options (other than the options granted under the
Automatic Option Grant Program), stock appreciation rights, restricted stock
units or any other share right awards pursuant to which vested shares of Common
Stock are to be issued under the Plan and any or all Participants to whom
vested or unvested shares of Common Stock are issued in a direct issuance under
the Stock Issuance Program with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such holders may
become subject in connection with the exercise of their options or stock
appreciation rights, the issuance to them of vested shares or the subsequent
vesting of unvested shares issued to them. Such right may be provided to any
such holder in either or both of the following formats:



               Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or stock appreciation right or upon the issuance of
fully-vested shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to exceed one
hundred percent (100%)) designated by the holder. The shares of Common Stock
so withheld shall not reduce the number of shares of Common Stock authorized
for issuance under the Plan.




                    (i) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option or stock
appreciation right is exercised, the vested shares are issued or
the unvested shares subsequently vest, one or more shares of
Common Stock previously acquired by such holder (other than in
connection with the exercise, share issuance or share vesting
triggering the Withholding Taxes) with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to
exceed one hundred percent (100%)) designated by the holder. The
shares of Common Stock so delivered shall not be added to the shares of Common Stock authorized for issuance under the Plan.



24









 





     II. ASSUMPTION OR SUBSTITUTION OF OPTIONS



          A. The shares of Common Stock reserved for issuance under the Plan may, in
the sole discretion of the Plan Administrator, be used to fund one or more
shares of Common Stock issuable upon the exercise of (i) any Code Section 422
incentive stock option originally granted by a corporation or other entity
acquired by the Corporation (or any Parent or Subsidiary), whether by merger or
asset or stock sale, and assumed by the Corporation in connection with that
acquisition or (ii) any Incentive Option granted under this Plan in
substitution for such incentive stock option of the acquired entity. Any such
assumption or substitution of options shall not be deemed to contravene the
option exercise price requirements of Section I.A of Article Two, even if the
exercise price per share of Common Stock under the assumed or substituted
option is less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the date such assumption or substitution is effected,
provided all of the following requirements are satisfied:




       
             (i)
The excess of the aggregate Fair Market Value of the shares of Common Stock subject to the assumed or substituted
option immediately after the assumption or substitution over the
aggregate exercise price in effect for those shares is not greater
than the excess of the aggregate fair market value of the shares
of stock subject to the option immediately prior to such
assumption or substitution over the aggregate exercise price
payable for those shares.




                    (ii) The ratio of the exercise price to the Fair Market Value
per share of Common Stock subject to the assumed or substituted
option immediately after such assumption or substitution is no
more favorable to the Optionee than the ratio of the exercise
price to the fair market value per share immediately prior to such
assumption or substitution.




                    (iii) The assumed or substituted option does not provide the
Optionee with any additional benefits the Optionee did not
otherwise have under the option immediately prior to the
assumption or substitution.




                    (iv) In the case of a substitution, the option granted by the
acquired entity must be cancelled at the time of such
substitution, and the Optionee must have no further rights under
that cancelled option.



     III. SHARE ESCROW/LEGENDS



          Unvested shares may, in the Plan Administrator’s discretion, be held in
escrow by the Corporation until the Participant’s interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.



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     IV. EFFECTIVE DATE AND TERM OF THE PLAN



               A. The Plan shall become effective immediately on the Plan Effective Date,
subject to stockholder approval at the 2004 Annual Meeting. Options may be
granted under the Discretionary Grant or Automatic Option Grant Program at any
time on or after the Plan Effective Date in accordance with the terms and
conditions of the applicable program. However, no option granted under the
Plan shall become exercisable in whole or in part unless and until the Plan is
approved by the stockholders at the 2004 Annual Meeting. If such stockholder
approval is not obtained, then the Plan and each outstanding option thereunder
shall terminate.



               B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants or stock issuances shall be made under the Predecessor
Plan if this Plan is approved by the stockholders at the 2004 Annual Meeting.
If such stockholder approval is obtained, then all options outstanding under
the Predecessor Plan at the time of the 2004 Annual Meeting shall be
transferred to the Plan and shall be treated as outstanding options under the
Plan. However, each outstanding option so transferred shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such transferred options with respect to their
acquisition of shares of Common Stock.



               C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Changes in
Control and Hostile Take-Overs, may, in the Plan Administrator’s discretion, be
extended to one or more options incorporated from the Predecessor Plan which do
not otherwise contain such provisions.



