Document:

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                                                                    EXHIBIT 10.4

                            SGX PHARMACEUTICALS, INC.
                        2005 EMPLOYEE STOCK PURCHASE PLAN

              ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005
                   APPROVED BY STOCKHOLDERS: ________, 2005

1.    PURPOSE.

      (a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Related Corporations may be given an
opportunity to purchase shares of the Common Stock of the Company.

      (b) The Company, by means of the Plan, seeks to secure and retain the
services of current and new Employees and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its Related
Corporations.

      (c) The Company intends that the Purchase Rights be considered options
issued under an Employee Stock Purchase Plan.

2.    DEFINITIONS.

      As used in the Plan and any Offering, unless otherwise specified, the
following terms have the meanings set forth below:

      (a) "BOARD" means the Board of Directors of the Company.

      (b) "CODE" means the Internal Revenue Code of 1986, as amended.

      (c) "COMMITTEE" means a committee appointed by the Board in accordance
with Section 3(c) of the Plan.

      (d) "COMMON STOCK" means the common stock of the Company.

      (e) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (f) "CONTRIBUTIONS" means the payroll deductions and other additional
payments that a Participant contributes to fund the exercise of a Purchase
Right. A Participant may make payments not through payroll deductions only if
specifically provided for in the Offering, and then only if the Participant has
not already had the maximum permitted amount withheld through payroll deductions
during the Offering.

      (g) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company;

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            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

            (iii) a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or

            (iv) a merger, consolidation or similar transaction following which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash
or otherwise.

      (h) "DIRECTOR" means a member of the Board.

      (i) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering, provided
that such Employee also meets the requirements for eligibility to participate
set forth in the Plan.

      (j) "EMPLOYEE" means any person, including Officers and Directors, who is
employed for purposes of Section 423(b)(4) of the Code by the Company or a
Related Corporation. Neither service as a Director nor payment of a director's
fee shall be sufficient to make an individual an Employee of the Company or a
Related Corporation.

      (k) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants Purchase
Rights intended to be options issued under an "employee stock purchase plan," as
that term is defined in Section 423(b) of the Code.

      (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      (m) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of the security, unless otherwise determined by the Board,
shall be the closing sales price (rounded up where necessary to the nearest
whole cent) for such security (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the relevant security of the Company) on the Trading Day
that is immediately prior to the relevant determination date, as reported in The
Wall Street Journal or such other source as the Board deems reliable. Unless
otherwise provided by the Board, if there is no closing sales price (or closing
bid if no sales were reported) for the security on the date in question, then
the Fair Market Value shall be the closing selling price (or closing bid if no
sales were reported) on the last preceding date for which such quotation exists.

      (n) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (o) "OFFERING" means the grant of Purchase Rights to purchase shares of
Common Stock under the Plan to Eligible Employees.

                                       2.
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      (p) "OFFERING DATE" means a date selected by the Board for an Offering to
commence.

      (q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (r) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Purchase Right granted pursuant to the Plan.

      (s) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Employee Stock
Purchase Plan.

      (t) "PURCHASE DATE" means one or more dates during an Offering established
by the Board on which Purchase Rights shall be exercised and as of which
purchases of shares of Common Stock shall be carried out in accordance with such
Offering.

      (u) "PURCHASE PERIOD" means a period of time specified within an Offering
beginning on the Offering Date or on the next day following a Purchase Date
within an Offering and ending on a Purchase Date. An Offering may consist of one
or more Purchase Periods.

      (v) "PURCHASE RIGHT" means an option to purchase shares of Common Stock
granted pursuant to the Plan.

      (w) "RELATED CORPORATION" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (y) "TRADING DAY" means any day on which the exchange(s) or market(s) on
which shares of Common Stock are listed, whether it be an established stock
exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or otherwise,
is open for trading.

3.    ADMINISTRATION.

      (a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in Section 3(c). Whether or
not the Board has delegated administration, the Board shall have the final power
to determine all questions of policy and expediency that may arise in the
administration of the Plan.

      (b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine when and how Purchase Rights to purchase shares of
Common Stock shall be granted and the provisions of each Offering of such
Purchase Rights (which need not be identical).

                                       3.
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            (ii) To designate from time to time which Related Corporations of
the Company shall be eligible to participate in the Plan.

            (iii) To construe and interpret the Plan and Purchase Rights, and to
establish, amend and revoke rules and regulations for the administration of the
Plan. The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.

            (iv) To amend the Plan as provided in Section 15.

            (v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Related Corporations and to carry out the intent that the Plan be treated as
an Employee Stock Purchase Plan.

            (vi) To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees who are foreign
nationals or employed outside the United States.

      (c) The Board may delegate administration of the Plan to a Committee of
the Board composed of one (1) or more members of the Board. If administration of
the Plan is delegated to a Committee, the Committee shall have, in connection
with the administration of the Plan, the powers theretofore possessed by the
Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board some or all
of the powers previously delegated. If administration is delegated to a
Committee, references to the Board in this Plan and in the Offering document
shall thereafter be deemed to be to the Board or the Committee, as the case may
be.

      (d) All determinations, interpretations and constructions made by the
Board in good faith shall not be subject to review by any person and shall be
final, binding and conclusive on all persons.

4.    SHARES OF COMMON STOCK SUBJECT TO THE PLAN.

      Subject to the provisions of Section 14(a) relating to adjustments upon
changes in Common Stock, the stock that may be sold pursuant to Purchase Rights
granted under the Plan shall not exceed in the aggregate seven hundred fifty
thousand (750,000) shares of Common Stock, plus an annual increase to be added
on the first day of each Company fiscal year, beginning in 2007 and ending in
(and including) 2015, equal to the lesser of: (i) one percent (1%) of the total
number of shares of Common Stock outstanding on December 31st of the preceding
year (rounded to the nearest whole share), (ii) three hundred thousand (300,000)
shares of Common Stock, or (iii) an amount determined by the Board or a
Committee.

5.    GRANT OF PURCHASE RIGHTS; OFFERING.

      (a) The Board may from time to time grant or provide for the grant of
Purchase Rights to purchase shares of Common Stock under the Plan to Eligible
Employees in an Offering (consisting of one or more Purchase Periods) on an
Offering Date or Offering Dates selected by

                                       4.
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the Board. Each Offering shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, which shall comply with the
requirement of Section 423(b)(5) of the Code that all Employees granted Purchase
Rights shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in Sections 6 through 9, inclusive.

      (b) If a Participant has more than one Purchase Right outstanding under
the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder: (i) each agreement or notice delivered by that Participant
shall be deemed to apply to all of his or her Purchase Rights under the Plan,
and (ii) a Purchase Right with a lower exercise price (or an earlier-granted
Purchase Right, if different Purchase Rights have identical exercise prices)
shall be exercised to the fullest possible extent before a Purchase Right with a
higher exercise price (or a later-granted Purchase Right if different Purchase
Rights have identical exercise prices) shall be exercised.

