Document:

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                                                                    Exhibit 10.3

                               XENOGEN CORPORATION

                                 2000 STOCK PLAN

     1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
        --------------------

          .    to attract and retain the best available personnel for positions
               of substantial responsibility,

          .    to provide additional incentive to Employees, Directors and
               Consultants, and

          .    to promote the success of the Company's business.

          Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

     2. Definitions. As used herein, the following definitions shall apply:
        -----------

          (a) "Administrator" means the Board or any of its Committees as shall
               -------------
be administering the Plan, in accordance with Section 4 of the Plan.

          (b) "Applicable Laws" means the requirements relating to the
               ---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

          (c) "Board" means the Board of Directors of the Company.
               -----

          (d) "Change of Control" means the occurrence of any of the following
               -----------------
events:

               (i)   Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

               (ii)  The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets; or

               (iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of
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the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

               (iv)  A change in the composition of the Board, as a result of
which fewer than a majority of the Directors are Incumbent Directors. "Incumbent
Directors" shall mean Directors who either (A) are Directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those Directors whose
election or nomination was not in connection with any transaction described in
subsections (i), (ii) or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.

          (e) "Code" means the Internal Revenue Code of 1986, as amended.
               ----

          (f) "Committee" means a committee of Directors appointed by the Board
               ---------
in accordance with Section 4 of the Plan.

          (g) "Common Stock" means the common stock of the Company.
               ------------

          (h) "Company" means Xenogen Corporation, a Delaware corporation.
               -------

          (i) "Consultant" means any person, including an advisor, engaged by
               ----------
the Company or a Parent or Subsidiary to render services to such entity.

          (j) "Director" means a member of the Board.
               --------

          (k) "Disability" means total and permanent disability as defined in
               ----------
Section 22(e)(3) of the Code.

          (l) "Employee" means any person, including Officers and Directors,
               --------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.

          (m) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended.

          (n) "Fair Market Value" means, as of any date, the value of Common
               -----------------
Stock determined as follows:

               (i)   If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq

                                      -2-
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SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

          (o) "Incentive Stock Option" means an Option intended to qualify as an
               ----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (p) "Inside Director" means a Director who is an Employee.
               ---------------

          (q) "IPO Effective Date" means the date upon which the Securities and
               ------------------
Exchange Commission declares the initial public offering of the Company's Common
Stock as effective.

          (r) "Nonstatutory Stock Option" means an Option not intended to
               -------------------------
qualify as an Incentive Stock Option.

          (s) "Notice of Grant" means a written or electronic notice evidencing
               ---------------
certain times and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.

          (t) "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.

          (u) "Option" means a stock option granted pursuant to the Plan.
               ------

          (v) "Option Agreement" means an agreement between the Company and an
               ----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (w) "Option Exchange Program" means a program whereby outstanding
               -----------------------
Options are surrendered in exchange for Options with a lower exercise price.

          (x) "Optioned Stock" means the Common Stock subject to an Option or
               --------------
Stock Purchase Right.

          (y) "Optionee" means the holder of an outstanding Option or Stock
               --------
Purchase Right granted under the Plan.

                                      -3-
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          (z)  "Outside Director" means a Director who is not an Employee.
                ----------------

          (aa) "Plan" means this 2000 Stock Option Plan, as amended and
                ----
restated.

          (bb) "Restricted Stock" means shares of Common Stock acquired pursuant
                ----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (cc) "Restricted Stock Purchase Agreement" means a written agreement
                -----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

          (dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (ee) "Section 16(b)" means Section 16(b) of the Exchange Act.
                ------------
"Service Provider" means an Employee, Director or Consultant.

          (ff) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 14 of the Plan.

          (gg) "Stock Purchase Right" means the right to purchase Common Stock
                --------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (hh) "Subsidiary" means a "subsidiary corporation", whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
        -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000 Shares, plus any reserved but unissued Shares
under the Company's 1996 Stock Plan as of the IPO Effective Date and any Shares
returned to the 1996 Stock Plan. The number of Shares reserved under the Plan
shall increase annually on the first day of the Company's fiscal year beginning
in 2001, equal to the lesser of (i) 2,000,000 Shares, (ii) 4% of the outstanding
Shares on such date or (iii) a lesser amount determined by the Board. The Shares
may be authorized, but unissued, or reacquired Common Stock.

