LIGAND PHARMACEUTICALS INC
EXHIBIT 10.267
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>ex10-267.txt
<DESCRIPTION>EXHIBIT 10.267
<TEXT>
                                                                  EXHIBIT 10.267


                       LIGAND PHARMACEUTICALS INCORPORATED

                            2002 STOCK INCENTIVE PLAN

                                  MAY 16, 2002
                       (AS AMENDED THROUGH JUNE 20, 2003)


                                   ARTICLE ONE

                               GENERAL PROVISIONS

     I. PURPOSE OF THE PLAN

          This 2002 Stock Incentive Plan is intended to promote the interests of
Ligand Pharmaceuticals Incorporated, a Delaware corporation, by providing
eligible persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.

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

     II. STRUCTURE OF THE PLAN

          A. The Plan shall be divided into four separate equity incentives
programs:

               o    the Discretionary Option Grant Program under which eligible
                    persons may, at the discretion of the Plan Administrator, be
                    granted options to purchase shares of Common Stock,

               o    the Stock Issuance Program under which eligible persons may,
                    at the discretion of the Plan Administrator, be issued
                    shares of Common Stock directly, either through the
                    immediate purchase of such shares or as a bonus for services
                    rendered the Corporation (or any Parent or Subsidiary),

               o    the Automatic Option Grant Program under which eligible
                    non-employee Board members shall automatically receive
                    option grants at designated intervals over their period of
                    continued Board service, and

               o    the Director Fee Option Grant Program under which
                    non-employee Board members may elect to have all or any
                    portion of their annual retainer fee otherwise payable in
                    cash applied to a special stock option grant.

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

     III. ADMINISTRATION OF THE PLAN

          A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.


                                        1

<PAGE>

          B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

          C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.

          D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

          E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.

     IV. ELIGIBILITY

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

                    (i)  Employees,

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

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

          B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.

          C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

          D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Effective Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings


                                       2

<PAGE>

held after the Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.

          E. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.

     V. STOCK SUBJECT TO THE PLAN

          A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock reserved
for issuance over the term of the Plan shall be 7,575,529 shares consisting of
(i) the 6,075,529 shares that remained available for issuance, as of the Plan
Effective Date, under the Predecessor Plan as last approved by the Corporation's
stockholders, including the shares subject to outstanding options under the
Predecessor Plan, (ii) plus an additional increase of 750,000 shares that was
approved by the Corporation's stockholders at the 2002 Annual Meeting, plus
(iii) an additional 750,000 shares approved by the Corporation's stockholders
subsequent to adoption of the Plan..

          B. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.

          C. Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) shall be available
for subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently cancelled or repurchased by the Corporation, at a
price per share not greater than the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section V of Article Two, Section II of Article Four or
Section III of Article Five of the Plan shall NOT be available for subsequent
issuance under the Plan.

          D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option transferred to this Plan
from the Predecessor Plan. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.


                                       3

<PAGE>

                                  ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

     I. OPTION TERMS

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

          A. EXERCISE PRICE.

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

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

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

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

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

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

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

          C. EFFECT OF TERMINATION OF SERVICE.

               1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

                    (i)  Any option outstanding at the time of the Optionee's
                         cessation of Service for any reason shall remain
                         exercisable for such period of time thereafter as shall
                         be determined by the Plan Administrator and set forth
                         in the documents evidencing the option, but no such
                         option shall be exercisable after the expiration of the
                         option term.

                    (ii) Any option held by the Optionee at the time of death
                         and exercisable in whole or in part at that time may be
                         subsequently exercised by the personal representative
                         of the Optionee's


                                       4

<PAGE>

                         estate or by the person or persons to whom the option
                         is transferred pursuant to the Optionee's will or the
                         laws of inheritance or by the Optionee's designated
                         beneficiary or beneficiaries of that option.