               D. The Plan shall terminate upon the earliest to occur of (i) March 1,
2014, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully vested shares or (iii) the termination of all
outstanding options, stock appreciation rights, restricted stock units and
other share right awards in connection with a Change in Control. Should the
Plan terminate on March 1, 2014, then all option grants, stock appreciation
rights, unvested stock issuances, restricted stock units and other share right
awards outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants,
issuances or awards.



     V. AMENDMENT OF THE PLAN



          A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options, stock appreciation rights, unvested stock issuances or other
stock-based awards at the time outstanding under the Plan unless the Optionee
or the Participant consents to such amendment or modification. In addition,
amendments to the Plan will be subject to stockholder approval to the extent
required under applicable law or regulation or pursuant to the listing
standards of the stock exchange (or the Nasdaq National Market) on which the
Common Stock is at the time primarily traded.



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          B. Options and stock appreciation rights may be granted under the
Discretionary Grant Program and stock-based awards may be made under the Stock
Issuance Program that in each instance involve shares of Common Stock in excess
of the number of shares then available for issuance under the Plan, provided no
shares shall actually be issued pursuant to those grants or awards until the
number of shares of Common Stock available for issuance under the Plan is
sufficiently increased either by (1) the automatic annual share increase
provisions of Section V.B. of Article One or (2) the stockholder approval of an
amendment of the Plan sufficiently increasing the share reserve. If
stockholder approval is required and is not obtained within twelve (12) months
after the date the first excess grant or award made against such contingent
increase, then any options, stock appreciation rights or other stock-based
awards granted on the basis of such excess shares shall terminate and cease to
be outstanding.



     VI. USE OF PROCEEDS



          Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.



     VII. REGULATORY APPROVALS



          A. The implementation of the Plan, the granting of any stock option, stock
appreciation right or other stock-based award under the Plan and the issuance
of any shares of Common Stock (i) upon the exercise or vesting of any granted
option, stock appreciation right or other stock-based award or (ii) under the
Stock Issuance Program shall be subject to the Corporation’s procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it and the shares of Common
Stock issued pursuant to it.



          B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of applicable securities laws, including the filing and
effectiveness of the Form S-8 registration statement for the shares of Common
Stock issuable under the Plan, and all applicable listing requirements of any
Stock Exchange (or the Nasdaq National Market, if applicable) on which Common
Stock is then listed for trading.



     VIII. NO EMPLOYMENT/SERVICE RIGHTS



          Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person’s Service at any time for any reason, with or without
cause.



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APPENDIX




          The following definitions shall be in effect under the Plan:



          A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Four of the Plan.



          B. Board shall mean the Corporation’s Board of Directors.



          C. Change in Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:




               (i) a merger, consolidation or other reorganization approved
by the Corporation’s stockholders, unless securities representing
more than fifty percent (50%) of the total combined voting power
of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly
and in substantially the same proportion, by the persons who
beneficially owned the Corporation’s outstanding voting securities
immediately prior to such transaction,




               (ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation’s
assets, or




               (iii) the closing of any transaction or series of related
transactions pursuant to which any person or any group of persons
comprising a “group” within the meaning of Rule 13d-5(b)(1) of the
1934 Act (other than the Corporation or a person that, prior to
such transaction or series of related transactions, directly or
indirectly controls, is controlled by or is under common control
with, the Corporation) becomes directly or indirectly the
beneficial owner (within the meaning of Rule 13d-3 of the 1934
Act) of securities possessing (or convertible into or exercisable
for securities possessing) more than fifty percent (50%) of the
total combined voting power of the Corporation’s securities (as
measured in terms of the power to vote with respect to the
election of Board members) outstanding immediately after the
consummation of such transaction or series of related
transactions, whether such transaction involves a direct issuance
from the Corporation or the acquisition of outstanding securities
held by one or more of the Corporation’s existing stockholders.



          D. Code shall mean the Internal Revenue Code of 1986, as amended.



          E. Common Stock shall mean the Corporation’s common stock.



          F. Compensation Committee shall mean the Compensation Committee of the
Corporation’s Board of Directors.



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          G. Corporation shall mean IntraBiotics Pharmaceuticals, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of IntraBiotics Pharmaceuticals, Inc. which has by
appropriate action assumed the Plan.



          H. Discretionary Grant Program shall mean the discretionary grant program
in effect under Article Two of the Plan pursuant to which stock options and
stock appreciation rights may be granted to one or more eligible individuals.



          I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established), subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.



          J. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.