          If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

                                      -4-
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     4. Administration of the Plan.
        --------------------------

          (a) Procedure.
              ---------

               (i)   Multiple Administrative Bodies. The Plan may be
                     ------------------------------
administered by different Committees with respect to different groups of Service
Providers.

               (ii)  Section 162(m). To the extent that the Administrator
                     --------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify transactions
                     ----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

               (iv)  Other Administration. Other than as provided above, the
                     --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b) Powers of the Administrator. Subject to the provisions of the
              ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i)   to determine the Fair Market Value;

               (ii)  to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

               (iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

               (iv)  to approve forms of agreement for use under the Plan;

               (v)   to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

               (vi)  to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                                      -5-
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               (vii)  to institute an Option Exchange Program;

               (viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

               (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

               (x)    to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

               (xi)   to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;

               (xii)  to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

               (xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

          (c) Effect of Administrator's Decision. The Administrator's decisions,
              ----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.

     5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
        -----------
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

     6. Limitations.
        -----------

          (a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

                                      -6-
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          (b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without Cause.

          (c) The following limitations shall apply to grants of Options:

               (i)   No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.

               (ii)  In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,500,000
Shares, which shall not count against the limit, set forth in subsection (i)
above.

               (iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 14.

               (iv)  If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

     7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become
        ------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.

     8. Term of Option. The term of each Option shall be stated in the Option
        --------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

     9. Option Exercise Price and Consideration.
        ---------------------------------------

          (a) Exercise Price. The per share exercise price for the Shares to be
              --------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

               (i)   In the case of an Incentive Stock Option

                     (A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

                                      -7-
<PAGE>

                      (B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

               (ii)   In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

               (iii)  Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.

          (b) Waiting Period and Exercise Dates. At the time an Option is
              ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

          (c) Form of Consideration. The Administrator shall determine the
              ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

               (i)    cash;

               (ii)   check;

               (iii)  promissory note;

               (iv)   other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

               (v)    consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

               (vi)   a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

               (vii)  any combination of the foregoing methods of payment; or

               (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

                                      -8-
<PAGE>

     10. Exercise of Option.
         ------------------

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option
              -----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

               An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.

               Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

          (b) Termination of Relationship as a Service Provider. Subject to
              -------------------------------------------------
Section 14, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant to Employee), such Optionee may, but only within such period of
time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

          (c) Disability of Optionee. If an Optionee ceases to be a Service
              ----------------------
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Option is
vested on the date of termination. If, on the date of termination, the Optionee
is not vested as to his or her

                                      -9-
<PAGE>

entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

               (d) Death of Optionee. If an Optionee dies while a Service
                   -----------------
Provider, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Option is vested on the date of
death. If, at the time of death, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

               (e) Buyout Provisions. The Administrator may at any time offer to
                   -----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

     11. Stock Purchase Rights.
         ---------------------

               (a) Rights to Purchase. Stock Purchase Rights may be issued
                   ------------------
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.

               (b) Repurchase Option. Unless the Administrator determines
                   -----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

               (c) Other Provisions. The Restricted Stock Purchase Agreement
                   ----------------
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

               (d) Rights as a Shareholder. Once the Stock Purchase Right is
                   -----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company.

                                      -10-
<PAGE>

No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.

     12. Non-Transferability of Options and Stock Purchase Rights. Unless
         --------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

     13. Formula Option Grants to Outside Directors. Outside Directors shall be
         ------------------------------------------
granted Options in accordance with the following provisions:

          (a) All Options granted pursuant to this Section shall be Nonstatutory
Stock Options and, except as otherwise provided herein, shall be subject to the
other terms and conditions of the Plan.

          (b) Except as provided in subsection (d) below, each person who first
becomes an Outside Director on or after the IPO Effective Date, whether through
election by the stockholders of the Company or appointment by the Board to fill
a vacancy shall be automatically granted an Option to purchase up to [45,000]
Shares (the "First Option") on the date he or she first becomes an Outside
Director; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.