6.    ELIGIBILITY.

      (a) Purchase Rights may be granted only to Employees of the Company or, as
the Board may designate as provided in Section 3(b), to Employees of a Related
Corporation. Except as provided in Section 6(b), an Employee shall not be
eligible to be granted Purchase Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Related
Corporation, as the case may be, for such continuous period preceding such
Offering Date as the Board may require, but in no event shall the required
period of continuous employment be greater than two (2) years. In addition, the
Board may provide that no Employee shall be eligible to be granted Purchase
Rights under the Plan unless, on the Offering Date, such Employee's customary
employment with the Company or the Related Corporation is more than twenty (20)
hours per week and/or more than five (5) months per calendar year.

      (b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee shall, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Purchase Right under
that Offering, which Purchase Right shall thereafter be deemed to be a part of
that Offering. Such Purchase Right shall have the same characteristics as any
Purchase Rights originally granted under that Offering, as described herein,
except that:

            (i) the date on which such Purchase Right is granted shall be the
"Offering Date" of such Purchase Right for all purposes, including determination
of the exercise price of such Purchase Right;

            (ii) the period of the Offering with respect to such Purchase Right
shall begin on its Offering Date and end coincident with the end of such
Offering; and

                                       5.
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            (iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she shall not receive any Purchase Right under that Offering.

      (c) No Employee shall be eligible for the grant of any Purchase Rights
under the Plan if, immediately after any such Purchase Rights are granted, such
Employee owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any Related
Corporation. For purposes of this Section 6(c), the rules of Section 424(d) of
the Code shall apply in determining the stock ownership of any Employee, and
stock which such Employee may purchase under all outstanding Purchase Rights and
options shall be treated as stock owned by such Employee.

      (d) As specified by Section 423(b)(8) of the Code, an Eligible Employee
may be granted Purchase Rights under the Plan only if such Purchase Rights,
together with any other rights granted under all Employee Stock Purchase Plans
of the Company and any Related Corporations, do not permit such Eligible
Employee's rights to purchase stock of the Company or any Related Corporation to
accrue at a rate which exceeds twenty five thousand dollars ($25,000) of Fair
Market Value of such stock (determined at the time such rights are granted, and
which, with respect to the Plan, shall be determined as of their respective
Offering Dates) for each calendar year in which such rights are outstanding at
any time.

      (e) Officers of the Company and any designated Related Corporation, if
they are otherwise Eligible Employees, shall be eligible to participate in
Offerings under the Plan. Notwithstanding the foregoing, the Board may provide
in an Offering that Employees who are highly compensated Employees within the
meaning of Section 423(b)(4)(D) of the Code shall not be eligible to
participate.

7.    PURCHASE RIGHTS; PURCHASE PRICE.

      (a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted a Purchase Right to purchase up to that
number of shares of Common Stock purchasable either with a percentage or with a
maximum dollar amount, as designated by the Board, but in either case not
exceeding fifteen percent (15%), of such Employee's Earnings (as defined by the
Board in each Offering) during the period that begins on the Offering Date (or
such later date as the Board determines for a particular Offering) and ends on
the date stated in the Offering, which date shall be no later than the end of
the Offering.

      (b) The Board shall establish one (1) or more Purchase Dates during an
Offering as of which Purchase Rights granted pursuant to that Offering shall be
exercised and purchases of shares of Common Stock shall be carried out in
accordance with such Offering.

      (c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of Common Stock that may be purchased by any
Participant on any Purchase Date during such Offering. In connection with each
Offering made under the Plan, the Board may specify a maximum

                                       6.
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aggregate number of shares of Common Stock that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate number of shares of Common Stock that may be purchased by all
Participants on any Purchase Date under the Offering. If the aggregate purchase
of shares of Common Stock issuable upon exercise of Purchase Rights granted
under the Offering would exceed any such maximum aggregate number, then, in the
absence of any Board action otherwise, a pro rata allocation of the shares of
Common Stock available shall be made in as nearly a uniform manner as shall be
practicable and equitable.

      (d) The purchase price of shares of Common Stock acquired pursuant to
Purchase Rights shall be not less than the lesser of:

            (i) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the Offering Date; or

            (ii) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the applicable Purchase Date.

8.    PARTICIPATION; WITHDRAWAL; TERMINATION.

      (a) A Participant may elect to authorize payroll deductions pursuant to an
Offering under the Plan by completing and delivering to the Company, within the
time specified in the Offering, an enrollment form (in such form as the Company
may provide). Each such enrollment form shall authorize an amount of
Contributions expressed as a percentage of the submitting Participant's Earnings
(as defined in each Offering) during the Offering (not to exceed the maximum
percentage specified by the Board). Each Participant's Contributions shall
remain the property of the Participant at all times prior to the purchase of
Common Stock, but such Contributions may be commingled with the assets of the
Company and used for general corporate purposes except where applicable law
requires that Contributions be deposited with an independent third party. To the
extent provided in the Offering, a Participant may begin making Contributions
after the beginning of the Offering. To the extent provided in the Offering, a
Participant may thereafter reduce (including to zero) or increase his or her
Contributions. To the extent specifically provided in the Offering, in addition
to making Contributions by payroll deductions, a Participant may make
Contributions through the payment by cash or check prior to each Purchase Date
of the Offering.

      (b) During an Offering, a Participant may cease making Contributions and
withdraw from the Offering by delivering to the Company a notice of withdrawal
in such form as the Company may provide. Such withdrawal may be elected at any
time prior to the end of the Offering, except as provided otherwise in the
Offering. Upon such withdrawal from the Offering by a Participant, the Company
shall distribute to such Participant all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire
shares of Common Stock for the Participant) under the Offering, and such
Participant's Purchase Right in that Offering shall thereupon terminate. A
Participant's withdrawal from an Offering shall have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan,
but such Participant shall be required to deliver a new enrollment form in order
to participate in subsequent Offerings.

                                       7.
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      (c) Purchase Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon a Participant ceasing to be an Employee for any
reason or for no reason (subject to any post-employment participation period
required by law) or other lack of eligibility. The Company shall distribute to
such terminated or otherwise ineligible Employee all of his or her accumulated
Contributions (reduced to the extent, if any, such Contributions have been used
to acquire shares of Common Stock for the terminated or otherwise ineligible
Employee) under the Offering.

      (d) Purchase Rights shall not be transferable by a Participant otherwise
than by will, the laws of descent and distribution, or a beneficiary designation
as provided in Section 13. During a Participant's lifetime, Purchase Rights
shall be exercisable only by such Participant.

      (e) Unless otherwise specified in an Offering, the Company shall have no
obligation to pay interest on Contributions.

9.    EXERCISE.

      (a) On each Purchase Date during an Offering, each Participant's
accumulated Contributions shall be applied to the purchase of shares of Common
Stock up to the maximum number of shares of Common Stock permitted pursuant to
the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional shares shall be issued upon the
exercise of Purchase Rights unless specifically provided for in the Offering.

