S-8

As filed with the Securities and Exchange Commission on January 31, 2003

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

	Gilead Sciences, Inc.
	(Exact name of registrant as specified in its charter)
Delaware		94-3047598
(State of Incorporation)		(I.R.S. Employer Identification No.)
	333 Lakeside Drive
	Foster City, CA  94404
	(Address of principal executive offices)
Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan
Option Agreement, dated August 5, 2002, between Triangle Pharmaceuticals, Inc. and Daniel G. Welch
(Full title of the plans)
John F. Milligan
Senior Vice President and Chief Financial Officer
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, CA  94404
(650) 574-3000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Laura A. Berezin, Esq.

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA  94306

(650) 843-5000

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered	Amount to be Registered(2)	Proposed Maximum Offering Price Per Share (1)	Proposed Maximum Aggregate Offering Price (1)	Amount of Registration Fee
Stock Options and Common Stock (par value $.001)	1,998,177	$34.76	$69,456,633	$6,390.01

(1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(h).  The offering price per share and aggregate offering price are based upon the weighted average exercise price  for shares subject to outstanding options granted pursuant to Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan and the Option Agreement, dated August 5, 2002, between Triangle Pharmaceuticals, Inc. and Daniel G. Welch  (the “Plans”).

(2)This Registration Statement shall cover any additional shares of Common Stock which become issuable under the Plans set forth herein by reason of any stock dividend, stock split, recapitalization or any other similar transaction without receipt of consideration which results in an increase in the number of shares of the Registrant’s outstanding Common Stock.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by Gilead Sciences, Inc. (“Gilead” or the “Registrant”) with the Securities and Exchange Commission  are incorporated by reference into this Registration Statement:

(a)           Gilead’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001;

(b)           Gilead’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002, June 30, 2002 and September 30, 2002;

(c)           Gilead’s Current  Reports on Form 8-K, dated January 4, 2002, December 10, 2002, December 12, 2002, December 13, 2002, and January 29, 2003; and

(d)           The description of Gilead common stock which is contained in the Registration Statement on Form 8-A filed under the Exchange Act of 1934, as amended (the “Exchange Act”) on December 22, 1992, including any amendment or report filed for the purpose of updating such description.

All reports and other documents subsequently filed by Gilead pursuant to Sections 13(a), 13(c), 14 and 15(d) prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference herein and to be a part of this Registration Statement from the date of the filing of such reports and documents.

DESCRIPTION OF SECURITIES

Not Applicable.

INTERESTS OF NAMED EXPERTS AND COUNSEL

                The validity of the shares of Common Stock offered hereby will be passed upon for the Registrant by Cooley Godward LLP, Palo Alto, California.  As of the date of this Registration Statement, certain Cooley Godward

attorneys own in the aggregate approximately 4,180shares of the Registrant’s Common Stock.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, Gilead has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”).  Gilead’s Amended and Restated Certificate and Bylaws, as amended and restated (the “Bylaws”), require Gilead to indemnify its directors and executive officers, and permit Gilead to indemnify its other officers, employees and other agents, to the extent permitted by Delaware law. The Bylaws also require Gilead to advance litigation expenses in the case of stockholder derivative actions or other actions, against an undertaking by the indemnified party to repay such advances if it is ultimately determined that the indemnified party is not entitled to indemnification.

The Company has entered into indemnity agreements with each of its directors and executive officers.  Such indemnity agreements contain provisions which are in some respects broader than the specific indemnification provisions under the Delaware law and provide for indemnification under certain circumstances for acts and omissions which may not be covered by the Company’s liability insurance.

EXEMPTION FROM REGISTRATION CLAIMED

Not Applicable.

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EXHIBITS

Exhibit

Number

3.1(1)Amended and Restated Certificate of Incorporation of the Registrant, as amended.

3.2(2)Bylaws of the Registrant, as amended and restated on March 30, 1999.

4.1Reference is made to Exhibits 3.1 and 3.2.

4.2(3)Amended and Restated Rights Agreement dated as of October 21, 1999 between the Registrant and ChaseMellon Shareholder Services, LLC.

5.1Opinion of Cooley Godward LLP

23.1Consent of Ernst & Young LLP, Independent Auditors

23.2Consent of Cooley Godward LLP (contained in Exhibit 5.1)

24.1Power of Attorney (contained on the signature page)

99.1Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan

99.2Employment Agreement, dated as of August 5, 2002, between Triangle Pharmaceuticals, Inc. and Daniel G. Welch, including the Option Agreement between Triangle Pharmaceuticals, Inc. and Daniel G. Welch, dated August 5, 2002.