          (c) Except as provided in subsection (d) below, each Outside Director
shall be automatically granted an Option to purchase up to [15,000] Shares (a
"Subsequent Option") following each annual meeting of the stockholders of the
Company occurring after the end of the Company's fiscal year 2000, if
immediately after such meeting, he or she shall continue to serve on the Board
and shall have served on the Board for at least the preceding six (6) months.

          (d) Notwithstanding the provisions of subsections (b) and (c) hereof,
any exercise of an Option granted before the Company has obtained stockholder
approval of the Plan in accordance with Section 20 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
20 hereof.

          (e) The terms of each First Option granted pursuant to this Section
shall be as follows:

               (i)   the term of the Option shall be ten (10) years.

               (ii)  the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.

               (iii) [ 25 %] of the Shares subject to the Option shall vest
twelve months after the date of grant and [1/48 ] of the Shares subject to the
Option shall vest each month thereafter provided that the Outside Director shall
continue to serve on the Board on such dates.

                                      -11-
<PAGE>

          (f) The terms of each Subsequent Option granted pursuant to this
Section shall be as follows:

               (i)   the term of the Option shall be ten (10) years.

               (ii)  the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.

               (iii) [25%]of the Shares subject to the Option shall vest twelve
months after the date of grant and [1/48] of the Shares subject to the Option
shall vest each month thereafter provided that the Outside Director shall
continue to serve on the Board on such dates.

     14. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
         ----------------------------------------------------------------

          (a) Changes in Capitalization. Subject to any required action by the
              -------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

          (b) Dissolution or Liquidation. In the event of the proposed
              --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

          (c) Merger or Asset Sale. Subject to Section 15 below, in the event of
              --------------------
a merger of the Company with or into another corporation, or the sale of
substantially all of the assets of the

                                      -12-
<PAGE>

Company (a "Merger"), each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation (the
"Successor Corporation"). In the event that the Successor Corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
fully vest in and have the right to exercise the Option or Stock Purchase Right
as to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a Merger, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this Section 14(c), the Option or Stock Purchase
Right shall be considered assumed if, following the Merger, the option or right
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the Merger,
the consideration (whether stock, cash, or other securities or property)
received in the Merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the Merger is not solely common stock of the Successor Corporation or its
Parent, the Administrator may, with the consent of the Successor Corporation,
provide for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the Successor Corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the Merger.

     15. Change of Control. In the event of a Change of Control, each
         -----------------
outstanding Option held by an Outside Director shall vest and become exercisable
in full as to all of the Optioned Stock, including Shares as to which the
Outside Director would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable as provided in this paragraph, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period.

     16. Date of Grant. The date of grant of an Option or Stock Purchase Right
         -------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

     17. Amendment and Termination of the Plan.
         -------------------------------------

          (a) Amendment and Termination. The Board may at any time amend, alter,
              -------------------------
suspend or terminate the Plan.

          (b) Shareholder Approval. The Company shall obtain shareholder
              --------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

                                      -13-
<PAGE>

          (c) Effect of Amendment or Termination. No amendment, alteration,
              ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     18. Conditions Upon Issuance of Shares.
         ----------------------------------

          (a) Legal Compliance. Shares shall not be issued pursuant to the
              ----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

          (b) Investment Representations. As a condition to the exercise of an
              --------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

     19. Inability to Obtain Authority. The inability of the Company to obtain
         -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     20. Reservation of Shares. The Company, during the term of this Plan, will
         ---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     21. Shareholder Approval. The Plan shall be subject to approval by the
         --------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

                                      -14-<PAGE>

                                                                    Exhibit 10.4

                              XENOGEN CORPORATION

                       2000 EMPLOYEE STOCK PURCHASE PLAN

     The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Xenogen Corporation.

     1. Purpose. The purpose of the Plan is to provide employees of the Company
        -------
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a uniform and
nondiscriminatory basis consistent with the requirements of Section 423.