          K. Executive shall mean any Employee of the Corporation who, immediately
prior to the closing of a Change in Control transaction, holds the title of
vice president or higher.



          L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:




               (i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date immediately
preceding the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National
Market and published in The Wall Street Journal. If there is no
closing selling price for the Common Stock on the date immediately
preceding the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which
such quotation exists.




               (ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date immediately preceding
the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of
transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common
Stock on the date immediately preceding the date in question, then
the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.



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          M. Family Member means, with respect to a particular Optionee or
Participant, any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, bother-in-law or sister-in-law.



          N. Hostile Take-Over shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:




               (i) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a
majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or
nomination, or




               (ii) a Hostile Tender-Offer.



          O. Hostile Tender-Offer shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than twenty percent (20%) of the total combined voting power of the
Corporation’s outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation’s stockholders which the Board does not
recommend such stockholders to accept.



          P. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.



          Q. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:



               (i) such individual’s involuntary dismissal or discharge by
the Corporation (or any Parent or Subsidiary) for reasons other
than Misconduct, or



               (ii) such individual’s voluntary resignation following (A) a
change in his or her position with the Corporation (or any Parent
or Subsidiary) which materially reduces his or her duties and
responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) or (C) a relocation of such
individual’s place of employment by



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more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation (or any
Parent or Subsidiary) without the individual’s consent.



          R. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or
other person in the Service of the Corporation (or any Parent or Subsidiary)
for any other acts or omissions, but such other acts or omissions shall not be
deemed, for purposes of the Plan, to constitute grounds for termination for
Misconduct.



          S. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.



          T. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.



          U. Optionee shall mean any person to whom an option is granted under the
Discretionary Grant or Automatic Option Grant Program.



          V. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.



          W. Participant shall mean any person who is issued shares of Common Stock
or restricted stock units or other stock-based awards under the Stock Issuance
Program.



          X. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.



          Y. Plan shall mean the Corporation’s 2004 Stock Incentive Plan, as set
forth in this document.



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          Z. Plan Administrator shall mean the Compensation Committee acting in its
administrative capacity under the Plan. Such term shall also include the Board
or any secondary committee of the Board, to the extent the Board or such
secondary committee is carrying out any administrative responsibilities
allocated to it under the Plan with respect to persons other than Section 16
Insiders.



          AA. Plan Effective Date shall mean the March 2, 2004 date on which the
Plan was adopted by the Board, subject to stockholder approval at the 2004
Annual Meeting.



          BB. Predecessor Plan shall mean the Corporation’s 2000 Equity Incentive
Plan in effect immediately prior to the 2004 Annual Stockholders Meeting.



          CC. Retirement shall mean the termination of Employee status after the
later of (i) the completion of five (5) years of Service in Employee status or
(ii) attainment of age fifty-five (55). For purposes of any options granted
under the Automatic Option Grant Program, Retirement shall mean the cessation
of Board service after the later of (i) the completion of five (5) years of
Board service or (ii) attainment of age fifty-five (55).



          DD. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.



          EE. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary, whether now existing or subsequently established) by
a person in the capacity of an Employee, a non-employee member of the board of
directors or a consultant or independent advisor, except to the extent
otherwise specifically provided in the documents evidencing the option grant or
stock issuance. Service shall not be deemed to cease during a period of
military leave, sick leave or other personal leave approved by the Corporation;
provided, however, that for a leave which exceeds ninety (90) days, Service
shall be deemed, for purposes of determining the period within which any
outstanding option held by the Optionee in question may be exercised as an
Incentive Option, to cease on the ninety-first (91st) day of such leave, unless
the right of that Optionee to return to Service following such leave is
guaranteed by law or statute. Except to the extent otherwise required by law
or expressly authorized by the Plan Administrator, no Service credit shall be
given for vesting purposes for any period the Optionee or Participant is on a
leave of absence.



          FF. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.



          GG. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.



          HH. Stock Issuance Program shall mean the stock issuance program in effect
under Article Three of the Plan.



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          II. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.



          JJ. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).



          KK. Tender-Offer Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Tender-Offer or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Tender-Offer. However, if the surrendered option is an
Incentive Option, the Tender-Offer Price shall not exceed the clause (i) price
per share.



          LL. Withholding Taxes shall mean the applicable income and employment
withholding taxes to which the holder of an option or stock appreciation right
or shares of Common Stock under the Plan may become subject in connection with
the grant or exercise of those options or stock appreciation rights or the
issuance or vesting of those shares.




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