                    (iii) During the applicable post-Service exercise period,
                         the option may not be exercised in the aggregate for
                         more than the number of vested shares for which the
                         option is exercisable on the date of the Optionee's
                         cessation of Service. Upon the expiration of the
                         applicable exercise period or (if earlier) upon the
                         expiration of the option term, the option shall
                         terminate and cease to be outstanding for any vested
                         shares for which the option has not been exercised.
                         However, the option shall, immediately upon the
                         Optionee's cessation of Service, terminate and cease to
                         be outstanding to the extent the option is not
                         otherwise at that time exercisable for vested shares.

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

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

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

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

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

          F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.


                                       5
<PAGE>

     II. INCENTIVE OPTIONS

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

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

          B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

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

     III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

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

          D. Each option which is assumed in connection with a Change in Control
or otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments to reflect such Change in Control shall also be
made to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of


                                       6

<PAGE>

securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption of the outstanding options under the
Discretionary Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Change in Control transaction.

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

          F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control transaction in which those options do
not otherwise accelerate. In addition, the Plan Administrator may structure one
or more of the Corporation's repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of such Involuntary Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.

          G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Hostile Take-Over, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Hostile Take-Over, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Hostile Take-Over.

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

          I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     IV. CANCELLATION AND REGRANT OF OPTIONS

                  [omitted]


                                       7
<PAGE>

     V. STOCK APPRECIATION RIGHTS

          A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.

          B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

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

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

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

          C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:

                    (i) One or more Section 16 Insiders may be granted limited
               stock appreciation rights with respect to their outstanding
               options.

                    (ii) Upon the occurrence of a Hostile Tender-Offer, each
               individual holding one or more options with such a limited stock
               appreciation right shall have the unconditional right
               (exercisable for a thirty (30)-day period following such Hostile
               Tender-Offer) to surrender each such option to the Corporation.
               In return for the surrendered option, the Optionee shall receive
               a cash distribution from the Corporation in an amount equal to
               the excess of (A) the Tender-Offer Price of the shares of Common
               Stock at the time subject to such option (whether or not the
               option is otherwise at that time vested and exercisable for those
               shares) over (B) the aggregate exercise price payable for those
               shares. Such cash distribution shall be paid within five (5) days
               following the option surrender date.

                    (iii) At the time such limited stock appreciation right is
               granted, the Plan Administrator shall pre-approve any subsequent
               exercise of that right in accordance with the terms of this
               Paragraph C. Accordingly, no further approval of the Plan
               Administrator or the Board shall be required at the time of the
               actual option surrender and cash distribution.


                                       8

<PAGE>

                                 ARTICLE THREE

                             STOCK ISSUANCE PROGRAM

     I. STOCK ISSUANCE TERMS

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

          A. PURCHASE PRICE.

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

               2. Subject to the provisions of Section I of Article Six, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

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

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

          B. VESTING PROVISIONS.

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

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

               3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

               4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for


                                       9

<PAGE>

consideration paid in cash or cash equivalent, the Corporation shall repay to
the Participant the LOWER of (i) the cash consideration paid for the surrendered
shares or (ii) the Fair Market Value of those shares at the time of
cancellation.

               5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

               6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals or
Service requirements established for such awards are not attained or satisfied.
The Plan Administrator, however, shall have the discretionary authority to issue
shares of Common Stock under one or more outstanding share right awards as to
which the designated performance goals or Service requirements have not been
attained or satisfied.

     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Change in Control, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) or
are otherwise to continue in full force and effect pursuant to the terms of the
Change in Control transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.

          B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof) or are otherwise continued in effect.

          C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, either upon the occurrence of a Hostile Take-Over or upon the
subsequent termination of the Participant's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of that Hostile Take-Over.

     III. SHARE ESCROW/LEGENDS

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


                                       10
<PAGE>

                                  ARTICLE FOUR

                         AUTOMATIC OPTION GRANT PROGRAM

     I. OPTION TERMS

          A. GRANT DATES. Option grants shall be made on the dates specified
below:

               1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Effective Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 20,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

               2. On the date of each Annual Stockholders Meeting held after the
Effective Date, each individual who is to continue to serve as a non-employee
Board member, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 10,000-share option grants
any one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
one or more stock option grants from the Corporation prior to the Effective Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.