(1)	Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
(2)	Filed as an exhibit to Registrant’s Annual Report on Form 10-K405/A for the fiscal year ended December 31, 1998, and incorporated herein by reference.
(3)	Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on October 22, 1999, and incorporated herein by reference.

UNDERTAKINGS

(a)           The undersigned Registrant hereby undertakes:

1.             To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the registration statement;

2.             That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3.             To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

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(b)The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Foster City, State of California, on January 31, 2003.

GILEAD SCIENCES, INC.
By:	/s/ John C. Martin
	John C. Martin, Ph.D.
	President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints John C. Martin and John F.  Milligan, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John C. Martin, Ph.D.	President, Chief Executive Officer and Director
JOHN C. MARTIN, PH.D.	(Principal Executive Officer)	January 31, 2003
/s/ John F. Milligan	Senior Vice President and Chief Financial Officer
JOHN F. MILLIGAN	(Principal Financial and Accounting Officer)	January 31, 2003
/s/ James M. Denny	Director (Chairman of the Board of Directors)	January 31, 2003
JAMES M. DENNY
/s/ Paul Berg, Ph.D.	Director	January 31, 2003
PAUL BERG, PH.D.

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/s/ Cordell W. Hull	Director	January 31, 2003
CORDELL W. HULL
/s/ Etienne F. Davignon	Director	January 31, 2003
ETIENNE F. DAVIGNON
/s/ Gordon E. Moore, Ph.D.	Director	January 31, 2003
GORDON E. MOORE, PH.D.
/s/ George P. Shultz, Ph.D.	Director	January 31, 2003
GEORGE P. SHULTZ, PH.D.
/s/ Gayle E. Wilson	Director	January 31, 2003
GAYLE E. WILSON

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EXHIBIT INDEX

Exhibit Number	Description
3.1(1)	Amended and Restated Certificate of Incorporation of the Registrant, as amended.
3.2(2)	Bylaws of the Registrant, as amended and restated on March 30, 1999.
4.1	Reference is made to Exhibits 3.1 and 3.2.
4.2(3)	Amended and Restated Rights Agreement dated as of October 21, 1999 between the Registrant and ChaseMellon Shareholder Services, LLC.
5.1	Opinion of Cooley Godward LLP
23.1	Consent of Ernst & Young LLP, Independent Auditors
23.2	Consent of Cooley Godward LLP (contained in Exhibit 5.1)
24.1	Power of Attorney (contained on the signature page)
99.1	Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan
99.2	Employment Agreement, dated as of August 5, 2002, between Triangle Pharmaceuticals, Inc. and Daniel G. Welch, including the Option Agreement between Triangle Pharmaceuticals, Inc. and Daniel G. Welch, dated August 5, 2002.

(1)	Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
(2)	Filed as an exhibit to Registrant’s Annual Report on Form 10-K405/A for the fiscal year ended December 31, 1998, and incorporated herein by reference.
(3)	Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on October 22, 1999, and incorporated herein by reference.

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EX-5.1

EXHIBIT 5.1

January 31, 2003

Gilead Sciences, Inc.

333 Lakeside Drive

Foster City, CA  94404

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection with the filing by Gilead Sciences, Inc. (the “Company”) of a Registration Statement on Form S-8 (the “Registration Statement”) with the Securities and Exchange Commission covering the offering of up to one million nine hundred ninety eight thousand one hundred seventy seven (1,998,177) shares of the Company’s Common Stock, $.001 par value, (the “Shares”) pursuant to the Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan and the option agreement with Daniel G. Welch, dated August 5, 2002 (collectively, the “Plans”).

In connection with this opinion, we have examined the Registration Statement and related Prospectus, your Certificate of Incorporation and Bylaws, as amended, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion.  We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof.

On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when sold and issued in accordance with the Plans, the Registration Statement and related Prospectus, will be validly issued, fully paid, and nonassessable (except as to shares issued pursuant to certain deferred payment arrangements, which will be fully paid and nonassessable when such deferred payments are made in full).

We consent to the filing of this opinion as an exhibit to the Registration Statement.

