**EXHIBIT 10.32****INTRABIOTICS PHARMACEUTICALS, INC.****2004 STOCK INCENTIVE PLAN****(As Amended and Restated Effective February 10, 2006)****ARTICLE ONE****GENERAL PROVISIONS**     **I. PURPOSE OF THE PLAN**          This 2004 Stock Incentive Plan is intended to promote the interests of IntraBioticsPharmaceuticals, Inc., a Delaware corporation, by providing eligible persons in the Corporation’sservice with the opportunity to acquire a proprietary interest, or otherwise increase theirproprietary 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 thediscretion of the Plan Administrator, be granted options to purchase shares of Common Stockor stock appreciation rights tied to the value of such Common Stock,          - the Stock Issuance Program under which eligible persons may, at the discretionof the Plan Administrator, be issued shares of Common Stock pursuant to restricted stockawards, restricted stock units or other share right awards which vest upon the completion ofa designated service period or the attainment of pre-established performance milestones, orsuch shares of Common Stock may be issued through direct purchase or as a bonus for servicesrendered the Corporation (or any Parent or Subsidiary), and          - the Automatic Option Grant Program under which eligible non-employee Boardmembers will automatically receive option grants at designated intervals over their periodof continued Board service.          B. The provisions of Articles One and Five shall apply to all equity programs under the Planand shall govern the interests of all persons under the Plan.
 

 
     **III. ADMINISTRATION OF THE PLAN**          A. The Board shall serve as the Plan Administrator.          B. The Board as Plan Administrator shall have full power and authority (subject to theprovisions of the Plan) to establish such rules and regulations as it may deem appropriate forproper administration of the Plan and to make such determinations under, and issue suchinterpretations of, the provisions of the Plan and any outstanding stock options, stockappreciation rights, stock issuances or other stock-based awards thereunder as it may deemnecessary or advisable. Decisions of the Plan Administrator shall be final and binding on allparties who have an interest in the Plan or any stock option, stock appreciation right, stockissuance or other stock-based award thereunder.          C. Service as the Plan Administrator shall constitute service as a Board member, and theindividuals serving in that capacity shall accordingly be entitled to full indemnification andreimbursement as Board members for their service as Plan Administrator. No individual serving inhis or her capacity as Plan Administrator shall be liable for any act or omission made in goodfaith with respect to the Plan or any stock option, stock appreciation right, stock issuance orother stock-based award made or granted under the Plan.     **IV. ELIGIBILITY**          A. The persons eligible to participate in the Discretionary Grant and Stock Issuance Programsare as follows:          (i) Employees,          (ii) non-employee members of the Board or the board of directors of any Parentor Subsidiary, and          (iii) consultants and other independent advisors who provide services to theCorporation (or any Parent or Subsidiary).          B. The Plan Administrator shall have full authority to determine, (i) with respect to thegrant of options or stock appreciation rights under the Discretionary Grant Program, which eligiblepersons are to receive such grants, the time or times when those grants are to be made, the numberof shares to be covered by each such grant, the status of a granted option as either an IncentiveOption or a Non-Statutory Option, the time or times when each option or stock appreciation right isto become exercisable, the vesting schedule (if any) applicable to the option or stock appreciationright and the maximum term for which the option or stock appreciation right is to remainoutstanding and (ii) with respect to stock issuances or other stock-based awards under the StockIssuance Program, which eligible persons are to receive such issuances or awards, the time or timeswhen the issuances or awards are to be made, the number of shares subject to each such issuance oraward, the vesting schedule (if any)
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applicable to the shares which are the subject of such issuance or award and the considerationfor those shares.          C. The Plan Administrator shall have the absolute discretion either to grant options or stockappreciation right in accordance with the Discretionary Grant Program or to effect stock issuancesand 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 Programshall be limited to (i) those individuals who first become non-employee Board members on or afterthe Plan Effective Date, whether through appointment by the Board or election by the Corporation’sstockholders, and (ii) those individuals who continue to serve as non-employee Board members afterthe Plan Effective Date. A non-employee Board member who has previously been in the employ of theCorporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant underthe 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 Programwhile 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 reacquiredCommon Stock, including shares repurchased by the Corporation on the open market. The number ofshares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed2,050,000 shares. Such reserve shall consist of (i) the number of shares estimated to betransferred to this Plan from the Predecessor Plan, including the shares subject to outstandingoptions under the Predecessor Plan to be transferred to this Plan, upon stockholder approval of thePlan at the 2004 Annual Meeting, (ii) plus an additional increase of approximately 1,200,000shares.          B. The number of shares of Common Stock available for issuance under the Plan shallautomatically increase on the first trading day of January each calendar year during the term ofthe Plan, beginning with calendar year 2005, by an amount equal to five percent (5%) of the sum ofthe following share numbers, calculated as of the last trading day in December of the immediatelypreceding calendar year: (i) the total number of shares of Common Stock outstanding on that dateand (ii) the number of shares of Common Stock into which the outstanding shares of theCorporation’s preferred stock are convertible on that date. In no event shall any such annualincrease exceed 2,000,000 shares.          C. No one person participating in the Plan may receive stock options, stand-alone stockappreciation rights, direct stock issuances (whether vested or unvested) or other stock-basedawards (whether in the form of restricted stock units or other share-right awards) for more than1,000,000 shares of Common Stock in the aggregate per calendar year.
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          D. Shares of Common Stock subject to outstanding options (including options transferred tothis Plan from the Predecessor Plan) or other awards made under the Plan shall be available forsubsequent issuance under the Plan to the extent (i) those options or awards expire or terminatefor any reason prior to the issuance of the shares of Common Stock subject to those options orawards or (ii) the awards are cancelled in accordance with the exchange/ repricing provisions ofArticle Two. Unvested shares issued under the Plan and subsequently forfeited or repurchased bythe 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 ofshares of Common Stock reserved for issuance under the Plan and shall accordingly be available forsubsequent reissuance. Should the exercise price of an option under the Plan be paid with sharesof Common Stock, then the authorized reserve of Common Stock under the Plan shall be reduced onlyby the net number of shares issued under the exercised stock option. Should shares of Common Stockotherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholdingtaxes incurred in connection with the exercise of an option or stock appreciation right or theissuance of fully-vested shares under the Stock Issuance Program, then the number of shares ofCommon Stock available for issuance under the Plan shall be reduced only by the net number ofshares issued under the exercised stock option or stock appreciation right or the net number offully-vested shares issued under the Stock Issuance Program. Such withholding shall in effect betreated under the Plan as a cash bonus, payable directly to the applicable taxing authorities onbehalf of the individual concerned, in an amount equal to the Fair Market Value of the withheldshares, 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 theoutstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriateadjustments shall be made by the Plan Administrator to (i) the maximum number and/or class ofsecurities issuable under the Plan, (ii) the maximum number and/or class of securities for whichany one person may be granted stock options, stand-alone stock appreciation rights, direct stockissuances and other stock-based awards under the Plan per calendar year, (iii) the number and/orclass of securities for which grants are subsequently to be made under the Automatic Option GrantProgram to new and continuing non-employee Board members for service on the Board or any Boardcommittee, (iv) the number and/or class of securities and the exercise or base price per share ineffect under each outstanding option or stock appreciation right under the Plan, (v) the numberand/or class of securities subject to each outstanding restricted stock unit or other stock-basedaward under the Plan, (vi) the number and/or class of securities and exercise price per share ineffect 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 increaseautomatically 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 awardsare to be effected in a manner which shall preclude the enlargement or dilution of rights andbenefits under those options, stock appreciation rights or other stock-based awards. Theadjustments determined by the Plan Administrator shall be final, binding and conclusive.