     2. Definitions.
        -----------

        (a) "Administrator" shall mean the Board or any Committee designated
             -------------
by the Board to administer the plan pursuant to Section 14.

        (b) "Board" shall mean the Board of Directors of the Company.
             -----

        (c) "Change of Control" shall mean the occurrence of any of the
             -----------------
following events:

             (i)   Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

             (ii)  The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets; or

             (iii) The consummation of a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company, or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

             (iv)  A change in the composition of the Board, as a result of
which fewer than a majority of the Directors are Incumbent Directors. "Incumbent
Directors" shall mean Directors who either (A) are Directors of the Company, as
applicable, as of the date hereof, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those Directors whose election or nomination was not in connection with any
transaction described
<PAGE>

in subsections (i), (ii) or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.

          (d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
               ----

          (e) "Committee" means a committee of the Board appointed by the Board
               ---------
in accordance with Section 14 hereof.

          (f) "Common Stock" shall mean the common stock of the Company.
               ------------

          (g) "Company" shall mean Xenogen Corporation, a Delaware corporation.
               -------

          (h) "Compensation" shall mean all base straight time gross earnings,
               ------------
commissions overtime and shift premium, but exclusive of payments for incentive
compensation, bonuses and other compensation.

          (i) "Designated Subsidiary" shall mean any Subsidiary selected by the
               ---------------------
Administrator as eligible to participate in the Plan.

          (j) "Eligible Employee" shall mean any individual who is a common law
               -----------------
employee of the Company or any Designated Subsidiary and whose customary
employment with the Company or Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.

          (k) "Exercise Date" shall mean the first Trading Day on or after
               -------------
February 1 and August 1 of each year. The first Exercise Date under the Plan
shall be January 31, 2001.

          (l) "Fair Market Value" shall mean, as of any date, the value of
               -----------------
Common Stock determined as follows:

               (i)   If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or

                                      -2-
<PAGE>

               (iv)  For purposes of the Offering Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").

          (m)  "Offering Date" shall mean the first Trading Day of each Offering
                -------------
Period.

          (n)  "Offering Periods" shall mean the periods of approximately
                ----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after February 1 and
August 1 of each year and terminating approximately twenty-four months later;
provided, however, that the first Offering Period under the Plan shall commence
with the first Trading Day on or after the date on which the Securities and
Exchange Commission declares the Company's registration statement on Form S-1
effective and ending on the first Trading Day on or after the earlier of (i)
January 31, 2003 or (ii) twenty-seven (27) months from the beginning of the
first Offering Period. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.

          (o)  "Plan" shall mean this Employee Stock Purchase Plan.
                ----

          (p)  "Purchase Period" shall mean the approximately six (6) month
                ---------------
period commencing on one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Offering Date and end with the next Exercise Date.

          (q)  "Purchase Price" shall mean 85% of the Fair Market Value of a
                --------------
share of Common Stock on the Offering Date or on the Exercise Date, whichever is
lower; provided however, that the Purchase Price may be adjusted by the
Administrator pursuant to Section 20.

          (r)  "Subsidiary" shall mean a "subsidiary corporation," whether now
                ----------
or hereafter existing, as defined in Section 424(f) of the Code.

          (s)  "Trading Day" shall mean a day on which national stock exchanges
                -----------
and the Nasdaq System are open for trading.

     3.   Eligibility.
          -----------

          (a) First Offering Period. Any individual who is an Eligible Employee
              ---------------------
immediately prior to the first Offering Period shall be automatically enrolled
in the first Offering Period.

          (b) Subsequent Offering Periods. Any Eligible Employee on a given
              ---------------------------
Offering Date shall be eligible to participate in the Plan.