      (b) If any amount of accumulated Contributions remains in a Participant's
account after the purchase of shares of Common Stock and such remaining amount
is less than the amount required to purchase one share of Common Stock on the
final Purchase Date of an Offering, then such remaining amount shall be held in
such Participant's account for the purchase of shares of Common Stock under the
next Offering under the Plan, unless such Participant withdraws from such next
Offering, as provided in Section 8(b), or is not eligible to participate in such
Offering, as provided in Section 6, in which case such amount shall be
distributed to such Participant after the final Purchase Date, without interest.
If the amount of Contributions remaining in a Participant's account after the
purchase of shares of Common Stock is at least equal to the amount required to
purchase one (1) whole share of Common Stock on the final Purchase Date of the
Offering, then such remaining amount shall be distributed in full to such
Participant at the end of the Offering.

      (c) No Purchase Rights may be exercised to any extent unless the shares of
Common Stock to be issued upon such exercise under the Plan are covered by an
effective registration statement pursuant to the Securities Act and the Plan is
in material compliance with all laws applicable to the Plan. If on a Purchase
Date during any Offering hereunder the shares of Common Stock are not so
registered or the Plan is not in such compliance, no Purchase Rights or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the shares of Common Stock are subject to such an effective
registration statement and the Plan is in such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date under any Offering hereunder, as delayed to the
maximum extent permissible, the shares of Common Stock are not registered and
the Plan is not

                                       8.
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in such compliance, no Purchase Rights or any Offering shall be exercised and
all Contributions accumulated during the Offering (reduced to the extent, if
any, such Contributions have been used to acquire shares of Common Stock) shall
be distributed to the Participants.

10.   COVENANTS OF THE COMPANY.

      The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of Common Stock upon
exercise of the Purchase Rights. If, after commercially reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority that counsel for the Company deems necessary for the lawful issuance
and sale of shares of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell shares of Common Stock upon
exercise of such Purchase Rights unless and until such authority is obtained.

11.   USE OF PROCEEDS FROM SHARES OF COMMON STOCK.

      Proceeds from the sale of shares of Common Stock pursuant to Purchase
Rights shall constitute general funds of the Company.

12.   RIGHTS AS A STOCKHOLDER.

      A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of Common Stock subject to
Purchase Rights unless and until the Participant's shares of Common Stock
acquired upon exercise of Purchase Rights are recorded in the books of the
Company (or its transfer agent).

13.   DESIGNATION OF BENEFICIARY.

      (a) A Participant may file a written designation of a beneficiary who is
to receive any shares of Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to the Participant of
such shares of Common Stock or cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
during an Offering. Any such designation shall be on a form provided by or
otherwise acceptable to the Company.

      (b) The Participant may change such designation of beneficiary at any time
by written notice to the Company. In the event of the death of a Participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such Participant's death, the Company shall deliver such shares
of Common Stock and/or cash to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its sole discretion, may deliver
such shares of Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.

                                       9.
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14.   ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.

      (a) If any change is made in the shares of Common Stock, subject to the
Plan, or subject to any Purchase Right, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan shall be appropriately adjusted in the
type(s), class(es) and maximum number of shares of Common Stock subject to the
Plan pursuant to Section 4, and the outstanding Purchase Rights shall be
appropriately adjusted in the type(s), class(es), number of shares and purchase
limits of such outstanding Purchase Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(Notwithstanding the foregoing, the conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

      (b) In the event of a Corporate Transaction, then: (i) any surviving or
acquiring corporation may continue or assume Purchase Rights outstanding under
the Plan or may substitute similar rights (including a right to acquire the same
consideration paid to stockholders in the Corporate Transaction) for those
outstanding under the Plan, or (ii) if any surviving or acquiring corporation
does not continue or assume such Purchase Rights or does not substitute similar
rights for Purchase Rights outstanding under the Plan, then, the Participants'
accumulated Contributions shall be used to purchase shares of Common Stock
within ten (10) business days prior to the Corporate Transaction under the
ongoing Offering, and the Participants' Purchase Rights under the ongoing
Offering shall terminate immediately after such purchase.

15.   AMENDMENT OF THE PLAN.

      (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 relating to adjustments upon changes
in securities and except as to amendments solely to benefit the administration
of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Related Corporation, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the Plan to satisfy the requirements of Section 423 of the Code
or other applicable laws or regulations.

      (b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
or to bring the Plan and/or Purchase Rights into compliance therewith.

      (c) The rights and obligations under any Purchase Rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan except:
(i) with the consent of the person to whom such Purchase Rights were granted, or
(ii) as necessary to comply with any laws or governmental regulations
(including, without limitation, the provisions of the Code and the regulations
promulgated thereunder relating to Employee Stock Purchase Plans).

                                      10.
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16.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of Common Stock reserved for issuance under the Plan, as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Purchase Rights may be granted under the Plan while the Plan is suspended or
after it is terminated.

      (b) Any benefits, privileges, entitlements and obligations under any
Purchase Rights while the Plan is in effect shall not be impaired by suspension
or termination of the Plan except (i) as expressly provided in the Plan or with
the consent of the person to whom such Purchase Rights were granted, (ii) as
necessary to comply with any laws, regulations, or listing requirements, or
(iii) as necessary to ensure that the Plan and/or Purchase Rights comply with
the requirements of Section 423 of the Code.

17.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Purchase Rights
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board.

18.   MISCELLANEOUS PROVISIONS.

      (a) The Plan and Offering do not constitute an employment contract.
Nothing in the Plan or in the Offering shall in any way alter the at will nature
of a Participant's employment or be deemed to create in any way whatsoever any
obligation on the part of any Participant to continue in the employ of the
Company or a Related Corporation, or on the part of the Company or a Related
Corporation to continue the employment of a Participant.

      (b) The provisions of the Plan shall be governed by the law of the State
of California without resort to that state's conflicts of laws rules.

                                      11.
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                            SGX PHARMACEUTICALS, INC.

                        2005 EMPLOYEE STOCK PURCHASE PLAN
                                    OFFERING

              ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005

      In this document, capitalized terms not otherwise defined shall have
the same definitions of such terms as in the SGX Pharmaceuticals, Inc. 2005
Employee Stock Purchase Plan.

1.    GRANT; OFFERING DATE.

      (a) The Board hereby authorizes a series of Offerings pursuant to the
terms of this Offering document.

      (b) The first Offering hereunder (the "Initial Offering") shall begin on
the closing date of the initial public offering of the Company's Common Stock
under a registration statement declared effective under the Securities Act (the
"IPO Date") and shall end approximately 24 months following IPO Date, unless
terminated earlier as provided below. After the Initial Offering, an additional
new Offering shall begin on the day after the first Purchase Date of the
immediately preceding Offering. The first day of an Offering is that Offering's
"Offering Date." Except as provided below, each Offering shall be approximately
twenty-four (24) months in duration, with four (4) Purchase Periods which shall
be six (6) months in length, except for the first and second Purchase Periods of
the Initial Offering which may be longer or shorter and shall be approximately
six (6) months in length. Except as provided below, a Purchase Date is the last
day of a Purchase Period or of an Offering, as the case may be. The Initial
Offering shall consist of four (4) Purchase Periods with the first Purchase
Period of the Initial Offering ending approximately 6 months following IPO date
and the second Purchase Period of the Initial Offering ending approximately 12
months following the IPO date.