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          F. Outstanding awards granted pursuant to the Plan shall in no way affect the right of theCorporation to adjust, reclassify, reorganize or otherwise change its capital or business structureor to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its businessor 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 PlanAdministrator; provided, however, that each such document shall comply with the termsspecified below. Each document evidencing an Incentive Option shall, in addition, be subject tothe 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 lessthan one hundred percent (100%) of the Fair Market Value per share of Common Stock on the optiongrant 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 theforms specified below:               (i) cash or check made payable to the Corporation,               (ii) shares of Common Stock held for the requisite period necessary to avoid acharge to the Corporation’s earnings for financial reporting purposes and valued atFair Market Value on the Exercise Date, or               (iii) to the extent the option is exercised for vested shares, through aspecial sale and remittance procedure pursuant to which the Optionee shallconcurrently provide irrevocable instructions to (a) a brokerage firm (reasonablysatisfactory to the Corporation for purposes of administering such procedure incompliance with the Corporation’s pre-clearance/pre-notification policies) to effectthe immediate sale of the purchased shares and remit to the Corporation, out of thesale proceeds available on the settlement date, sufficient funds to cover theaggregate exercise price payable for the purchased shares plus all applicable incomeand employment taxes required to be withheld by the Corporation by reason of suchexercise and (b) the Corporation to deliver the certificates for the purchasedshares 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 exerciseprice 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 ortimes, during such period and for such number of shares as shall be determined by the PlanAdministrator and set forth in the documents evidencing the option. However, no option shall havea 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 theDiscretionary Grant Program that are outstanding at the time of the Optionee’s cessation ofService:               (i) Any option outstanding at the time of the Optionee’s cessation of Serviceshall remain exercisable for such period of time thereafter as shall be determinedby the Plan Administrator and set forth in the documents evidencing the option, butno such option shall be exercisable after the expiration of the option term.However, in the event an Optionee should cease Employee status by reason ofRetirement, Permanent Disability or death, any outstanding option granted to suchOptionee under the Discretionary Grant Program shall remain exercisable for theremainder of the option term.               (ii) Any option outstanding at the time of the Optionee’s death and exercisablein whole or in part at that time may be subsequently exercised by the personalrepresentative of the Optionee’s estate or by the person or persons to whom theoption is transferred pursuant to the Optionee’s will or the laws of inheritance orby the Optionee’s designated beneficiary or beneficiaries of that option.               (iii) Should the Optionee’s Service be terminated for Misconduct or should theOptionee otherwise engage in Misconduct while holding one or more outstandingoptions granted under this Article Two, then all of those options shall terminateimmediately and cease to be outstanding.               (iv) During the applicable post-Service exercise period, the option may not beexercised in the aggregate for more than the number of vested shares for which thatoption is at the time exercisable. No additional shares shall vest under the optionfollowing the Optionee’s cessation of Service, except to the extent (if any)specifically authorized by the Plan Administrator in its sole discretion pursuant toan express written agreement with the Optionee. Upon the expiration of theapplicable 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 theoption has not been exercised.
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               2. The Plan Administrator shall have complete discretion, exercisable either at the time anoption 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 exercisablefollowing the Optionee’s cessation of Service from the limited exercise periodotherwise in effect for that option to such greater period of time as the PlanAdministrator shall deem appropriate, but in no event beyond the expiration of theoption term, and/or               (ii) permit the option to be exercised, during the applicable post-Serviceexercise period, not only with respect to the number of vested shares of CommonStock for which such option is exercisable at the time of the Optionee’s cessationof Service but also with respect to one or more additional installments in which theOptionee would have vested had the Optionee continued in Service.          D. **Stockholder Rights****.**The holder of an option shall have no stockholder rights withrespect to the shares subject to the option until such person shall have exercised the option, paidthe exercise price and become a holder of record of the purchased shares.          E. **Repurchase Rights****.**The Plan Administrator shall have the discretion to grantoptions which are exercisable for unvested shares of Common Stock. Should the Optionee ceaseService while such shares are unvested, the Corporation shall have the right to repurchase any orall of those unvested shares at a price per share equal to the ***lower***of (i) the exercise price paidper share or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. Theterms upon which such repurchase right shall be exercisable (including the period and procedure forexercise and the appropriate vesting schedule for the purchased shares) shall be established by thePlan Administrator and set forth in the document evidencing such repurchase right.          F. **Limited Transferability of Options**. During the lifetime of the Optionee, optionsshall be exercisable only by the Optionee and shall not be assignable or transferable other than bywill or by the laws of inheritance following the Optionee’s death. However, the Plan Administratormay permit an assignment, in whole or in part, during the Optionee’s lifetime, of a Non-StatutoryOption, if such assignment is in connection with the Optionee’s estate plan and is to one or moreFamily Members of the Optionee or to a trust established exclusively for the Optionee and/or one ormore such Family Members or is pursuant to a domestic relations order covering the option asmarital property. The assigned portion may only be exercised by the person or persons who acquirea proprietary interest in the option pursuant to the assignment. The terms applicable to theassigned portion shall be the same as those in effect for the option immediately prior to suchassignment and shall be set forth in such documents issued to the assignee as the PlanAdministrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designateone or more persons as the beneficiary or beneficiaries of his or her outstanding options underthis Article Two, and the options shall, in
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accordance with such designation, automatically be transferred to such beneficiary orbeneficiaries upon the Optionee’s death while holding those options. Such beneficiary orbeneficiaries shall take the transferred options subject to all the terms and conditions of theapplicable agreement evidencing each such transferred option, including (without limitation) thelimited 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 bythe provisions of this Section II, all the provisions of Articles One, Two and Five shall beapplicable to Incentive Options. Options which are specifically designated as Non-StatutoryOptions 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 toany Employee under the Plan (or any other option plan of the Corporation or any Parent orSubsidiary) may for the first time become exercisable as Incentive Options during any one calendaryear 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 thefirst time in the same calendar year, the foregoing limitation on the exercisability of suchoptions as Incentive Options shall be applied on the basis of the order in which such options aregranted.          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 optionterm 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, exercisablein its sole discretion, to grant stock appreciation rights in accordance with this Section III toselected Optionees or other individuals eligible to receive option grants under the DiscretionaryGrant Program.          B. **Types**. Three types of stock appreciation rights shall be authorized for issuanceunder this Section III: (i) tandem stock appreciation rights (“Tandem Rights”), (ii) stand-alonestock 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 andexercise of Tandem Rights.               1. One or more Optionees may be granted a Tandem Right, exercisable upon such terms andconditions as the Plan Administrator may establish, to elect between the exercise of the underlyingoption for shares of Common Stock or the surrender of that option in exchange for a distributionfrom the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the optionsurrender date) of the number of shares in which the Optionee is at the time vested under thesurrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payablefor such vested shares.               2. No such option surrender shall be effective unless it is approved by the PlanAdministrator, either at the time of the actual option surrender or at any earlier time. If thesurrender is so approved, then the distribution to which the Optionee shall accordingly becomeentitled under this Section III may be made in shares of Common Stock valued at Fair Market Valueon the option surrender date, in cash, or partly in shares and partly in cash, as the PlanAdministrator shall in its sole discretion deem appropriate.               