Very truly yours,

COOLEY GODWARD LLP

By:	/s/  Laura A. Berezin
	Laura A. Berezin

EX-23.1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form S-8) of Gilead Sciences, Inc. pertaining to the Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan and the Option Agreement, dated August 5, 2002, between Triangle Pharmaceuticals, Inc. and Daniel G. Welch, of our report dated January 25, 2002 (except as to the paragraph titled “Stock Split” of Note 1, as to which the date is March 8, 2002) with respect to the consolidated financial statements and schedule of Gilead Sciences, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2001, filed with the Securities and Exchange Commission.

/s/  ERNST & YOUNG LLP

Palo Alto, California

January 31, 2003

EX-99.1

EXHIBIT 99.1

TRIANGLE PHARMACEUTICALS, INC.

1996 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED THROUGH AUGUST 2, 2002)

GENERAL PROVISIONS

PURPOSE OF THE PLAN

This 1996 Stock Incentive Plan is intended to promote the interests of Triangle Pharmaceuticals, Inc., a Delaware corporation, by providing eligible persons 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 the service of the Corporation.

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

STRUCTURE OF THE PLAN

The Plan shall be divided into four separate equity programs:

-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,

-the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants,

-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), and

-the Automatic Option Grant Program under which eligible non-employee Board members shall automatically receive option grants at periodic intervals to purchase shares of Common Stock.

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.

ADMINISTRATION OF THE PLAN

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 and shall have sole and exclusive authority to administer the Salary Investment Option Grant Program with respect to all eligible individuals.

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

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power to administer those programs with respect to all such persons. The members of the Secondary Committee may be Board members who are Employees eligible to receive discretionary option grants or direct stock issuances under the Plan or any other stock option, stock appreciation, stock bonus or other stock plan of the Corporation (or any Parent or Subsidiary).

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.

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, Salary Investment Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such 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, Salary Investment Option Grant and Stock Issuance Programs under its jurisdiction or any option or stock issuance thereunder.

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.

Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under this program.

ELIGIBILITY

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

Employees,

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

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

Only Employees who are Section 16 Insiders and other highly compensated Employees shall be eligible to participate in the Salary Investment Option Grant Program.

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 option grants, the time or times when such option 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

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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 stock issuances, the time or times when such 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.

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.

The individuals eligible to participate in the Automatic Option Grant Program shall be determined in accordance with the provisions of Article Five.

STOCK SUBJECT TO THE PLAN

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. Effective August 2, 2002, the number of shares of Common Stock reserved for issuance under the Plan shall be 12,162,158 shares. On January 1 of each year, beginning January 1, 2003, the number of shares of Common Stock reserved for issuance under the Plan shall automatically increase so that the number of authorized shares available for new grants under the plan on each January 1 will equal the lesser of 4.5% of the total number of shares of Triangle Common Stock outstanding on the preceding December 31st or 5,000,000 shares. For example, if on any such December 31, there are 200,000 shares that remain available for future grants under the Plan, and 70,000,000 shares of Common Stock are outstanding, then the number of shares issuable under the Plan shall be increased by 2,950,000 additional shares, so that 3,150,000 shares (70,000,000 x 4.5%) are available for issuance under the Plan as of the following January 1.

No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than 1,500,000 shares of Common Stock in the aggregate per calendar year, beginning with the 2002 calendar year.

Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plan) shall be available for subsequent issuance under the Plan to the extent (i) those options expire or terminate for any reason prior to exercise in full or (ii) those options are cancelled in accordance with the cancellation/regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Corporation, at 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.

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,

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appropriate adjustments shall be made 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 the share reserve under the Plan is to be increased each year pursuant to the automatic annual increase provisions of Section V.A of this Article One, (iii) the 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 this Plan per calendar year, (iv) 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, (v) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan and (vi) the number and/or class of securities and price per share in effect under each outstanding option incorporated into 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.

DISCRETIONARY OPTION GRANT PROGRAM

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.

EXERCISE PRICE.

The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date.

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:

cash or check made payable to the Corporation,

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

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 written 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 Federal, state and local 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.

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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.

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.

EFFECT OF TERMINATION OF SERVICE.

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

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.

Any outstanding 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 estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution.

Should the Optionee’s Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.

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.

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:

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

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

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additional installments in which the Optionee would have vested had the Optionee continued in Service.

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.

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, at the exercise price paid per share, any or all of those unvested shares. 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.