          (c) Limitations. Any provisions of the Plan to the contrary
              -----------
notwithstanding, no Eligible Employee shall be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Eligible Employee (or
any other person whose stock would be attributed to such Eligible Employee
pursuant to Section 424(d) of the Code) would own capital stock of the Company

                                      -3-
<PAGE>

and/or hold outstanding options to purchase such stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary, or (ii) to the extent that
his or her rights to purchase stock under all employee stock purchase plans of
the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

     4. Offering Periods. The Plan shall be implemented by consecutive,
        ----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after [February 1] and [August 1] each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date upon which the Company's registration statement on Form S-1 is declared
effective by the Securities and Exchange Commission and ending on the first
Trading Day on or after [January 31, 2003]. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

     5. Participation.
        -------------

        (a) First Offering Period. An Eligible Employee shall be entitled to
            ---------------------
participate in the first Offering Period only if such individual submits a
subscription agreement authorizing payroll deductions in the form of Exhibit A
                                                                     ---------
to this Plan (i) no earlier than the effective date of the Form S-8 registration
statement with respect to the issuance of Common Stock under this Plan and (ii)
no later than five (5) business days from the effective date of such S-8
registration statement (the "Enrollment Window"). An Eligible Employee's failure
to submit the subscription agreement during the Enrollment Window shall result
in the automatic termination of such individual's participation in the Offering
Period.

        (b) Subsequent Offering Periods. An Eligible Employee may become a
            ---------------------------
participant in the Plan by completing a subscription agreement authorizing
payroll deductions in the form of Exhibit A to this Plan and filing it with the
Company's payroll office prior to the applicable Offering Date.

     6. Payroll Deductions.
        ------------------

        (a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding [15]% of the Compensation which he or
she receives on each pay day during the Offering Period; provided, however, that
should a pay day occur on an Exercise Date, a participant shall have the payroll
deductions made on such day applied to his or her account under the new Offering
Period or Purchase Period, as the case may be. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.

        (b) Payroll deductions for a participant shall commence on the first
payday following the Offering Date and shall end on the last payday in the
Offering Period to which such

                                      -4-
<PAGE>

authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof; provided, however, that for the first Offering
Period, payroll deductions shall commence on the first payday on or following
the end of the Enrollment Window.

        (c) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.

        (d) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Administrator may, in its discretion, limit the nature
and/or number of participation rate changes during any Offering Period. The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly.

        (e) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.

        (f) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Eligible Employee.

     7. Grant of Option. On the Offering Date of each Offering Period, each
        ---------------
Eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Eligible Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Eligible Employee be permitted to purchase during each
Purchase Period more than [10,000] shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. The Eligible Employee may accept the grant of such option by turning in
a completed Subscription Agreement (attached hereto as Exhibit A) to the Company
                                                       ---------
on or prior to an Offering Date, or with respect to the first Offering Period,
prior to the last day of the Enrollment Window. The Administrator may, for
future Offering Periods, increase or decrease, in its absolute discretion, the
maximum number of shares of the Company's Common Stock an Eligible Employee may
purchase

                                      -5-
<PAGE>

during each Purchase Period of such Offering Period. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.

     8. Exercise of Option.
        ------------------

        (a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other funds left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

        (b) If the Administrator determines that, on a given Exercise Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Administrator may in its sole discretion (x) provide that the Company shall
make a pro rata allocation of the shares of Common Stock available for purchase
on such Offering Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Exercise Date, as applicable, in
as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 hereof. The Company may make pro
rata allocation of the shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Offering Date.

     9. Delivery. As soon as reasonably practicable after each Exercise Date on
        --------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant the shares purchased upon exercise of his or her option in a
form determined by the Administrator.

     10. Withdrawal.
         ----------

         (a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
            ---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period

                                      -6-
<PAGE>

shall be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.

         (b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.

     11. Termination of Employment. In the event a participant ceases to be an
         -------------------------
Eligible Employee of the Company or any Designated Subsidiary, as applicable,
his or her option shall remain exercisable for a period of three (3) months from
the date of such Eligible Employee's termination. Upon the expiration of such
three (3) month period or a date prior to the expiration of such three (3) month
period if requested by the participant, any payroll deductions credited to such
participant's account during the Offering Period but not yet used to purchase
shares under the Plan shall be returned to such participant or, in the case of
his or her death, to the person or persons entitled thereto under Section 15
hereof, and such participant's option shall be automatically terminated.