      (c) Notwithstanding the foregoing: (i) if any Offering Date falls on a day
that is not a Trading Day, then such Offering Date shall instead fall on the
next subsequent Trading Day, and (ii) if any Purchase Date falls on a day that
is not a Trading Day, then such Purchase Date shall instead fall on the
immediately preceding Trading Day.

      (d) Prior to the commencement of any Offering, the Board may change any or
all terms of such Offering and any subsequent Offerings. The granting of
Purchase Rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless prior to such date (i) the Board determines that
such Offering shall not occur, or (ii) no shares of Common Stock remain
available for issuance under the Plan in connection with the Offering.

      (e) Notwithstanding anything in this Section 1 to the contrary, if on the
first day of a Purchase Period during an Offering the Fair Market Value of the
shares of Common Stock is less

                                       1.
<PAGE>
than it was on the Offering Date for that Offering, that day shall become the
next Offering Date, the Offering that would otherwise have continued in effect
shall immediately terminate and the Employees who were enrolled in the
terminated Offering shall automatically be enrolled in the new Offering that
starts such day.

      (f) If the Company's accountants advise the Company that the accounting
treatment of purchases under the Plan will change or has changed in a manner
that the Company determines is detrimental to its best interests, then the
Company may, in its discretion, take any or all of the following actions: (i)
terminate each ongoing Offering as of the next Purchase Date (after the purchase
of stock on such Purchase Date) under such Offering; (ii) set a new Purchase
Date for each ongoing Offering and terminate each such Offering after the
purchase of stock on such Purchase Date; (iii) amend the Plan and each ongoing
Offering to reduce or eliminate an accounting treatment that is detrimental to
the Company's best interests and (iv) terminate each ongoing Offering and refund
any money contributed to the Participants.

2.    ELIGIBLE EMPLOYEES.

      (a) Each Eligible Employee who, on the date that is fourteen (14) days
prior to the Offering Date of an Offering hereunder, is (i) an employee of the
Company; (ii) an employee of a Subsidiary incorporated in the United States; or
(iii) an employee of a Subsidiary that is not incorporated in the United States,
provided that the Board or Committee has designated the employees of such
Subsidiary as eligible to participate in the Offering, shall be granted a
Purchase Right on the Offering Date of such Offering.

      (b) Notwithstanding the foregoing, the following Employees shall not be
Eligible Employees or be granted Purchase Rights under an Offering:

            (i) part-time or seasonal Employees whose customary employment is
twenty (20) hours per week or less;

            (ii) part-time or seasonal Employees whose customary employment is
five (5) months per calendar year or less;

            (iii) five percent (5%) stockholders (including ownership through
unexercised and/or unvested stock options) as described in Section 6(c) of the
Plan; or

            (iv) Employees in jurisdictions outside of the United States if, as
of the Offering Date of the Offering, the grant of such Purchase Rights would
not be in compliance with the applicable laws of any jurisdiction in which the
Employee resides or is employed.

      (c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during an ongoing Offering shall not be able to participate in
such Offering.

3.    PURCHASE RIGHTS.

      (a) Subject to the limitations set forth herein and in the Plan, a
Participant's Purchase Right shall permit the purchase of the number of shares
of Common Stock purchasable with up to fifteen percent (15%) of such
Participant's Earnings paid during the period of such Offering

                                       2.
<PAGE>
beginning immediately after such Participant first commences participation;
provided, however, that no Participant may have more than fifteen percent (15%)
of such Participant's Earnings applied to purchase shares of Common Stock under
all ongoing Offerings under the Plan and all other plans of the Company and
Related Corporations that are intended to qualify as Employee Stock Purchase
Plans.

      (b) For Offerings hereunder, "Earnings" means the base compensation paid
to a Participant, including all salary, wages and overtime pay (including
amounts elected to be deferred by the Participant, that would otherwise have
been paid, under any cash or deferred arrangement or other deferred compensation
program established by the Company or a Related Corporation), but excluding all
of the following: (i) all commissions, bonuses, and other remuneration paid
directly to such Participant, (ii) profit sharing, (iii) the cost of employee
benefits paid for by the Company or a Related Corporation, (iv) education or
tuition reimbursements, (v) imputed income arising under any Company or a
Related Corporation group insurance or benefit program, (vi) traveling expenses,
(vii) business and moving expense reimbursements, (viii) income received in
connection with stock options, (ix) contributions made by the Company or a
Related Corporation under any employee benefit plan, and (x) other similar items
of compensation.

      (c) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that a Participant may purchase on any Purchase Date in an Offering shall
be such number of shares as has a Fair Market Value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the Purchase Right under such Offering has been
outstanding at any time, minus (y) the Fair Market Value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) that, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the Purchase Right is
outstanding. The amount in clause (y) of the previous sentence shall be
determined in accordance with regulations applicable under Section 423(b)(8) of
the Code based on (i) the number of shares previously purchased with respect to
such calendar years pursuant to such Offering or any other Offering under the
Plan, or pursuant to any other Company or Related Corporation plans intended to
qualify as Employee Stock Purchase Plans, and (ii) the number of shares subject
to other Purchase Rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company or Related Corporation Employee
Stock Purchase Plan.

      (d) The maximum aggregate number of shares of Common Stock available to be
purchased by all Participants under an Offering shall be the number of shares of
Common Stock remaining available under the Plan on the Offering Date. If the
aggregate purchase of shares of Common Stock upon exercise of Purchase Rights
granted under the Offering would exceed the maximum aggregate number of shares
available, the Board shall make a pro rata allocation of the shares available in
a uniform and equitable manner.

      (e) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that an Eligible Employee may purchase on any Purchase Date shall not
exceed fifteen thousand (15,000) shares.

                                       3.
<PAGE>
4.    PURCHASE PRICE.

      The purchase price of shares of Common Stock under an Offering shall be
the lesser of: (i) eighty-five percent (85%) of the Fair Market Value of such
shares of Common Stock on the applicable Offering Date, or (ii) eighty-five
percent (85%) of the Fair Market Value of such shares of Common Stock on the
applicable Purchase Date, in each case rounded up to the nearest whole cent per
share. For the Initial Offering, the Fair Market Value of the shares of Common
Stock at the time when the Offering commences shall be the price per share at
which shares are first sold to the public in the Company's initial public
offering as specified in the final prospectus for that initial public offering.