          B. EXERCISE PRICE.

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

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

          C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.

          D. EXERCISABILITY AND VESTING OF OPTIONS. Each automatic grant shall
become fully vested and exercisable upon the Optionee's completion of the one
(1)-year period of continued Board service measured from the grant date.

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


                                       11

<PAGE>

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

                    (i) The Optionee shall have a three (3)-year period
               following the date of such cessation of Board service in which to
               exercise each such option.

                    (ii) During the three (3)-year exercise period, the option
               may not be exercised in the aggregate for more than the number of
               vested shares of Common Stock for which the option is exercisable
               at the time of the Optionee's cessation of Board service.

                    (iii) Should the Optionee cease to serve as a Board member
               by reason of death or Permanent Disability, then all shares at
               the time subject to the option shall immediately vest so that
               such option may, during the three (3)-year exercise period
               following such cessation of Board service, be exercised for any
               or all of those shares as fully vested shares of Common Stock.

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

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

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

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

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

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


                                       12

<PAGE>

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

          F. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

     III. REMAINING TERMS

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


                                       13

<PAGE>

                                  ARTICLE FIVE

                        DIRECTOR FEE OPTION GRANT PROGRAM

     I. OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual fee otherwise payable in cash for his or her service on
the Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual fee which is the subject of that election is otherwise
payable. Each non-employee Board member who files such a timely election shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which the fee
election is in effect. The dollar amount of the fee subject to the Board
member's election each year shall be equal to the number of regularly scheduled
Board meetings for that year multiplied by the per Board meeting fee in effect
for such year, plus any annual retainer fee(s) in effect for such year.

     II. OPTION TERMS

          Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

          A. EXERCISE PRICE.

               1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

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

          B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

                           X = A / (B x 66-2/3%), where

                           X is the number of option shares,

                                             A is the portion of the annual
                                    retainer fee subject to the non-employee
                                    Board member's election under this Director
                                    Fee Option Grant Program, and

                                             B is the Fair Market Value per
                                    share of Common Stock on the option grant
                                    date.

          C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.

          D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Five may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such


                                       14

<PAGE>

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

          E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason other than death or Permanent Disability while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

          F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. To the extent such
option is held by the Optionee at the time of his or her death, that option may
be exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of such option.

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

          A. In the event of any Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. Each such outstanding option shall terminate immediately
following the Change in Control, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect pursuant to the
terms of the Change in Control transaction. Any option so assumed or continued
shall remain exercisable for the fully vested shares until the EARLIEST to occur
of (i) the expiration of the ten (10)-year option term, (ii) the expiration of
the three (3)-year period measured from the date of the Optionee's cessation of
Board service or (iii) the surrender of the option in connection with a Hostile
Tender-Offer.

          B. In the event of a Hostile Take-Over while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
EARLIEST to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Change in Control transaction or (iv) the surrender of the
option in connection with a Hostile Tender-Offer.

          C. Upon the occurrence of a Hostile Tender-Offer while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each outstanding option held by him or her
under the Director Fee Option Grant Program. The Optionee shall in return be
entitled to a cash


                                       15

<PAGE>

distribution from the Corporation in an amount equal to the excess of (i) the
Tender-Offer Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the option is otherwise at the time
exercisable for those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. No approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.

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

          E. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

     IV. REMAINING TERMS

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


                                       16

<PAGE>

                                  ARTICLE SIX

                                  MISCELLANEOUS

     I. FINANCING

          [omitted]

     II. TAX WITHHOLDING

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

          B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:

               STOCK WITHHOLDING: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

               STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

     III. EFFECTIVE DATE AND TERM OF THE PLAN

          A. The Plan was adopted by the Board on March 7, 2002, and shall
become effective on the Plan Effective Date. However, the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary Option
Grant Program at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.

          B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be transferred to the Plan
at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so transferred shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such transferred options with respect to their acquisition of
shares of Common Stock.