     12. Interest. No interest shall accrue on the payroll deductions of a
         --------
participant in the Plan.

     13. Stock.
         -----

         (a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 400,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
1,000,000 shares, (ii) 2% of the outstanding shares on such date or (iii) an
amount determined by the Administrator.

         (b) Until the shares are issued (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company), a participant shall only have the rights of an unsecured creditor with
respect to such shares, and no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to such shares.

         (c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.

     14. Administration. The Administrator shall administer the Plan and shall
         --------------
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Administrator shall, to the full extent permitted by law, be final and
binding upon all parties.

     15. Designation of Beneficiary.
         --------------------------

                                      -7-
<PAGE>

         (a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and 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 prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.

         (b) Such designation of beneficiary may be changed by the participant
at any time by written notice. 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
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 discretion, may deliver such shares 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.

         (c) All beneficiary designations shall being such form and manner as
the Administrator may designate from time to time.

     16. Transferability. Neither payroll deductions credited to a participant's
         ---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.

     17. Use of Funds. All payroll deductions received or held by the Company
         ------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions. Until
shares are issued, participants shall only have the rights of an unsecured
creditor.

     18. Reports. Individual accounts shall be maintained for each participant
         -------
in the Plan. Statements of account shall be given to participating Eligible
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.

     19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
         ---------------------------------------------------------------------
Merger or Change of Control.
---------------------------

         (a) Changes in Capitalization. Subject to any required action by the
             -------------------------
shareholders of the Company, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan, the maximum
number of shares each participant may purchase each Purchase Period (pursuant to
Section 7), the number of shares that may be added annually to the shares
reserved under the Plan (pursuant to Section 13(a)(i), as well as the price per
share and the number of shares of Common Stock covered by each option under the
Plan which has

                                      -8-
<PAGE>

not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other change in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no issuance
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.

         (b) Dissolution or Liquidation. In the event of the proposed
             --------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The
New Exercise Date shall be before the date of the Company's proposed dissolution
or liquidation. The Administrator shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.

         (c) Merger or Change of Control. In the event of a merger or Change of
             ---------------------------
Control, each outstanding option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the option, any Purchase Periods then in progress shall
be shortened by setting a New Exercise Date and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed merger or Change of Control. The
Administrator shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.

     20. Amendment or Termination.
         ------------------------

         (a) The Administrator may at any time and for any reason terminate or
amend the Plan. Except as otherwise provided in the Plan, no such termination
can affect options previously granted, provided that an Offering Period may be
terminated by the Administrator on any Exercise Date if the Administrator
determines that the termination of the Offering Period or the Plan is in the
best interests of the Company and its shareholders. Except as provided in
Section 19 and this Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.

                                      -9-
<PAGE>

         (b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable which are
consistent with the Plan.

         (c) In the event the Administrator determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

             (i)   increasing the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

             (ii)  shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and

             (iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.

     21. Notices. All notices or other communications by a participant to the
         -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form and manner specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

     22. Conditions Upon Issuance of Shares. Shares shall not be issued with
         ----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

          As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

                                     -10-
<PAGE>

     23. Term of Plan. The Plan shall become effective upon the earlier to occur
         ------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company. It shall continue in effect until terminated under Section 20
hereof.

     24. Automatic Transfer to Low Price Offering Period. To the extent
         -----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Offering Date of
such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.

                                     -11-
<PAGE>

                                    EXHIBIT A
                                    =========

                               XENOGEN CORPORATION

                          EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

____ Original Application                             Offering Date:___________

____ Change in Payroll Deduction Rate

____ Change of Beneficiary(ies)

1.   ____________________ hereby elects to participate in the Xenogen
     Corporation Employee Stock Purchase Plan (the "Employee Stock Purchase
     Plan") and subscribes to purchase shares of the Company's Common Stock in
     accordance with this Subscription Agreement and the Employee Stock Purchase
     Plan.

2.   I hereby authorize payroll deductions from each paycheck in the amount of
     ____% of my Compensation on each payday (from 0 to [15]%) during the
     Offering Period in accordance with the Employee Stock Purchase Plan.
     (Please note that no fractional percentages are permitted.)