5.    PARTICIPATION.

      (a) An Eligible Employee may elect to participate in an Offering on the
Offering Date. An Eligible Employee shall elect his or her payroll deduction
percentage on such enrollment form as the Company provides. The completed
enrollment form must be delivered to the Company prior to the date participation
is to be effective, unless a later time for filing the enrollment form is set by
the Company for all Eligible Employees with respect to a given Offering. Payroll
deduction percentages must be expressed in whole percentages of Earnings, with a
minimum percentage of one percent (1%) and a maximum percentage of fifteen
percent (15%). Except as provided in paragraph (f) below with respect to the
Initial Offering, Contributions may be made only by way of payroll deductions.

      (b) A Participant may increase or decrease his or her participation level
at any time during an Offering with such change to be effective commencing as of
the next Purchase Period. Any such increase or decrease in participation level
shall be made by delivering a notice to the Company or a designated Subsidiary
in such form as the Company provides prior to the ten (10) day period (or such
shorter period of time as determined by the Company and communicated to
Participants) immediately preceding the next Purchase Period for which it is to
commence.

      (c) A Participant may decrease (including a decrease to zero percent (0%))
his or her participation level no more than twice during a Purchase Period (and
the second decrease in participation level must be to zero percent (0%)). Any
such change in participation level shall be made by delivering a notice to the
Company or a designated Related Corporation in such form as the Company provides
prior to the ten (10) day period (or such shorter period of time as determined
by the Company and communicated to Participants) immediately preceding the next
Purchase Date of the Purchase Period for which it is to be effective. Such
change will become effective as soon as administratively practicable following
the Company's receipt of the notice.

      (d) A Participant may withdraw from an Offering and receive a refund of
his or her Contributions (reduced to the extent, if any, such Contributions have
been used to acquire shares of Common Stock for the Participant on any prior
Purchase Date) without interest, at any time prior to the end of the Offering,
excluding only each ten (10) day period immediately preceding a Purchase Date
(or such shorter period of time determined by the Company and communicated to
Participants), by delivering a withdrawal notice to the Company or a designated
Subsidiary in such form as the Company provides. A Participant who has withdrawn
from an Offering shall

                                       4.
<PAGE>
not again participate in such Offering, but may participate in subsequent
Offerings under the Plan in accordance with the terms of the Plan and the terms
of such subsequent Offerings.

      (e) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, neither the enrollment of any Eligible
Employee in the Plan nor any forms relating to participation in the Plan shall
be given effect until such time as a registration statement covering the
registration of the shares under the Plan that are subject to the Offering has
been filed by the Company and has become effective.

      (f) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, with respect to the Initial Offering
only, each Eligible Employee who is employed on the IPO Date automatically shall
be enrolled in the Initial Offering, with a Purchase Right to purchase up to the
number of shares of Common Stock that are purchasable with fifteen percent (15%)
of the Eligible Employee's Earnings, subject to the limitations set forth in
Section 3(c) - 3(e) above. Following the filing of an effective registration
statement pursuant to a Form S-8, such Eligible Employee shall be provided a
certain period of time, as determined by the Company in its sole discretion,
within which to elect to authorize payroll deductions for the purchase of shares
during the Initial Offering (which may be for a percentage that is less than
fifteen percent (15%) of the Eligible Employee's Earnings). If such Eligible
Employee elects not to authorize such payroll deductions, the Eligible Employee
instead may purchase shares of Common Stock under the Plan by delivering a
single cash payment for the purchase of such shares to the Company or a
designated Subsidiary prior to the ten (10) day period (or such shorter period
of time as determined by the Company and communicated to Participants)
immediately preceding the Purchase Date under the Initial Offering. If an
Eligible Employee neither elects to authorize payroll deductions nor chooses to
make a cash payment in accordance with the foregoing sentence, then the Eligible
Employee shall not purchase any shares of Common Stock during the Initial
Offering. After the end of the Initial Offering, in order to participate in any
subsequent Offerings, an Eligible Employee must enroll and authorize payroll
deductions prior to the commencement of the Offering, in accordance with
paragraph (a) above; provided, however, that once an Eligible Employee enrolls
in an Offering and authorizes payroll deductions (including in connection with
the Initial Offering), the Eligible Employee automatically shall be enrolled for
all subsequent Offerings until he or she elects to withdraw from an Offering
pursuant to paragraph (c) above or terminates his or her participation in the
Plan.

6.    PURCHASES.

      Subject to the limitations contained herein, on each Purchase Date, each
Participant's Contributions (without any increase for interest) shall be applied
to the purchase of whole shares, up to the maximum number of shares permitted
under the Plan and the Offering.

7.    NOTICES AND AGREEMENTS.

      Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering, shall be deemed effectively given
upon receipt or, in the case of notices and

                                       5.
<PAGE>
agreements delivered by the Company, five (5) days after deposit in the United
States mail, postage prepaid.

8.    EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

      The Purchase Rights granted under an Offering are subject to the approval
of the Plan by the stockholders of the Company as required for the Plan to
obtain treatment as an Employee Stock Purchase Plan.

9.    OFFERING SUBJECT TO PLAN.

      Each Offering is subject to all the provisions of the Plan, and the
provisions of the Plan are hereby made a part of the Offering. The Offering is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of an Offering and those of the
Plan (including interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the Plan), the
provisions of the Plan shall control.

                                       6.<PAGE>
                                                                    EXHIBIT 10.5

                            SGX PHARMACEUTICALS, INC.

                 2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                  ADOPTED BY BOARD OF DIRECTORS AUGUST 30, 2005
                    APPROVED BY STOCKHOLDERS __________, 2005
                        EFFECTIVE DATE: __________, 2005

1. PURPOSES.

      (a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.

      (b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its current Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

      (a) "AFFILIATE" means, at the time of determination, any "parent" or
"subsidiary" as such terms are defined in Rule 405 of the Securities Act. The
Board shall have the authority to determine the time or times at which "parent"
or "subsidiary" status is determined within the foregoing definition.

      (b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to Section 6(b).

      (c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.

      (d) "BOARD" means the Board of Directors of the Company.

      (e) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 11(a).

      (f) "CHANGE IN CONTROL" means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events:

            (i) any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger,

                                       1.
<PAGE>

consolidation or similar transaction. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur (A) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the Company
through the issuance of equity securities or (B) solely because the level of
Ownership held by any Exchange Act Person (the "SUBJECT PERSON") exceeds the
designated percentage threshold of the outstanding voting securities as a result
of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;

            (ii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

            (iii) the stockholders of the Company approve or the Board approves
a plan of complete dissolution or liquidation of the Company, or a complete
dissolution or liquidation of the Company shall otherwise occur;

            (iv) there is consummated a sale, lease, exclusive license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

            (v) individuals who, on the date this Plan is adopted by the Board,
are members of the Board (the "INCUMBENT BOARD") cease for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board.

      The term Change in Control shall not include a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.

                                       2.
<PAGE>

      Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement where such agreement provides for acceleration of vesting of such
Stock Awards in the event of a Change in Control; provided, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply.