3. If the surrender of an option is not approved by the Plan Administrator, then the Optioneeshall retain whatever rights the Optionee had under the surrendered option (or surrendered portionthereof) 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 onwhich the option is otherwise exercisable in accordance with the terms of the instrument evidencingsuch option, but in no event may such rights be exercised more than ten (10) years after the dateof the option grant.          D. **Stand-Alone Rights**. The following terms and conditions shall govern the grant andexercise of Stand-alone Rights:               1. One or more individuals eligible to participate in the Discretionary Grant Program may begranted a Stand-alone Right not tied to any underlying option under this Discretionary GrantProgram. The Stand-alone Right shall relate to a specified number of shares of Common Stock andshall be exercisable upon such terms and conditions as the Plan Administrator may establish. In noevent, however, may the Stand-alone Right have a maximum term in excess of ten (10) years measuredfrom the grant date. Upon exercise of the Stand-alone Right, the holder shall be entitled toreceive a distribution from the Corporation in an amount equal to the excess of (i) the aggregateFair Market Value (on the exercise date) of the shares of Common Stock underlying the exercisedright 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 pricein effect for those shares shall be determined by the Plan Administrator in its sole discretion atthe time the Stand-alone Right is granted. In no event, however, may the base price per share beless than the Fair Market Value per underlying share of Common Stock on the grant date. In theevent 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, theshares of Common Stock underlying each such Stand-alone Right shall be adjusted immediately aftersuch Change in Control so as to apply to the number and class of securities into which those sharesof Common Stock would have been converted in consummation of such Change in Control had thoseshares actually been outstanding at that time. Appropriate adjustments to reflect such Change inControl shall also be made to the base price per share in effect under each outstanding Stand-aloneRight, provided the aggregate base price shall remain the same. To the extent the actualholders of the Corporation’s outstanding Common Stock receive cash consideration for their CommonStock in consummation of the Change in Control, the successor corporation may, in connection withthe assumption or continuation of the outstanding Stand-alone Rights under the Discretionary GrantProgram, substitute, for the securities underlying those assumed rights, one or more shares of itsown common stock with a fair market value equivalent to the cash consideration paid per share ofCommon Stock in the Change in Control transaction.               3. Stand-alone Rights shall be subject to the same transferability restrictions applicable toNon-Statutory Options and may not be transferred during the holder’s lifetime, except if suchassignment is in connection with the holder’s estate plan and is to one or more Family Members ofthe holder or to a trust established for the holder and/or one or more such Family Members orpursuant to a domestic relations order covering the Stand-alone Right as marital property. Inaddition, one or more beneficiaries may be designated for an outstanding Stand-alone Right inaccordance with substantially the same terms and provisions as set forth in Section I.F of thisArticle Two.               4. The distribution with respect to an exercised Stand-alone Right may be made in shares ofCommon Stock valued at Fair Market Value on the exercise date, in cash, or partly in shares andpartly 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 theshares subject to the Stand-alone Right unless and until such person shall have exercised theStand-alone Right and become a holder of record of the shares of Common Stock issued upon theexercise of such Stand-alone Right.          E. **Limited Rights**. The following terms and conditions shall govern the grant andexercise of Limited Rights:               1. One or more Section 16 Insiders may, in the Plan Administrator’s sole discretion, begranted 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 theunconditional 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 Insidershall in return be entitled to a cash distribution from the Corporation in an amount equal to theexcess 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 distributionshall 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, thesubsequent exercise of that right in accordance with the terms of the grant and the provisions ofthis Section III. No additional approval of the Plan Administrator or the Board shall be requiredat the time of the actual option surrender and cash distribution. Any unsurrendered portion of theoption shall continue to remain outstanding and become exercisable in accordance with the terms ofthe 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’sService shall be substantially the same as those set forth in Section I.C of this Article Two forthe options granted under the Discretionary Grant Program.          G. **Net Counting****.**Upon the exercise of any Tandem, Stand-alone or Limited Right underthis Section III, the share reserve under Section V of Article One shall only be reduced by the netnumber of shares actually issued by the Corporation upon such exercise, and not by the gross numberof shares as to which such Tandem, Stand-alone or Limited Right is exercised. Accordingly, upon theexercise of any such stock appreciation right, the number of shares available for issuance underthe Plan shall increase by the amount by which the shares subject to that exercised stockappreciation 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 rightunder the Discretionary Grant Program shall automatically accelerate so that each such option orstock 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 stockappreciation right and may be exercised as to any or all of those shares as fully vested shares ofCommon Stock. However, except as otherwise provided in Section IV.B of this Article Two, anoutstanding option or stock appreciation right shall **not**become exercisable on such an acceleratedbasis if and to the extent: (i) such option or stock appreciation right is to be assumed by thesuccessor corporation (or parent thereof) or is otherwise to continue in full force and effectpursuant to the terms of the Change in Control transaction or (ii) such option or stockappreciation right is to be replaced with a cash incentive program of the successor corporationwhich preserves the spread existing at the time of the Change in Control on any shares as to whichthe option or stock appreciation right is not otherwise at that time exercisable and provides forsubsequent payout of that spread in accordance with the same exercise/vesting schedule applicableto those shares or (iii) the acceleration of such option or stock appreciation right is subject toother 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 vestingacceleration provisions shall be in effect for all options and stock appreciation rights grantedunder the Discretionary Grant Program:               (i) Each outstanding option or stock appreciation right under thisDiscretionary Grant Program which is at the time held by a then current Employeeshall, immediately prior to the effective date of a Change in Control, automaticallyvest and become exercisable as to fifty percent (50%) of the total number ofunvested shares of Common Stock at the time subject to such outstanding option orstock appreciation right, and each such option or stock appreciation right mayaccordingly be exercised as to any or all of those accelerated shares as fullyvested shares of Common Stock.               (ii) Should an Executive’s Service terminate by reason of an InvoluntaryTermination within thirteen (13) months following a Change in Control, then eachoutstanding option or stock appreciation right under this Discretionary GrantProgram held by that Executive shall immediately vest and become exercisable as toall the securities at the time subject to such outstanding option or stockappreciation right, and each such option or stock appreciation right may beexercised as to any or all of those securities as fully-vested shares.               (iii) Each outstanding option or stock appreciation right under thisDiscretionary Grant Program which is at the time held by a then current non-employeeBoard 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 CommonStock at the time subject to such outstanding option or stock appreciation right,and each such option or stock appreciation right may accordingly be exercised forany or all of those shares as fully vested shares of Common Stock.          C. All outstanding repurchase rights under the Discretionary Grant Program shall automaticallyterminate, and the shares of Common Stock subject to those terminated rights shall immediately vestin full, in the event of a Change in Control, except to the extent: (i) those repurchase rights areto be assigned to the successor corporation (or parent thereof) or are otherwise to continue infull force and effect pursuant to the terms of the Change in Control transaction or (ii) suchaccelerated vesting is precluded by other limitations imposed by the Plan Administrator at the timethe repurchase right is issued.          D. Immediately following the consummation of the Change in Control, all outstanding options orstock appreciation rights under the Discretionary Grant Program shall terminate and cease to beoutstanding, except to the extent assumed by the successor corporation (or parent thereof) orotherwise continued in full force and effect pursuant to the terms of the Change in Controltransaction.