3.   I understand that said payroll deductions shall be accumulated for the
     purchase of shares of Common Stock at the applicable Purchase Price
     determined in accordance with the Employee Stock Purchase Plan. I
     understand that if I do not withdraw from an Offering Period, any
     accumulated payroll deductions will be used to automatically exercise my
     option.

4.   I have received a copy of the complete Employee Stock Purchase Plan. I
     understand that my participation in the Employee Stock Purchase Plan is in
     all respects subject to the terms of the Plan. I understand that my ability
     to exercise the option under this Subscription Agreement is subject to
     share-holder approval of the Employee Stock Purchase Plan.

5.   Shares purchased for me under the Employee Stock Purchase Plan should be
     issued in the name(s) of (Eligible Employee or Eligible Employee and Spouse
     only).

6.   I understand that if I dispose of any shares received by me pursuant to the
     Plan within 2 years after the Offering Date (the first day of the Offering
     Period during which I purchased such shares) or one year after the Exercise
     Date, I will be treated for federal income tax purposes as having received
     ordinary income at the time of such disposition in an amount equal to the
     excess of the fair market value of the shares at the time such shares were
     purchased by me over the price which I paid for the shares. I hereby agree
                                                                 --------------
     to notify the Company in writing within 30 days after the date of any
     ---------------------------------------------------------------------
     disposition of my shares and I will make adequate provision for Federal,
     ------------------------------------------------------------------------
     state or other tax withholding obligations, if any, which arise upon the
     ------------------------------------------------------------------------

<PAGE>

     disposition of the Common Stock. The Company may, but will not be obligated
     -------------------------------
     to, withhold from my compensation the amount necessary to meet any
     applicable withholding obligation including any withholding necessary to
     make available to the Company any tax deductions or benefits attributable
     to sale or early disposition of Common Stock by me. If I dispose of such
     shares at any time after the expiration of the 2-year and 1-year holding
     periods, I understand that I will be treated for federal income tax
     purposes as having received income only at the time of such disposition,
     and that such income will be taxed as ordinary income only to the extent of
     an amount equal to the lesser of (1) the excess of the fair market value of
     the shares at the time of such disposition over the purchase price which I
     paid for the shares, or (2) 15% of the fair market value of the shares on
     the first day of the Offering Period. The remainder of the gain, if any,
     recognized on such disposition will be taxed as capital gain.

7.   I hereby agree to be bound by the terms of the Employee Stock Purchase
     Plan. The effectiveness of this Subscription Agreement is dependent upon my
     eligibility to participate in the Employee Stock Purchase Plan.

8.   In the event of my death, I hereby designate the following as my
     beneficiary(ies) to receive all payments and shares due me under the
     Employee Stock Purchase Plan:

     NAME:  (Please print)
                          ------------------------------------------------------
                               (First)            (Middle)         (Last)

     -------------------------        ------------------------------------------
     Relationship

     -------------------------        ------------------------------------------
     Percentage Benefit               (Address)

     NAME: (please print)
     ---------------------------------------------------------------------------
                               (First)            (Middle)         (Last)

     -------------------------        ------------------------------------------
     Relationship

     -------------------------        ------------------------------------------
     Percentage Benefit               (Address)

                                      -2-

<PAGE>

         Employee's Social
         Security Number:
                                    --------------------------------------------
         Employee's Address:
                                    --------------------------------------------

                                    --------------------------------------------

                                    --------------------------------------------

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:
      -------------------------     --------------------------------------------
                                    Signature of Employee

                                    --------------------------------------------
                                    Spouse's Signature (If beneficiary other
                                    than spouse)

                                      -3-

<PAGE>

                                  EXHIBIT B
                                  =========

                              XENOGEN CORPORATION

                          EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

     The undersigned participant in the Offering Period of the Xenogen
Corporation Employee Stock Purchase Plan which began on ____________, ______
(the "Offering Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

                                       Name and Address of Participant:

                                       --------------------------------

                                       --------------------------------

                                       --------------------------------

                                       Signature:

                                       --------------------------------

                                       Date:
                                            ---------------------------

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