      (g) "CODE" means the Internal Revenue Code of 1986, as amended.

      (h) "COMMITTEE" means a committee of one (1) or more members of the Board
appointed by the Board in accordance with Section 3(c).

      (i) "COMMON STOCK" means the common stock of the Company.

      (j) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (k) "CONSULTANT" means any person, including an advisor, who (i) is
engaged by the Company or an Affiliate to render consulting or advisory services
and is compensated for such services or (ii) is serving as a member of the Board
of Directors of an Affiliate and is compensated for such services. However,
service solely as a Director, or payment of a fee for such services, shall not
cause a Director to be considered a "Consultant" for purposes of the Plan.

      (l) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder's service with the Company or an Affiliate, shall not terminate a
Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a consultant to an Affiliate or an
Employee of the Company shall not constitute an interruption of Continuous
Service. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party's sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any
other personal leave. Notwithstanding the foregoing, a leave of absence shall be
treated as Continuous Service for purposes of vesting in an Option only to such
extent as may be provided in the Company's leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Optionholder, or as otherwise required by law.

      (m) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

                                       3.
<PAGE>

            (iii) the consummation of a merger, consolidation or similar
transaction following which the Company is not the surviving corporation; or

            (iv) the consummation of a merger, consolidation or similar
transaction following which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the
merger, consolidation or similar transaction into other property, whether in the
form of securities, cash or otherwise.

      (n) "DIRECTOR" means a member of the Board.

      (o) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.

      (p) "EMPLOYEE" means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an "Employee" for purposes of the
Plan.

      (q) "ENTITY" means a corporation, partnership or other entity.

      (r) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      (s) "EXCHANGE ACT PERSON" means any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their Ownership of stock of
the Company; or (v) any natural person, Entity or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of
the Plan as set forth in Section 14, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities.

      (t) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the date in
question, as reported in The Wall Street Journal or such other source as the
Board deems reliable. Unless otherwise provided by the Board, if there is no
closing sales price (or closing bid if no sales were reported) for the Common
Stock on the date in question, then the Fair

                                       4.
<PAGE>

Market Value shall be the closing selling price (or closing bid if no sales were
reported) on the last preceding date for which such quotation exists.

            (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined by the Board in good faith.

      (u) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to Section 6(a).

      (v) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (w) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.

      (x) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (y) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (z) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

      (aa) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

      (bb) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

      (cc) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be
deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

      (dd) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Non-Employee
Directors' Stock Option Plan.

      (ee) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (ff) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (gg) "SUBSIDIARY" means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time,

                                       5.
<PAGE>

stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, Owned by the Company, and (ii) any partnership in which
the Company has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%).

3. ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration of the Plan to a Committee, as
provided in Section 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine the provisions of each Option to the extent not
specified in the Plan.

            (ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

            (iii) To effect, at any time and from time to time, with the consent
of any adversely affected Optionholder, (1) the reduction of the exercise price
of any outstanding Option under the Plan, (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution therefor of (A)
a new Option under the Plan or another equity plan of the Company covering the
same or a different number of shares of Common Stock, (B) cash and/or (C) other
valuable consideration (as determined by the Board, in its sole discretion), or
(3) any other action that is treated as a repricing under generally accepted
accounting principles.

            (iv) To amend the Plan or an Option as provided in Section 12.

            (v) To terminate or suspend the Plan as provided in Section 13.

            (vi) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan.

      (c) DELEGATION TO COMMITTEE. The Board may delegate some or all of the
administration of the Plan to a Committee or Committees of one (1) or more
members of the Board, and the term "COMMITTEE" shall apply to any person or
persons to whom such authority has been delegated. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to

                                       6.
<PAGE>

time by the Board. The Board may retain the authority to concurrently administer
the Plan with the Committee and may, at any time, revest in the Board some or
all of the powers previously delegated.

      (d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4. SHARES SUBJECT TO THE PLAN.

      (a) SHARE RESERVE. Subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, the shares of Common Stock that may be issued
pursuant to Options shall not exceed in the aggregate one hundred fifty thousand
(150,000) shares of Common Stock plus an annual increase to be added on January
1st of each year commencing in 2007 and ending on (and including) January 1,
2015, equal to the lesser of: (i) the aggregate number of shares of Common Stock
subject to options granted under the Plan as Initial Grants and Annual Grants
during the immediately preceding fiscal year, or (ii) an amount determined by
the Board or a Committee.

      (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the shares of Common Stock not acquired under such Option
shall revert to and again become available for issuance under the Plan. If any
shares subject to an Option are not delivered to an Optionholder because such
shares are withheld for the payment of taxes or the Option is exercised through
a reduction of shares subject to the Option (i.e., "net exercised"), the number
of shares that are not delivered to the Optionholder as a result thereof shall
remain available for issuance under the Plan. If the exercise price of an Option
is satisfied by tendering shares of Common Stock held by the Optionholder
(either by actual delivery or attestation), then the number of shares so
tendered shall remain available for issuance under the Plan.

      (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

      The Options, as set forth in Section 6, automatically shall be granted
under the Plan to all Non-Employee Directors who meet the criteria specified in
Section 6.

6. NON-DISCRETIONARY GRANTS.

      (a) INITIAL GRANTS. Without any further action of the Board, each person
who after the IPO Date is elected or appointed for the first time to be a
Non-Employee Director automatically shall, upon the date of his or her initial
election or appointment to be a Non-Employee Director, be granted an Initial
Grant to purchase twenty five thousand (25,000) shares of Common Stock on the
terms and conditions set forth herein.

      (b) ANNUAL GRANTS. Without any further action of the Board, on the date of
each Annual Meeting, commencing with the Annual Meeting in 2007, each person who
is then a Non-

                                       7.
<PAGE>

Employee Director automatically shall be granted an Annual Grant to purchase ten
thousand (10,000) shares of Common Stock on the terms and conditions set forth
herein; provided, however, that if a person who is first elected as a
Non-Employee Director after the IPO Date has not been serving as a Non-Employee
Director for the entire period since the preceding Annual Meeting, then the
number of shares subject to such Annual Grant shall be reduced pro rata for each
full quarter prior to the date of grant during such period for which such person
did not serve as a Non- Employee Director.

7. OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

      (a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date on which it was granted.

      (b) EXERCISE PRICE. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted.

      (c) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable law, either (i)
in cash at the time the Option is exercised or (ii) at the discretion of the
Board either at the time of the grant of the Option or subsequent thereto (1) by
delivery to the Company of other Common Stock at the time the Option is
exercised, (2) by a "net exercise" of the Option (as further described below),
(3) pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds or (4) in any other form of legal consideration that may be
acceptable to the Board. Unless otherwise specifically provided in the Option,
the purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes).