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          E. Each option which is assumed in connection with a Change in Control or otherwise continuedin effect shall be appropriately adjusted, immediately after such Change in Control, to apply tothe number and class of securities which would have been issuable to the Optionee in consummationof such Change in Control had the option been exercised immediately prior to such Change inControl. Appropriate adjustments to reflect such Change in Control shall also be made to (i) theexercise price payable per share under each outstanding option, provided the aggregateexercise price payable for such securities shall remain the same, (ii) the maximum number and/orclass of securities available for issuance over the remaining term of the Plan and (iii) themaximum 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 underthe Plan per calendar year and (iv) the maximum number and/or class of securities by which theshare reserve is to increase automatically each calendar year. To the extent the actual holders ofthe Corporation’s outstanding Common Stock receive cash consideration for their Common Stock inconsummation of the Change in Control, the successor corporation may, in connection with theassumption 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 thecash 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 moreoutstanding options or stock appreciation rights under the Discretionary Grant Program so thatthose options or stock appreciation rights shall, immediately prior to the effective date of aChange in Control, become exercisable as to all the shares of Common Stock at the time subject tothose options or stock appreciation rights and may be exercised as to any or all of those shares asfully vested shares of Common Stock, whether or not those options or stock appreciation rights areto 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 theCorporation’s repurchase rights under the Discretionary Grant Program so that those rights shallimmediately terminate upon the consummation of the Change in Control transaction, and the sharessubject to those terminated rights shall thereupon vest in full.          G. The Plan Administrator shall have full power and authority to structure one or moreoutstanding options or stock appreciation rights under the Discretionary Grant Program so thatthose options or stock appreciation rights shall become exercisable as to all the shares of CommonStock at the time subject to those options or stock appreciation rights in the event the Optionee’sService is subsequently terminated by reason of an Involuntary Termination within a designatedperiod following the effective date of any Change in Control transaction in which those options orstock appreciation rights do not otherwise fully accelerate. In addition, the Plan Administratormay structure one or more of the Corporation’s repurchase rights so that those rights shallimmediately terminate with respect to any shares held by the Optionee at the time of suchInvoluntary Termination, and the shares subject to those terminated repurchase rights shallaccordingly vest in full at that time.
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          H. The Plan Administrator shall have the discretionary authority to structure one or moreoutstanding options or stock appreciation rights under the Discretionary Grant Program so thatthose options or stock appreciation rights shall, immediately prior to the effective date of aHostile Take-Over, become exercisable as to all the shares of Common Stock at the time subject tothose options or stock appreciation rights and may be exercised as to any or all of those shares asfully vested shares of Common Stock. In addition, the Plan Administrator shall have thediscretionary authority to structure one or more of the Corporation’s repurchase rights under theDiscretionary Grant Program so that those rights shall terminate automatically upon theconsummation of such Hostile Take-Over, and the shares subject to those terminated rights shallthereupon vest in full. Alternatively, the Plan Administrator may condition the automaticacceleration of one or more outstanding options or stock appreciation rights under theDiscretionary Grant Program and the termination of one or more of the Corporation’s outstandingrepurchase rights under such program upon the subsequent termination of the Optionee’s Service byreason of an Involuntary Termination within a designated period following the effective date ofsuch Hostile Take-Over.          I. The portion of any Incentive Option accelerated in connection with a Change in Control orHostile Take-Over shall remain exercisable as an Incentive Option only to the extent the applicableOne Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollarlimitation is exceeded, the accelerated portion of such option shall be exercisable as aNon-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 totime, with the consent of the affected holders but without any requirement for stockholderapproval, the cancellation of any or all outstanding options or stock appreciation right under theDiscretionary 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 rightscovering the same or a different number of shares of Common Stock but with an exercise or baseprice per share not less than the Fair Market Value per share of Common Stock on the new grant dateor (ii) cash or shares of Common Stock, whether vested or unvested, equal in value to the value ofthe cancelled options or stock appreciation rights.          B. The Plan Administrator shall also have the authority, exercisable at any time and from timeto time, with the consent of the affected holders but without any requirement for stockholderapproval, to reduce the exercise or base price of one or more outstanding options or stockappreciation rights to the then current Fair Market Value per share of Common Stock or issue newoptions or stock appreciation rights with a lower exercise or base price in immediate cancellationof outstanding options or stock appreciation rights with a higher exercise or base price.
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**ARTICLE THREE****STOCK ISSUANCE PROGRAM**     **I. STOCK ISSUANCE TERMS**          Shares of Common Stock may be issued under the Stock Issuance Program, either as vested orunvested 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 theterms specified below. Shares of Common Stock may also be issued under the Stock Issuance Programpursuant to share right awards or restricted stock units which entitle the recipients to receivethe shares underlying those awards or units upon the attainment of designated performance goals orthe satisfaction of specified Service requirements or upon the expiration of a designated timeperiod 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 lessthan one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuancedate.               2. Shares of Common Stock may be issued under the Stock Issuance Program for any of thefollowing items of consideration which the Plan Administrator may deem appropriate in eachindividual 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 ofthe Plan Administrator, be fully and immediately vested upon issuance or may vest in one or moreinstallments over the Participant’s period of Service or upon the attainment of specifiedperformance objectives. The elements of the vesting schedule applicable to any unvested shares ofCommon Stock issued under the Stock Issuance Program shall be determined by the Plan Administratorand incorporated into the Stock Issuance Agreement. Shares of Common Stock may also be issuedunder the Stock Issuance Program pursuant to share right awards or restricted stock units whichentitle the recipients to receive the shares