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


                                       17

<PAGE>

          D. The Plan shall terminate upon the earliest to occur of (i) March 7,
2012, or (ii) the termination of all outstanding options in connection with a
Change in Control. Should the Plan terminate on March 7, 2012, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.

     IV. AMENDMENT OF THE PLAN

          A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

          B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.

     V. USE OF PROCEEDS

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

     VI. REGULATORY APPROVALS

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

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

     VII. NO EMPLOYMENT/SERVICE RIGHTS

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


                                       18

<PAGE>

                                    APPENDIX

          The following definitions shall be in effect under the Plan:

          A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Four of the Plan.

          B. BOARD shall mean the Corporation's Board of Directors.

          C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through any of the following transactions:

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

                    (ii) the sale, transfer or other disposition of all or
               substantially all of the Corporation's assets in complete
               liquidation or dissolution of the Corporation, or

                    (iii) the acquisition, directly or indirectly by any person
               or related group of persons (other than the Corporation or a
               person that directly or indirectly controls, is controlled by, or
               is under common control with, the Corporation), of beneficial
               ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
               securities possessing more than fifty percent (50%) of the total
               combined voting power of the Corporation's outstanding securities
               pursuant to a tender or exchange offer made directly to the
               Corporation's stockholders.

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

          E. COMMON STOCK shall mean the Corporation's common stock.

          F. CORPORATION shall mean Ligand Pharmaceuticals Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Ligand Pharmaceuticals Incorporated which shall by
appropriate action adopt the Plan.

          G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Five of the
Plan.

          H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.

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

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

          K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

                    (i) If the Common Stock is at the time traded on the Nasdaq
               National Market, then the Fair Market Value shall be the closing
               selling price per share of Common Stock on the date in question,
               as such price is reported by the National Association of
               Securities Dealers on the Nasdaq National Market


                                      A-1

<PAGE>


               and published in THE WALL STREET JOURNAL. If there is no
               closing selling price for the Common Stock on the date in
               question, then the Fair Market Value shall be the closing selling
               price on the last preceding date for which such quotation exists.

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

          L. HOSTILE TAKE-OVER shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:

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

                    (ii) a Hostile Tender-Offer.

          M. HOSTILE TENDER-OFFER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

          N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

          O. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:

                    (i) such individual's involuntary dismissal or discharge by
               the Corporation for reasons other than Misconduct, or

                    (ii) such individual's voluntary resignation following (A) a
               change in his or her position with the Corporation which
               materially reduces his or her duties and responsibilities or the
               level of management to which he or she reports, (B) a reduction
               in his or her level of compensation (including base salary,
               fringe benefits and target bonus under any corporate-performance
               based bonus or incentive programs) by more than fifteen percent
               (15%) or (C) a relocation of such individual's place of
               employment by more than fifty (50) miles, provided and only if
               such change, reduction or relocation is effected by the
               Corporation without the individual's consent.

          P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or


                                      A-2

<PAGE>

any Parent or Subsidiary) for any other acts or omissions, but such other acts
or omissions shall not be deemed, for purposes of the Plan, to constitute
grounds for termination for Misconduct.

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

          Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

          R. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.

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

          T. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.

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

          V. PLAN shall mean the Corporation's 2002 Stock Incentive Plan, as set
forth in this document.

          W. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.

          X. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the first business day following the 2002
Annual Meeting of Stockholders scheduled to take place on May 15, 2002.

          Y. PREDECESSOR PLAN shall mean the Corporation's 1992 Stock Incentive
Plan in effect immediately prior to the Plan Effective Date hereunder.

          Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.

          AA. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

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

          CC. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a


                                      A-3

<PAGE>


consultant or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock issuance.

          DD. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.

          EE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

          FF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Three of the Plan.

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

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

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

          JJ. WITHHOLDING TAXES shall mean the applicable income and employment
withholding taxes to which the holder of Non-Statutory Options or unvested
shares of Common Stock may become subject in connection with the exercise of
those options or the vesting of those shares.


                                       A-4

</TEXT>
</DOCUMENT>