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 by the laws of descent and distribution following the Optionee’s death. However, a Non-Statutory Option may be assigned in whole or in part during the Optionee’s lifetime. 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.

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.

ELIGIBILITY. Incentive Options may only be granted to Employees.

EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

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.

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.

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CORPORATE TRANSACTION/CHANGE IN CONTROL

In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of 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 so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same 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. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.

All outstanding repurchase rights shall terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued.

Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).

Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding option, PROVIDED the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year.

The Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in the event the Optionee’s Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those options are assumed or replaced and do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully-vested shares until the EARLIER of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation’s outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate, and the shares subject to those terminated repurchase rights shall accordingly vest in full.

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The Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in the event the Optionee’s Service subsequently terminates 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. Each option so accelerated shall remain exercisable for fully-vested shares until the EARLIER of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation’s outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate, and the shares subject to those terminated repurchase rights shall accordingly vest in full.

The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.

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.

CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date.

STOCK APPRECIATION RIGHTS

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

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

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.

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.

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

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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.

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

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

Upon the occurrence of a Hostile Take-Over, 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 Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for vested shares of Common Stock. 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 Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date.

The Plan Administrator shall pre-approve, at the time the limited stock appreciation right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V.C. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution.

The balance of the option (if any) shall remaining outstanding and exercisable in accordance with the documents evidencing such option.

SALARY INVESTMENT OPTION GRANT PROGRAM

OPTION GRANTS

The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for such calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete discretion to determine whether to approve the filed authorization in whole or in part. To the extent the Primary Committee approves the authorization, the individual who filed that authorization shall be granted an option under the Salary Investment Grant Program as soon as possible after the start of the calendar year for which the salary reduction is to be in effect. All grants under the Salary Investment Option Grant Program shall be at the sole discretion of the Primary Committee.

OPTION TERMS

Each option shall be a Non-Statutory Option 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.

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EXERCISE PRICE.

The exercise price per share shall be equal to the excess of (i) the Fair Market Value per share of Common Stock on the option grant date over (ii) the amount of the approved Salary Reduction divided by the number of shares subject to the Option.

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.

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 C), where

X is the number of option shares,

A is the dollar amount of the approved reduction in the Optionee’s base salary for the calendar year,

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

C is a percentage not less than 33 1/3% nor more than 66 2/3% fixed by the Plan Administrator, in its sole discretion, for purposes of the option grants to be made under the Salary Investment Option Grant Program for a particular calendar year for which that program is to be in effect.

EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a series of twelve (12) successive equal monthly installments upon the Optionee’s completion of each calendar month of Service in the calendar year for which the salary reduction is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date.

EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease Service for any reason while holding one or more options under this Article Three, 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 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 Service. Should the Optionee die while holding one or more options under this Article Three, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee’s cessation of Service (less any shares subsequently purchased by Optionee prior to death), 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 in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon the EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee’s cessation of Service. However, the option shall, immediately upon the Optionee’s cessation of Service for any reason, 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.

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CORPORATE TRANSACTION/CHANGE IN CONTROL

In the event of any Corporate Transaction while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of 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 be assumed by the successor corporation (or parent thereof) in the Corporate Transaction and shall remain exercisable for the 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 the Optionee’s cessation of Service.

In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable with respect to the total number of 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. Any option not exercised prior to the Change in Control may be repurchased by the Corporation at the time of the Change in Control at a repurchase price equal to the amount by which the Optionee’s salary was reduced in connection with the grant of that option. Any option which is neither exercised nor repurchased shall remain exercisable for fully-vested shares until the EARLIER or (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 the Optionee’s cessation of Service.

The grant of options under the Salary Investment 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.

REMAINING TERMS

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

STOCK ISSUANCE PROGRAM

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.

PURCHASE PRICE.

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.

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

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individual instance:

cash or check made payable to the Corporation, or

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

VESTING PROVISIONS.

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, namely:

the Service period to be completed by the Participant or the performance objectives to be attained,

the number of installments in which the shares are to vest,

the interval or intervals (if any) which are to lapse between installments, and

the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule,

shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.

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.

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.

Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid

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principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares.

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 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.

CORPORATE TRANSACTION/CHANGE IN CONTROL

All of the Corporation’s outstanding repurchase/cancellation 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 Corporate Transaction, except to the extent (i) those repurchase/cancellation rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.