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underlying those awards or units upon the attainment of designated performance goals or thesatisfaction of specified Service requirements or upon the expiration of a designated time periodfollowing the vesting of those awards or units, including (without limitation) a deferreddistribution date following the termination of the Participant’s Service.               2. The Plan Administrator shall also have the discretionary authority, consistent with CodeSection 162(m), to structure one or more stock issuances or restricted stock unit or share rightawards so that the shares of Common Stock subject to those issuances or awards shall vest (or vestand become issuable) upon the achievement of certain pre-established corporate performance goalsbased 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 beforeinterest, 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) budgetcomparisons; (1 1) measures of customer satisfaction; (12) any combination of, or a specifiedincrease in, any of the foregoing; (13) implementation or completion of projects or processesstrategic or critical to the Corporation’s business operations; (14) achievement of advances inresearch; 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 approvalfor commercialization of products; and (15) the formation of joint ventures, research ordevelopment collaborations, or the completion of other corporate transactions intended to enhancethe Corporation’s revenue or profitability or expand its customer base. In addition, suchperformance goals may be based upon the attainment of specified levels of the Corporation’sperformance under one or more of the measures described above relative to the performance of otherentities and may also be based on the performance of any of the Corporation’s business units ordivisions or any Parent or Subsidiary. Performance goals may include a minimum threshold level ofperformance below which no award will be earned, levels of performance at which specified portionsof an award will be earned and a maximum level of performance at which an award will be fullyearned.               3. Any new, substituted or additional securities or other property (including money paid otherthan as a regular cash dividend) which the Participant may have the right to receive with respectto 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 theoutstanding Common Stock as a class without the Corporation’s receipt of consideration shall beissued subject to (i) the same vesting requirements applicable to the Participant’s unvested sharesof 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 CommonStock issued to the Participant under the Stock Issuance Program, whether or not the Participant’sinterest in those shares is vested. Accordingly, the Participant shall have the right to vote suchshares and to receive any regular cash dividends paid on such shares. The Participant shall nothave any stockholder rights with respect to the shares of Common Stock subject to a restrictedstock unit or share right award until that award vests and
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the shares of Common Stock are actually issued thereunder. However, dividend-equivalent unitsmay be paid or credited, either in cash or in actual or phantom shares of Common Stock, onoutstanding restricted stock unit or share right awards, subject to such terms and conditions asthe Plan Administrator may deem appropriate.               5. Should the Participant cease to remain in Service while holding one or more unvested sharesof Common Stock issued under the Stock Issuance Program or should the performance objectives not beattained with respect to one or more such unvested shares of Common Stock, then those shares shallbe immediately surrendered to the Corporation for cancellation, and the Participant shall have nofurther stockholder rights with respect to those shares. To the extent the surrendered shares werepreviously issued to the Participant for consideration paid in cash or cash equivalent, theCorporation shall repay to the Participant the ***lower***of (i) the cash consideration paid for thesurrendered 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 ormore unvested shares of Common Stock which would otherwise occur upon the cessation of theParticipant’s Service or the non-attainment of the performance objectives applicable to thoseshares. Any such waiver shall result in the immediate vesting of the Participant’s interest in theshares 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-attainmentof the applicable performance objectives. However, no vesting requirements tied to the attainmentof performance objectives may be waived with respect to shares which were intended at the time ofissuance to qualify as performance-based compensation under Code Section 162(m).               7. Outstanding share right awards or restricted stock units under the Stock Issuance Programshall automatically terminate, and no shares of Common Stock shall actually be issued insatisfaction of those awards or units, if the performance goals or Service requirements establishedfor such awards or units are not attained or satisfied. The Plan Administrator, however, shallhave the discretionary authority to issue vested shares of Common Stock under one or moreoutstanding share right awards or restricted stock units as to which the designated performancegoals or Service requirements have not been attained or satisfied. However, no vestingrequirements tied to the attainment of performance goals may be waived with respect to awards orunits which were intended, at the time those awards or units were granted, to qualify asperformance-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 Programshall terminate automatically, and all the shares of Common Stock subject to those terminatedrights 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 parent thereof) orare otherwise to continue in full force and effect pursuant to the terms of the
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Change in Control transaction or (ii) such accelerated vesting is precluded by otherlimitations imposed in the Stock Issuance Agreement.          B. Each outstanding restricted stock unit or share right award assumed in connection with aChange in Control or otherwise continued in effect shall be adjusted immediately after theconsummation of that Change in Control so as to apply to the number and class of securities intowhich the shares of Common Stock subject to the award immediately prior to the Change in Controlwould have been converted in consummation of such Change in Control had those shares actually beenoutstanding at that time.          C. The Plan Administrator shall have the discretionary authority to structure one or moreunvested stock issuances or one or more restricted stock unit or other share right awards under theStock Issuance Program so that the shares of Common Stock subject to those issuances or awardsshall automatically vest (or vest and become issuable) in whole or in part immediately upon theoccurrence of a Change in Control or upon the subsequent termination of the Participant’s Serviceby reason of an Involuntary Termination within a designated period following the effective date ofthat Change in Control transaction.          D. The Plan Administrator shall also have the discretionary authority to structure one or moreunvested stock issuances or one or more restricted stock unit or other share right awards under theStock Issuance Program so that the shares of Common Stock subject to those issuances or awardsshall automatically vest (or vest and become issuable) in whole or in part immediately upon theoccurrence of a Hostile Take-Over or upon the subsequent termination of the Participant’s Serviceby reason of an Involuntary Termination within a designated period following the effective date ofthat Hostile Take-Over.          E. The Plan Administrator’s authority under Paragraphs C and D of this Section II shall alsoextend to any stock issuances, restricted stock units or other share right awards intended toqualify as performance-based compensation under Code Section 162(m), even though the automaticvesting of those issuances, units or awards pursuant to Paragraph C or D of this Section II mayresult in their loss of performance-based status under Code Section 162(m).
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**ARTICLE FOUR****AUTOMATIC OPTION GRANT PROGRAM**     **I. OPTION TERMS**          A. **Automatic Grants****.**Option grants shall be made pursuant to the Automatic OptionGrant Program in effect under this Plan as follows:               *Initial Grant:*Each individual who is first elected or appointed as a non-employee Boardmember at any time on or after the Plan Effective Date shall automatically be granted, on the dateof 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 ofthe Corporation or any Parent or Subsidiary.               *Annual Grants:*               1. On February 13, 2006, each individual serving as a non-employee Board member on such dateshall receive an automatic option grant for twelve thousand five hundred (12,500) shares of CommonStock.               2. On the first trading day in January each year, beginning with the 2007 calendar year, eachindividual serving as a non-employee Board member on such grant date shall receive an automaticoption grant for twelve thousand five hundred (12,500) shares of Common Stock.               3. There shall be no limit on the number of such annual twelve thousand five hundred(12,500)-share option grants any one continuing non-employee Board member may receive over his overperiod of Board or Board committee service, and non-employee Board members who have previously beenin the employ of the Corporation (or any Parent or Subsidiary) or who have otherwise received oneor more stock option grants from the Corporation prior to the Plan Effective Date shall be eligibleto 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 FairMarket Value per share of Common Stock on the option grant date.               2. The exercise price shall be payable in one or more of the alternative forms authorizedunder the Discretionary Grant Program. Except to the extent the sale and remittance procedurespecified thereunder is utilized, payment of the exercise price for the purchased shares must bemade on the Exercise Date.