      In the case of a "net exercise" of an Option, the Company will not require
a payment of the exercise price of the Option from the Optionholder but will
reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Optionholder. Shares of Common Stock will no longer be outstanding under an
Option (and will therefore not thereafter be exercisable) following the exercise
of such Option to the extent of (i) shares used to pay the exercise price of an
Option under a "net exercise", (ii) shares actually

                                       8.
<PAGE>

delivered to the Optionholder as a result of such exercise and (iii) shares
withheld for purposes of tax withholding.

      (d) TRANSFERABILITY. An Option is transferable by will or by the laws of
descent and distribution. An Option also may be transferable upon written
consent of the Company if, at the time of transfer, a Form S-8 registration
statement under the Securities Act is available for the exercise of the Option
and the subsequent resale of the underlying securities. In addition, an
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.

      (e) VESTING. Options shall vest as follows:

            (i) Initial Grants: 1/36th of the shares of Common Stock subject to
an Initial Grant shall vest monthly over three (3) years.

            (ii) Annual Grants: 1/12th of the shares of Common Stock subject to
an Annual Grant shall vest monthly over one (1) year.

      (f) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's
Continuous Service terminates for any reason, the Optionholder may exercise his
or her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) but only within such
period of time ending on the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.

8. SECURITIES LAW COMPLIANCE.

      The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Option or any Common Stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell Common Stock upon exercise of
such Options unless and until such authority is obtained.

9. USE OF PROCEEDS FROM STOCK.

      Proceeds from the sale of Common Stock pursuant to Options shall
constitute general funds of the Company.

10. MISCELLANEOUS.

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option

                                       9.
<PAGE>

or any part thereof will vest in accordance with the Plan, notwithstanding the
provisions in the Plan or the Option stating the time at which it may first be
exercised or the time during which it will vest.

      (b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its terms.

      (c) NO SERVICE RIGHTS. Nothing in the Plan, any Option Agreement or other
instrument executed thereunder or any Option granted pursuant thereto shall
confer upon any Optionholder any right to continue to serve the Company as a
Non-Employee Director or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (d) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring Common Stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the Common Stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Option
has been registered under a then currently effective registration statement
under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

      (e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Company may in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to an Option by any of the
following means (in addition to the Company's right to withhold from any
compensation paid to the Optionholder by the Company) or by a combination of
such means: (i) causing the Optionholder to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Optionholder in connection with the Option; or (iii)
via such other method as may be set forth in the Option Agreement.

                                      10.
<PAGE>

11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other event
occurs with respect to, the Common Stock subject to the Plan, or subject to any
Option, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a "CAPITALIZATION ADJUSTMENT")), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to Section 4 and to the nondiscretionary Options specified in
Section 6, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of Common Stock subject
to such outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (Notwithstanding the
foregoing, the conversion of any convertible securities of the Company shall not
be treated as a transaction "without receipt of consideration" by the Company.)

      (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to the completion of such dissolution or liquidation.

      (c) CORPORATE TRANSACTION. The following provisions shall apply to Options
in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Option or any other written agreement between the
Company or any Affiliate and the holder of the Option or unless otherwise
expressly provided by the Board at the time of grant of a Option. In the event
of a Corporate Transaction, any surviving corporation or acquiring corporation
may assume or continue any or all Options outstanding under the Plan or may
substitute similar stock options for Options outstanding under the Plan
(including options to acquire the same consideration paid to the stockholders of
the Company, as the case may be, pursuant to the Corporate Transaction). In the
event that any surviving corporation or acquiring corporation does not assume or
continue all such outstanding Options or substitute similar stock options for
all such outstanding Options, then with respect to Options that have been not
assumed, continued or substituted and that are held by Optionholders whose
Continuous Service has not terminated prior to the effective time of the
Corporate Transaction, the vesting of such Options (and, if applicable, the time
at which such Options may be exercised) shall (contingent upon the effectiveness
of the Corporate Transaction) be accelerated in full to a date prior to the
effective time of such Corporate Transaction as the Board shall determine (or,
if the Board shall not determine such a date, to the date that is five (5) days
prior to the effective time of the Corporate Transaction), and such Options
shall terminate on the effective time of the Corporate Transaction if not
exercised (if applicable) at or prior to such effective time. With respect to
any other Options outstanding under the Plan that have not been assumed,
continued or substituted, the vesting of such Options (and, if applicable, the
time at which such Options may be exercised) shall not be accelerated, unless
otherwise provided in a written agreement between the Company or any Affiliate
and the Optionholder, and such Options shall terminate if not exercised (if
applicable) prior to the effective time of the Corporate Transaction.

                                      11.
<PAGE>

      (d) CHANGE IN CONTROL. An Option may be subject to additional acceleration
of vesting and exercisability upon or after a Change in Control as may be
provided in the Option Agreement for such Option or as may be provided in any
other written agreement between the Company or any Affiliate and the
Optionholder, but in the absence of such provision, no such acceleration shall
occur.

12. AMENDMENT OF THE PLAN AND OPTIONS.

      (a) AMENDMENT OF PLAN. Subject to the limitations, if any, of applicable
law, the Board, at any time and from time to time, may amend the Plan. However,
except as provided in Section 11(a) relating to Capitalization Adjustments, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy applicable law.

      (b) STOCKHOLDER APPROVAL. The Board, in its sole discretion, may submit
any other amendment to the Plan for stockholder approval.

      (c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

      (d) AMENDMENT OF OPTIONS. The Board, at any time, and from time to time,
may amend the terms of any one or more Options, including, but not limited to,
amendments to provide terms more favorable than previously provided in the
agreement evidencing an Option, subject to any specified limits in the Plan that
are not subject to Board discretion; provided, however, that the rights under
any Option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the Optionholder and (ii) the Optionholder consents in
writing.

13. TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.

14. EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15. CHOICE OF LAW.

      The law of the state of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.

                                      12.
<PAGE>

                            SGX PHARMACEUTICALS, INC.
                 2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)

      Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, SGX Pharmaceuticals, Inc. (the "Company") has granted you an
option under its 2005 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service. In addition, if the Company is subject
to a Change in Control before your Continuous Service terminates, then all of
the unvested shares subject to this option shall become fully vested and
exercisable immediately prior to the effective date of such Change in Control.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

      3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            (a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may

                                       1.
<PAGE>

not exercise your option by tender to the Company of Common Stock to the extent
such tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock.

      4. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      6. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the earliest of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death (or in connection
with a Change in Control as provided in subsection (b) below), provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

            (b) twelve (12) months after the termination of your Continuous
Service in connection with a Change in Control where all of the unvested shares
subject to your option become fully vested and exercisable immediately prior to
the effective date of such Change in Control in accordance with the provisions
of Section 1 above;

            (c) twelve (12) months after the termination of your Continuous
Service due to your Disability;

            (d) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

            (e) the Expiration Date indicated in your Grant Notice; or

            (f) the day before the tenth (10th) anniversary of the Date of
Grant.