The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation’s repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide 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 Corporate Transaction in which those repurchase/cancellation rights are assigned to the successor corporation (or parent thereof).

The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation’s repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide 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.

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.

AUTOMATIC OPTION GRANT PROGRAM

OPTION TERMS

GRANT DATES. Effective with the 2001 Annual Meeting, (i) on the date that each non-employee Board member is first elected or appointed to the Board, option grants shall be

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made to such non-employee Board member and (ii) on the date that each non-employee Board member is re-elected to the Board, option grants shall be made to such non-employee Board member. Each automatic option grant shall be a Non-Statutory Option. For each individual who is first elected or appointed as a non-employee Board member, the number of shares of Common Stock subject to the option shall be equal to 7,500 shares. Each non-employee Board member so elected shall, during any partial year and for each full year of the term for which the non-employee Board member is elected or appointed, also receive an option to purchase an additional 7,500 shares of Common Stock. Each non-employee Board member who is re-elected to the Board at any time after his or her initial term will receive, during any partial year and for each full year of the term for which the non-employee Board member is re-elected to the Board, an automatic grant of an option to purchase an additional 7,500 shares of Common Stock. There shall be no limit on the number of such automatic grants any one Eligible Director 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 a stock option grant from the Corporation prior to becoming a non-employee Board member shall be eligible to receive one or more such annual option grants over their period of continued Board service.

EXERCISE PRICE.

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.

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.

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

EXERCISE AND VESTING OF OPTIONS. Each option shall be exercisable only with respect to option shares with respect to which the automatic option grant has become vested. Provided the optionee continues to serve as a Board member, the automatic option grant shall vest with respect to 7,500 shares on the day the non-employee Board member is first elected or appointed to the Board and with respect to an additional 7,500 shares on the day immediately preceding the date of each subsequent Annual Meeting following the date of the automatic option grant until the automatic option grant has become fully vested and exercisable for all the option shares. No portion of the automatic option grant shall vest after the optionee has ceased to be a member of the Board.

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:

The Optionee (or, in the event of Optionee’s death, the personal representative of the Optionee’s estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution) shall have a twelve (12)-month period following the date of such cessation of Board service in which to exercise each such option.

During the twelve (12)-month 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.

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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 twelve (12)-month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock.

In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month 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.

CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).

In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option 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 fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. 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 Take-Over.

Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over 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. Stockholder approval of this March 27, 1998 amendment of the Plan shall constitute pre-approval of each option subsequently granted under this Article Five with such a surrender provision and the subsequent surrender of that option in accordance with the terms of this Section II.C. No additional approval of the Board or any Plan Administrator shall be required at the time of the actual option surrender and cash distribution.

Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. 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.

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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.

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.

MISCELLANEOUS

FINANCING

The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.

TAX WITHHOLDING

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 Federal, state and local income and employment tax withholding requirements.

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 Program) with the right to use shares of Common Stock in satisfaction of all or part of the Taxes incurred by such holders 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 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 Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder.

EFFECTIVE DATE AND TERM OF THE PLAN

The Plan became effective immediately upon the Plan Effective Date. However, the Salary Investment Option Grant Program shall not be implemented until such time as the Primary Committee may deem appropriate.

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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. All options outstanding under the Predecessor Plan on the Section 12 Registration Date have been incorporated into the Plan and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated 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 incorporated options with respect to their acquisition of shares of Common Stock.

One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to Corporate Transactions and Changes in Control, 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.

On the Plan Effective Date, 2,200,000 shares of Common Stock were available for issuance over the term of the Plan. Such authorized share reserve was comprised of the number of shares which 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 the outstanding options incorporated into the Plan and the additional shares which were otherwise available for future grant, plus an additional increase of 500,000 shares authorized by the Board and subsequently approved by the stockholders prior to the Section 12 Registration Date.

On December 4, 1997, the Board adopted an amendment to the Plan (the “1997 Amendment”) to effect the following changes: (i) increase the maximum number of shares of Common Stock available for issuance over the term of the Plan by an additional 1,000,000 shares, and (ii) implement an automatic share increase feature pursuant to which the number of shares of Common Stock available for issuance under the Plan automatically increased on January 1 of each of the calendar years 1999, 2000 and 2001 by an amount equal to four percent (4%) of the total number of shares of Common Stock issued and outstanding on December 31st of the immediately preceding calendar year; provided, however, that in no event did any such annual increase exceed the difference between (x) 1,000,000 shares and (y) the number of shares of Common Stock available for future option grants under the Plan on such December 31 (net of all outstanding options and unvested stock issuances). The increase under this provision was 629,723 shares effective January 1, 1999, 905,791 shares effective January 1, 2000, and 964,315 shares effective January 1, 2001, for an aggregate of 2,499,829 over this three year period.