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          C. **Option Term****.**Each option shall have a maximum term of ten (10) years measured fromthe option grant date, subject to earlier termination following the Optionee’s cessation of Boardservice.          D. **Exercise and Vesting of Options****.**Each option shall be immediately exercisable forany or all of the option shares. However, any unvested shares purchased under the option shall besubject 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’scessation of Board service prior to vesting in those shares. The shares subject to each initial25,000-share grant shall vest, and the Corporation’s repurchase right shall lapse, in a series ofthirty-six (36) successive equal monthly installments upon the Optionee’s completion of each monthof 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 hercontinued Board or Board committee service shall vest, and the Corporation’s repurchase right shalllapse, in one installment upon the Optionee’s completion of one (1) year of Board service measuredfrom the grant date.          E. **Limited Transferability of Options****.**Each option under this Article Four may beassigned in whole or in part during the Optionee’s lifetime to one or more of his or her FamilyMembers or to a trust established exclusively for the Optionee and/or one or more such FamilyMembers, to the extent such assignment is in connection with the Optionee’s estate plan or pursuantto a domestic relations order. The assigned portion may only be exercised by the person or personswho acquire a proprietary interest in the option pursuant to the assignment. The terms applicableto the assigned portion shall be the same as those in effect for the option immediately prior tosuch assignment and shall be set forth in such documents issued to the assignee as the PlanAdministrator may deem appropriate. The Optionee may also designate one or more persons as thebeneficiary or beneficiaries of his or her outstanding options under this Article Four, and theoptions shall, in accordance with such designation, automatically be transferred to suchbeneficiary or beneficiaries upon the Optionee’s death while holding those options. Suchbeneficiary or beneficiaries shall take the transferred options subject to all the terms andconditions of the applicable agreement evidencing each such transferred option, including (withoutlimitation) the limited time period during which the option may be exercised following theOptionee’s death.          F. **Termination of Board Service****.**The following provisions shall govern the exerciseof any options held by the Optionee at the time the Optionee ceases to serve as a Board member:               (i) The Optionee (or, in the event of Optionee’s death while holding theoption, the personal representative of the Optionee’s estate or the person orpersons to whom the option is transferred pursuant to the Optionee’s will or thelaws 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 Boardservice in which to exercise such option. However, should the
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Optionee cease Board service by reason of Retirement, Permanent Disability ordeath, the option will remain exercisable for the balance of the option term.               (ii) During the applicable post-Board service exercise period, the option maynot be exercised in the aggregate for more than the number of vested shares ofCommon Stock for which the option is exercisable at the time of the Optionee’scessation of Board service.               (iii) Should the Optionee cease to serve as a Board member by reason of deathor Permanent Disability, then all shares at the time subject to the option shallimmediately 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 ofthe option term. Upon the expiration of the applicable post-Board service exerciseperiod or (if earlier) upon the expiration of the option term, the option shallterminate and cease to be outstanding for any vested shares for which the option hasnot been exercised. However, the option shall, immediately upon the Optionee’scessation 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 atthat 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 sharesof Common Stock at the time subject to each outstanding option held by such Optionee under thisAutomatic Option Grant Program but not otherwise vested shall automatically vest in full so thateach such option shall, immediately prior to the effective date of the Change in Control, becomeexercisable for all the option shares as fully vested shares of Common Stock and may be exercisedfor any or all of those vested shares. Immediately following the consummation of the Change inControl, each automatic option grant shall terminate and cease to be outstanding, except to theextent assumed by the successor corporation (or parent thereof) or otherwise continued in effectpursuant to the terms of the Change in Control transaction.          B. In the event of a Hostile Take-Over while the Optionee remains a Board member, the sharesof Common Stock at the time subject to each outstanding option held by such Optionee under thisAutomatic Option Grant Program but not otherwise vested shall automatically vest in full so thateach such option shall, immediately prior to the effective date of the Hostile Take-Over, becomeexercisable for all the option shares as fully vested shares of Common Stock and may be exercisedfor any or all of those vested shares. Each such option shall remain exercisable for such fullyvested option shares until the expiration or sooner
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termination of the option term or the surrender of the option in connection with a HostileTender-Offer.          C. All outstanding repurchase rights under this under this Automatic Option Grant Programshall automatically terminate, and the shares of Common Stock subject to those terminated rightsshall 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 ofhis or her outstanding options under this Automatic Option Grant Program. The Optionee shall inreturn 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 surrenderedoption (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) theaggregate 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 theBoard or any Plan Administrator shall be required at the time of the actual option surrender andcash distribution.          E. Each option which is assumed in connection with a Change in Control or otherwise continuedin effect shall be appropriately adjusted, immediately after such Change in Control, to apply tothe number and class of securities which would have been issuable to the Optionee in consummationof such Change in Control had the option been exercised immediately prior to such Change inControl. Appropriate adjustments shall also be made to the exercise price payable per share undereach outstanding option, provided the aggregate exercise price payable for such securitiesshall remain the same. To the extent the actual holders of the Corporation’s outstanding CommonStock 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 underthe Automatic Option Grant Program, substitute one or more shares of its own common stock with afair market value equivalent to the cash consideration paid per share of Common Stock in suchChange in Control transaction.     **III. REMAINING TERMS**          The remaining terms of each option granted under the Automatic Option Grant Program shall bethe same as the terms in effect for option grants made under the Discretionary Grant Program.
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**ARTICLE FIVE****MISCELLANEOUS**     **I. TAX WITHHOLDING**          A. The Corporation’s obligation to deliver shares of Common Stock upon the exercise of optionsor stock appreciation rights or the issuance or vesting of such shares under the Plan shall besubject 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-StatutoryOptions (other than the options granted under the Automatic Option Grant Program), stockappreciation rights, restricted stock units or any other share right awards pursuant to whichvested shares of Common Stock are to be issued under the Plan and any or all Participants to whomvested or unvested shares of Common Stock are issued in a direct issuance under the Stock IssuanceProgram with the right to use shares of Common Stock in satisfaction of all or part of theWithholding Taxes to which such holders may become subject in connection with the exercise of theiroptions or stock appreciation rights, the issuance to them of vested shares or the subsequentvesting of unvested shares issued to them. Such right may be provided to any such holder in eitheror both of the following formats:               Stock Withholding: The election to have the Corporation withhold, from the shares ofCommon Stock otherwise issuable upon the exercise of such Non-Statutory Option or stockappreciation right or upon the issuance of fully-vested shares, a portion of those shares with anaggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed onehundred 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.               Stock Delivery: The election to deliver to the Corporation, at the time theNon-Statutory Option or stock appreciation right is exercised, the vested shares are issued or theunvested shares subsequently vest, one or more shares of Common Stock previously acquired by suchholder (other than in connection with the exercise, share issuance or share vesting triggering theWithholding Taxes) with an aggregate Fair Market Value equal to the percentage of the WithholdingTaxes (not to exceed one hundred percent (100%)) designated by the holder. The shares of CommonStock so delivered shall not be added to the shares of Common Stock authorized for issuance underthe Plan.     **II. ASSUMPTION OR SUBSTITUTION OF OPTIONS**          A. The shares of Common Stock reserved for issuance under the Plan may, in the sole discretionof the Plan Administrator, be used to fund one or more shares of Common Stock issuable upon theexercise of (i) any Code Section 422 incentive stock option originally