      Notwithstanding the foregoing, if your sale of the shares acquired upon
exercise of your option would subject you to suit under Section 16(b) of the
Exchange Act, your option shall remain exercisable until the earlier of (i) the
expiration of a period of ten (10) days after the date on which a sale of the
shares by you would no longer be subject to such suit, (ii) the expiration of

                                       2.
<PAGE>

the one hundred and ninetieth (190th) day after your termination of Continuous
Service, or (iii) the Expiration Date indicated in your Grant Notice.

      7. EXERCISE.

            (a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

      8. TRANSFERABILITY. Your option is not transferable, except (i) by will or
by the laws of descent and distribution, (ii) with the prior written approval of
the Company, by instrument to an inter vivos or testamentary trust, in a form
accepted by the Company, in which the option is to be passed to beneficiaries
upon the death of the trustor (settlor) and (iii) with the prior written
approval of the Company, by gift, in a form accepted by the Company, to a
permitted transferee under Rule 701 of the Securities Act.

      9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      10. WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision as directed by the Company (including by means
of a "cashless exercise" pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent directed by the Company),
for any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in
connection with your option.

            (b) The Company may, in its sole discretion, and in compliance with
any applicable conditions or restrictions of law, withhold from fully vested
shares of Common Stock otherwise issuable to you upon the exercise of your
option a number of whole shares of Common Stock having a Fair Market Value,
determined by the Company as of the date of exercise, not in

                                       3.
<PAGE>

excess of the minimum amount of tax required to be withheld by law. Any adverse
consequences to you arising in connection with such share withholding procedure
shall be your sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.

      11. PARACHUTE PAYMENTS.

            (a) If any payment or benefit you would receive pursuant to a Change
in Control from the Company or otherwise ("Payment") would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Code, and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then such Payment shall be equal to the Reduced Amount.
The "Reduced Amount" shall be either (x) the largest portion of the Payment that
would result in no portion of the Payment being subject to the Excise Tax or (y)
the largest portion, up to and including the total, of the Payment, whichever
amount, after taking into account all applicable federal, state and local
employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in your receipt, on an after-tax basis, of
the greater amount of the Payment notwithstanding that all or some portion of
the Payment may be subject to the Excise Tax. If a reduction in payments or
benefits constituting "parachute payments" is necessary so that the Payment
equals the Reduced Amount, reduction shall occur in the following order unless
you elect in writing a different order (provided, however, that such election
shall be subject to Company approval if made on or after the effective date of
the event that triggers the Payment): reduction of cash payments; cancellation
of accelerated vesting of Stock Awards; reduction of employee benefits. In the
event that acceleration of vesting of Stock Award compensation is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the date
of grant of your Stock Awards (i.e., earliest granted Stock Award cancelled
last) unless you elect in writing a different order for cancellation.

            (b) The accounting firm engaged by the Company for general audit
purposes as of the day prior to the effective date of the Change in Control
shall perform the foregoing calculations. If the accounting firm so engaged by
the Company is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, the Company shall appoint a nationally
recognized accounting firm to make the determinations required hereunder. The
Company shall bear all expenses with respect to the determinations by such
accounting firm required to be made hereunder.

            (c) The accounting firm engaged to make the determinations hereunder
shall provide its calculations, together with detailed supporting documentation,
to you and the Company within fifteen (15) calendar days after the date on which
your right to a Payment is triggered (if requested at that time by you or the
Company) or such other time as requested by you or the Company. If the
accounting firm determines that no Excise Tax is payable with respect to a
Payment, either before or after the application of the Reduced Amount, it shall

                                       4.
<PAGE>

furnish you and the Company with an opinion reasonably acceptable to you that no
Excise Tax will be imposed with respect to such Payment. Any good faith
determinations of the accounting firm made hereunder shall be final, binding and
conclusive upon you and the Company, except as specified below.

            (d) If, notwithstanding any reduction described in this Section 10,
the IRS determines that you are liable for the Excise Tax as a result of the
receipt of the payment of benefits as described above, then you shall be
obligated to pay back to the Company, within thirty (30) days after a final IRS
determination or in the event that you challenge the final IRS determination, a
final judicial determination, a portion of the payment equal to the "Repayment
Amount." The Repayment Amount with respect to the payment of benefits shall be
the smallest such amount, if any, as shall be required to be paid to the Company
so that your net after-tax proceeds with respect to any payment of benefits
(after taking into account the payment of the Excise Tax and all other
applicable taxes imposed on such payment) shall be maximized. The Repayment
Amount with respect to the payment of benefits shall be zero if a Repayment
Amount of more than zero would not result in your net after-tax proceeds with
respect to the payment of such benefits being maximized. If the Excise Tax is
not eliminated pursuant to this paragraph, you shall pay the Excise Tax.

            (e) Notwithstanding any other provision of this Section 10, if (i)
there is a reduction in the payment of benefits as described in this Section 10,
(ii) the IRS later determines that you are liable for the Excise Tax, the
payment of which would result in the maximization of your net after-tax proceeds
(calculated as if your benefits had not previously been reduced), and (iii) you
pay the Excise Tax, then the Company shall pay to you those benefits which were
reduced pursuant to this section contemporaneously or as soon as
administratively possible after you pay the Excise Tax so that your net
after-tax proceeds with respect to the payment of benefits is maximized.

      12. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      13. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

                                       5.
<PAGE>

                            SGX PHARMACEUTICALS, INC.
                            STOCK OPTION GRANT NOTICE

                                  INITIAL GRANT
                (2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)

SGX Pharmaceuticals, Inc. (the "Company"), pursuant to its 2005 Non-Employee
Directors' Stock Option Plan (the "Plan"), hereby grants to Optionholder an
option to purchase the number of shares of the Company's Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.

Optionholder:___________________________________________________________________
Date of Grant:__________________________________________________________________
Number of Shares Subject to Option:_____________________________________________
Exercise Price (Per Share):_____________________________________________________
Total Exercise Price:___________________________________________________________
Expiration Date:       The day before the 10th anniversary of the Date of Grant

TYPE OF GRANT:         Nonstatutory Stock Option

EXERCISE SCHEDULE:     Same as Vesting Schedule

VESTING SCHEDULE:      1/36th of the shares vest each month following the Date
                       of Grant.

PAYMENT:               By one or a combination of the following items (described
                       in the Plan and/or Stock Option Agreement):

                       [ ]  By cash or check
                       [ ]  Pursuant to a Regulation T Program if the Shares are
                            publicly traded
                       [ ]  By delivery of already-owned shares if the Shares
                            are publicly traded
                       [ ]  Net exercise if the Company has adopted FAS 123, as
                            revised, at the time of such exercise

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

      OTHER AGREEMENTS:                  _______________________________________
                                         _______________________________________

SGX PHARMACEUTICALS, INC.                OPTIONHOLDER:

By:___________________________________   _______________________________________
            Signature                                   Signature

Title:________________________________   Date:__________________________________

Date:_________________________________

ATTACHMENTS:     Stock Option Agreement, 2005 Non-Employee Directors' Stock
                 Option Plan and Notice of Exercise

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