On March 27, 1998, the Board adopted an amendment to the Plan (the “1998 Amendment”) to effect the following change: under the Automatic Option Grant Program, effective with the 1998 Annual Meeting (A) automatically grant to each individual who is first appointed or elected as a non-employee Board member an option to purchase shares of Common Stock in an amount equal to 2,000 shares of Common Stock plus 2,000 shares for any partial year and for each full year of the term for which the non-employee Board member is first appointed or elected, and (B) automatically grant to each individual who is re-elected to serve as a non-employee Board member an option to purchase 2,000 shares of Common Stock for each full year of the term for which the non-employee Board member is re-elected to the Board. The 1997 Amendment and the 1998 Amendment were approved by the stockholders of the Corporation at the 1998 Annual Meeting.

On March 6, 2001, the Board unanimously adopted an amendment to the Plan (the “2001 Amendment”) to (i) increase the maximum number of shares of Common Stock available for issuance over the term of the Plan by an additional 1,500,000 shares effective January 1, 2002, (ii) increase the maximum number of shares of Common Stock available for issuance over the term of the Plan by an additional 1,500,000 shares effective January 1, 2003 and (iii) under the Automatic Option Grant Program, effective with the 2001 Annual Meeting (A) automatically grant to each individual who is first appointed or elected as a non-employee Board member an option to purchase 7,500 shares of Common Stock (B) during any partial year and for each full year of the term for which the non-employee Board member is first appointed or elected, automatically grant an option to purchase 7,500 shares of Common Stock, and (C) during each full year of the term for which the non-employee Board member is re-elected to the Board, automatically grant to each individual who is re-elected to serve as a non-employee Board member an

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option to purchase 7,500 shares of Common Stock. The 2001 Amendment was approved by the stockholders of the Corporation at the 2001 Annual Meeting.

Effective February 27, 2002, the Board unanimously adopted an amendment to the Plan (the “2002 Amendment”), subject to approval by the stockholders of the Corporation to (i) increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 1,962,329 shares and (ii) increase the number of shares of Common Stock available for issuance under the Plan effective January 1 of each year beginning January 1, 2003 so that the number of authorized shares available for new grants under the plan on each January 1 will equal the lesser of 4.5% of the total number of shares of Triangle Common Stock outstanding on the preceding December 31st or 5,000,000 shares. The 2002 Amendment was approved by the stockholders of the Corporation at the 2002 Annual Meeting.

On August 2, 2002, the Board unanimously adopted an amendment to the Plan (the “August 2002 Amendment”), subject to approval by the stockholders of the Corporation to (i) increase the number of shares of common stock available for issuance under the Plan by 3,000,000 shares, and (ii) increase the number of options, stock appreciation rights and stock issuances which may be granted to any one person in the aggregate per calendar year to 1,500,000.

The Plan shall terminate upon the EARLIEST of (i) August 30, 2006, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such plan termination, all outstanding option grants and unvested stock issuances shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.

AMENDMENT OF THE PLAN

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 if so determined by the Board or pursuant to applicable laws or regulations.

Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant and Salary Investment Option Grant Programs 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 any required approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such 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.

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.

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REGULATORY APPROVALS

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.

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 Federal and state 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.

NO EMPLOYMENT/SERVICE RIGHTS

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

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APPENDIX

The following definitions shall be in effect under the Plan:

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

BOARD shall mean the Corporation’s Board of Directors.

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

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, or

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.

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

COMMON STOCK shall mean the Corporation’s common stock.

CORPORATE TRANSACTION shall mean either of the following stockholder-approved transactions to which the Corporation is a party:

a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

the sale,  transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation.

CORPORATION shall mean Triangle Pharmaceuticals, Inc., a Delaware corporation, and its successors.

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

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.

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

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

If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq National Market. 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.

If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be deemed equal to 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. 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.

HOSTILE TAKE-OVER 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.

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

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

such individual’s  involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or

such individual’s voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in 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.

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 be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).

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

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

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

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.