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granted by a corporation or other entity acquired by the Corporation (or any Parent orSubsidiary), whether by merger or asset or stock sale, and assumed by the Corporation in connectionwith that acquisition or (ii) any Incentive Option granted under this Plan in substitution for suchincentive stock option of the acquired entity. Any such assumption or substitution of optionsshall not be deemed to contravene the option exercise price requirements of Section I.A of ArticleTwo, even if the exercise price per share of Common Stock under the assumed or substituted optionis less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on thedate such assumption or substitution is effected, provided all of the following requirements aresatisfied:               (i) The excess of the aggregate Fair Market Value of the shares of Common Stocksubject to the assumed or substituted option immediately after the assumption orsubstitution over the aggregate exercise price in effect for those shares is notgreater than the excess of the aggregate fair market value of the shares of stocksubject to the option immediately prior to such assumption or substitution over theaggregate exercise price payable for those shares.               (ii) The ratio of the exercise price to the Fair Market Value per share ofCommon Stock subject to the assumed or substituted option immediately after suchassumption or substitution is no more favorable to the Optionee than the ratio ofthe exercise price to the fair market value per share immediately prior to suchassumption or substitution.               (iii) The assumed or substituted option does not provide the Optionee with anyadditional benefits the Optionee did not otherwise have under the option immediatelyprior to the assumption or substitution.               (iv) In the case of a substitution, the option granted by the acquired entitymust be cancelled at the time of such substitution, and the Optionee must have nofurther rights under that cancelled option.     **III. SHARE ESCROW/LEGENDS**          Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by theCorporation until the Participant’s interest in such shares vests or may be issued directly to theParticipant with restrictive legends on the certificates evidencing those unvested shares.     **IV. EFFECTIVE DATE AND TERM OF THE PLAN**          A. The Plan became effective on the Plan Effective Date, and was approved by the stockholdersat the 2004 Annual Meeting.          B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grantsor stock issuances shall be made under the Predecessor Plan following the
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2004 Annual Meeting. All options outstanding under the Predecessor Plan at the time of the2004 Annual Meeting were transferred to the Plan and shall be treated as outstanding options underthe Plan. However, each outstanding option so transferred shall continue to be governed solely bythe terms of the documents evidencing such option, and no provision of the Plan shall be deemed toaffect or otherwise modify the rights or obligations of the holders of such transferred optionswith respect to their acquisition of shares of Common Stock.          C. The Plan was amended and restated effective February 10, 2006 to effect the followingchanges to the Automatic Option Grant Program: (i) increase the number of shares of common stocksubject to each annual option grant under the Automatic Option Grant Program from 10,000 shares to12,500 shares, and for the 2006 year only, change the grant date of such annual option grant and(ii) eliminate option grants awarded to Board members who serve as members of a Board committee.In addition, effective February 10, 2006, Plan was amended and restated to (i) amend the definitionof Fair Market Value and (ii) establish the Board as the Plan Administrator.          D. One or more provisions of the Plan, including (without limitation) the option/vestingacceleration 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 thePredecessor Plan which do not otherwise contain such provisions.          E. The Plan shall terminate upon the earliest to occur of (i) March 1, 2014, (ii) thedate on which all shares available for issuance under the Plan shall have been issued as fullyvested 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. Shouldthe Plan terminate on March 1, 2014, then all option grants, stock appreciation rights, unvestedstock issuances, restricted stock units and other share right awards outstanding at that time shallcontinue to have force and effect in accordance with the provisions of the documents evidencingsuch 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 Planin any or all respects. However, no such amendment or modification shall adversely affect therights and obligations with respect to stock options, stock appreciation rights, unvested stockissuances or other stock-based awards at the time outstanding under the Plan unless the Optionee orthe Participant consents to such amendment or modification. In addition, amendments to the Planwill be subject to stockholder approval to the extent required under applicable law or regulationor pursuant to the listing standards of the stock exchange (or the Nasdaq National Market) on whichthe Common Stock is at the time primarily traded.          B. Options and stock appreciation rights may be granted under the Discretionary Grant Programand stock-based awards may be made under the Stock Issuance Program that in each instance involveshares of Common Stock in excess of the number of shares then available for issuance under thePlan, provided no shares shall actually be issued pursuant to
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those grants or awards until the number of shares of Common Stock available for issuance underthe Plan is sufficiently increased either by (1) the automatic annual share increase provisions ofSection V.B. of Article One or (2) the stockholder approval of an amendment of the Plansufficiently increasing the share reserve. If stockholder approval is required and is not obtainedwithin twelve (12) months after the date the first excess grant or award made against suchcontingent increase, then any options, stock appreciation rights or other stock-based awardsgranted 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 underthe 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 rightor other stock-based award under the Plan and the issuance of any shares of Common Stock (i) uponthe exercise or vesting of any granted option, stock appreciation right or other stock-based awardor (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement of allapprovals and permits required by regulatory authorities having jurisdiction over the Plan, thestock 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 Planunless and until there shall have been compliance with all applicable requirements of applicablesecurities laws, including the filing and effectiveness of the Form S-8 registration statement forthe shares of Common Stock issuable under the Plan, and all applicable listing requirements of anyStock Exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listedfor trading.     **VIII. NO EMPLOYMENT/SERVICE RIGHTS**          Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue inService for any period of specific duration or interfere with or otherwise restrict in any way therights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or ofthe Optionee or the Participant, which rights are hereby expressly reserved by each, to terminatesuch 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 ineffect 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 Corporationeffected through any of the following transactions:          (i) a merger, consolidation or other reorganization approved by theCorporation’s stockholders, unless securities representing more than fiftypercent (50%) of the total combined voting power of the voting securities of thesuccessor corporation are immediately thereafter beneficially owned, directly orindirectly and in substantially the same proportion, by the persons who beneficiallyowned the Corporation’s outstanding voting securities immediately prior to suchtransaction,          (ii) a stockholder-approved sale, transfer or other disposition of all orsubstantially all of the Corporation’s assets, or          (iii) the closing of any transaction or series of related transactions pursuantto which any person or any group of persons comprising a “group” within the meaningof 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 indirectlycontrols, is controlled by or is under common control with, the Corporation) becomesdirectly or indirectly the beneficial owner (within the meaning of Rule 13d-3 of the1934 Act) of securities possessing (or convertible into or exercisable forsecurities possessing) more than fifty percent (50%) of the total combined votingpower of the Corporation’s securities (as measured in terms of the power to votewith respect to the election of Board members) outstanding immediately after theconsummation of such transaction or series of related transactions, whether suchtransaction involves a direct issuance from the Corporation or the acquisition ofoutstanding securities held by one or more of the Corporation’s existingstockholders.          D. **Code** shall mean the Internal Revenue Code of 1986, as amended.          E. **Common Stock** shall mean the Corporation’s common stock.
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          F. **Corporation** shall mean IntraBiotics Pharmaceuticals, Inc., a Delaware corporation,and any corporate successor to all or substantially all of the assets or voting stock ofIntraBiotics Pharmaceuticals, Inc. which has by appropriate action assumed the Plan.          G. **Discretionary Grant Program** shall mean the discretionary grant program in effectunder Article Two of the Plan pursuant to which stock options and stock appreciation rights may begranted to one or more eligible individuals.          H. **Employee** shall mean an individual who is in the employ of the Corporation (or anyParent or Subsidiary, whether now existing or subsequently established), subject to the control anddirection of the employer entity as to both the work to be performed and the manner and method ofperformance.          I. **Exercise Date** shall mean the date on which the Corporation shall have receivedwritten notice of the option exercise.          J. **Executive** shall mean any Employee of the Corporation who, immediately prior to theclosing of a Change in Control transaction, holds the title of vice president or higher.          K. **Fair Market Value** per share of Common Stock on any relevant date shall bedetermined 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 CommonStock on the date immediately preceding the date in question, as such price isreported by the National Association of Securities Dealers on the Nasdaq NationalMarket and published in The Wall Street Journal. If there is no closingselling price for the Common Stock on the date immediately preceding the date inquestion, then the Fair Market Value shall be the closing selling price on the lastpreceding date for which such quotation exists.          (ii) If the Common Stock is at the time listed on any Stock Exchange, then theFair Market Value shall be the closing selling price per share of Common Stock onthe date immediately preceding the date in question on the Stock Exchange determinedby the Plan Administrator to be the primary market for the Common Stock, as suchprice is officially quoted in the composite tape of transactions on such exchangeand published in The Wall Street Journal. If there is no closing sellingprice 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 precedingdate for which such quotation exists.          (iii) If the Common Stock is at the time quoted on a national or regionalsecurities exchange or market system (including over-the-counter markets) determinedby the Plan Administrator to be the primary market for the Common Stock, then theFair Market Value shall be the closing selling price (or,
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if the Plan Administrator so determines, the mean of the closing bid and askedprices of a share of Common Stock) per share of Common Stock on the date immediatelypreceding on the date in question, as such price is officially reported by suchexchange or market system. If there is no closing selling price (or closing bid orasked price) for the Common stock on the date in question, then the Fair MarketValue shall be the closing selling price (or, if the Plan Administrator sodetermines, the mean of the closing bid and asked prices) of a share of Common Stockon the last preceding date for which such quotation exists.          (iv) If the Fair Market Value of the Common Stock cannot be determined inaccordance with the provisions of (i) through (iii) above, then the Fair MarketValue shall be determined in a manner prescribed by the Plan Administrator aftertaking into account such factors as the Plan Administrator shall deem appropriate.          L. **Family Member** means, with respect to a particular Optionee or Participant, anychild, 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 orsister-in-law.          M. **Hostile Take-Over** shall mean a change in ownership or control of the Corporationeffected 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, byreason of one or more contested elections for Board membership, to be comprised ofindividuals who either (A) have been Board members continuously since the beginningof such period or (B) have been elected or nominated for election as Board membersduring 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 ornomination, or          (ii) a Hostile Tender-Offer.          N. **Hostile Tender-Offer** shall mean the acquisition, directly or indirectly, by anyperson or related group of persons (other than the Corporation or a person that directly orindirectly controls, is controlled by, or is under common control with, the Corporation) ofbeneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessingmore than twenty percent (20%) of the total combined voting power of the Corporation’s outstandingsecurities pursuant to a tender or exchange offer made directly to the Corporation’s stockholderswhich the Board does not recommend such stockholders to accept.          O. **Incentive Option** shall mean an option which satisfies the requirements of CodeSection 422.
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          P. **Involuntary Termination** shall mean the termination of the Service of any individualwhich occurs by reason of:          (i) such individual’s involuntary dismissal or discharge by the Corporation (orany Parent or Subsidiary) for reasons other than Misconduct, or          (ii) such individual’s voluntary resignation following (A) a change in his orher position with the Corporation (or any Parent or Subsidiary) which materiallyreduces his or her duties and responsibilities or the level of management to whichhe or she reports, (B) a reduction in his or her level of compensation (includingbase salary, fringe benefits and target bonus under any corporate-performance basedbonus or incentive programs) by more than fifteen percent (15%) or (C) a relocationof such individual’s place of employment by more than fifty (50) miles, provided andonly if such change, reduction or relocation is effected by the Corporation (or anyParent or Subsidiary) without the individual’s consent.          Q. **Misconduct** shall mean the commission of any act of fraud, embezzlement ordishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person ofconfidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or anyother intentional misconduct by such person adversely affecting the business or affairs of theCorporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall notin any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) todischarge 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 omissionsshall not be deemed, for purposes of the Plan, to constitute grounds for termination forMisconduct.          R. **1934 Act** shall mean the Securities Exchange Act of 1934, as amended.          S. **Non-Statutory Option** shall mean an option not intended to satisfy the requirementsof Code Section 422.          T. **Optionee** shall mean any person to whom an option is granted under the DiscretionaryGrant or Automatic Option Grant Program.          U. **Parent** shall mean any corporation (other than the Corporation) in an unbroken chainof corporations ending with the Corporation, provided each corporation in the unbroken chain (otherthan 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 corporationsin such chain.          V. **Participant** shall mean any person who is issued shares of Common Stock orrestricted stock units or other stock-based awards under the Stock Issuance Program.
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          W. **Permanent Disability or Permanently Disabled** shall mean the inability of theOptionee or the Participant to engage in any substantial gainful activity by reason of anymedically determinable physical or mental impairment expected to result in death or to be ofcontinuous duration of twelve (12) months or more. However, solely for purposes of the AutomaticOption Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of thenon-employee Board member to perform his or her usual duties as a Board member by reason of anymedically determinable physical or mental impairment expected to result in death or to be ofcontinuous duration of twelve (12) months or more.          X. **Plan** shall mean the Corporation’s 2004 Stock Incentive Plan, as set forth in thisdocument.          Y. **Plan Administrator** shall mean the Board acting in its administrative capacity underthe Plan.          Z. **Plan Effective Date** shall mean the March 2, 2004 date on which the Plan was adoptedby the Board, subject to stockholder approval at the 2004 Annual Meeting.          AA. **Predecessor Plan** shall mean the Corporation’s 2000 Equity Incentive Plan in effectimmediately prior to the 2004 Annual Stockholders Meeting.          BB. **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, Retirementshall mean the cessation of Board service after the ***later***of (i) the completion of five (5) yearsof Board service or (ii) attainment of age fifty-five (55).          CC. **Section 16 Insider** shall mean an officer or director of the Corporation subject tothe short-swing profit liabilities of Section 16 of the 1934 Act.          DD. **Service** shall mean the performance of services for the Corporation (or any Parentor Subsidiary, whether now existing or subsequently established) by a person in the capacity of anEmployee, 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 grantor stock issuance. Service shall not be deemed to cease during a period of military leave, sickleave or other personal leave approved by the Corporation; provided, however, that for aleave which exceeds ninety (90) days, Service shall be deemed, for purposes of determining theperiod within which any outstanding option held by the Optionee in question may be exercised as anIncentive Option, to cease on the ninety-first (91st) day of such leave, unless theright 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 ison a leave of absence.
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          EE. **Stock Exchange** shall mean either the American Stock Exchange or the New York StockExchange.          FF. **Stock Issuance Agreement** shall mean the agreement entered into by the Corporationand the Participant at the time of issuance of shares of Common Stock under the Stock IssuanceProgram.          GG. **Stock Issuance Program** shall mean the stock issuance program in effect underArticle Three of the Plan.          HH. **Subsidiary** shall mean any corporation (other than the Corporation) in an unbrokenchain of corporations beginning with the Corporation, provided each corporation (other than thelast corporation) in the unbroken chain owns, at the time of the determination, stock possessingfifty percent (50%) or more of the total combined voting power of all classes of stock in one ofthe other corporations in such chain.          II. **10% Stockholder** shall mean the owner of stock (as determined under Code Section424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes ofstock of the Corporation (or any Parent or Subsidiary).          JJ. **Tender-Offer Price** shall mean the ***greater***of (i) the Fair Market Value per shareof Common Stock on the date the option is surrendered to the Corporation in connection with aHostile Tender-Offer or (ii) the highest reported price per share of Common Stock paid by thetender offeror in effecting such Hostile Tender-Offer. However, if the surrendered option is anIncentive Option, the Tender-Offer Price shall not exceed the clause (i) price per share.          KK. **Withholding Taxes** shall mean the applicable income and employment withholdingtaxes to which the holder of an option or stock appreciation right or shares of Common Stock underthe Plan may become subject in connection with the grant or exercise of those options or stockappreciation rights or the issuance or vesting of those shares.
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