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

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

PLAN shall mean the Corporation’s 1996 Stock Incentive Plan, as set forth in this document.

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.

PLAN EFFECTIVE DATE shall mean, August 30, 1996, the date on which the Plan was adopted by the Board.

PREDECESSOR PLAN shall mean the Corporation’s pre-existing 1996 Stock Option/Stock Issuance Plan in effect immediately prior to the Plan Effective Date hereunder.

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 and to administer the Salary Investment Option Grant Program with respect to all eligible individuals.

SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary investment option grant program in effect under the Plan.

SECONDARY COMMITTEE shall mean a committee of two (2) 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.

SECTION 12 REGISTRATION DATE shall mean the date on which the Common Stock was first registered under Section 12 of the 1934 Act.

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.

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

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

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.

STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under the Plan.

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.

TAKE-OVER 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 Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share.

TAXES shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares.

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).

EX-99.2

Exhibit 99.2

TRIANGLE PHARMACEUTICALS, INC.

EMPLOYMENT AGREEMENT, dated as of this 5th day of August, 2002, between TRIANGLE PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), and DANIEL G. WELCH (the “Executive”).

R E C I T A L S:

WHEREAS, the Company believes that the future growth, profitability and success of the Company’s business will be enhanced by its employment of the Executive; and

WHEREAS, the Company desires to employ the Executive and the Executive has indicated his willingness to be so employed, on the terms and conditions set forth herein.

NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

Section 1.              EMPLOYMENT.  The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to the terms and conditions contained herein, the Executive shall serve as Chairman and Chief Executive Officer of the Company and, in such capacity, shall report directly to the Board of Directors of the Company (the “Board”) and shall have such duties and responsibilities as are typically performed by a chairman and chief executive officer of a corporation similar to the Company, together with such additional duties and responsibilities, commensurate with the Executive’s position as Chairman and Chief Executive Officer of the Company, as may reasonably be assigned to the Executive from time to time by the Board. The principal location of the Executive’s employment shall be at the Company’s principal executive offices located in Durham, North Carolina, although the Executive understands and agrees that he may be required to travel from time to time for business reasons.

Section 2.              TERM.  The term of the Executive’s employment hereunder shall commence on August 5, 2002 (the “Commencement Date”) and shall continue until terminated in accordance with Section 6 hereof (the “Employment Term”).

Section 3.              COMPENSATION.  During the Employment Term, the Executive shall be entitled to the following compensation and benefits:

(a)           SALARY.  The Company shall pay to the Executive a salary (the “Salary”) of $425,000 per annum. The Salary will be reviewed annually and may be increased at the discretion of the Board. The Salary shall be payable in accordance with the payroll practices of the Company as the same shall exist from time to time. In no event shall the Salary be decreased during the Employment Term.

(b)           BONUS PLAN; SIGNING BONUS.  The Executive shall be eligible for an annual incentive bonus award from the Company in respect of each fiscal year during the Term of Employment (the “Annual Bonus”). The Executive’s target Annual Bonus for each such year shall be an amount equal to 50% of his Salary for such year. The Board and the Executive will use their reasonable best efforts to agree on annual objectives for such bonus, not later than 60 days from the beginning of each year (or, in the case of 2002, no later than 60 days from the date hereof).  Annual objectives may be refined during the year to reflect changing priorities and circumstances, by mutual agreement of the Executive and the Board. At the discretion of the Board, the Executive’s Annual Bonus amount for each such year may be less than or greater than the target amount, depending upon the degree of attainment of annual objectives. The amount of Annual Bonus shall be communicated to the Executive within the first 90 days of each such year. The Executive’s Annual Bonus for 2002 shall be prorated based on the number of days worked in that year. The Executive shall receive the Annual Bonus in respect of any year at the same time as bonuses are paid to other executive officers of the Company, but in no event later than ninety (90) days following the end of the fiscal year for which the Annual Bonus is payable.  Within fifteen (15) days of the Commencement Date, the Company shall pay the Executive a signing bonus of $50,000.

(c)           OPTIONS.  On the Commencement Date, the Company shall grant the Executive an option (the “Option”) to purchase 2,300,000 shares of common stock of the Company, at an exercise price per share equal to the closing selling price per share of the common stock on the Commencement Date, as such price is reported on Nasdaq National Market. Subject to continued employment, the option shall vest and be exercisable as to one-sixtieth (1/60th) of the underlying shares on each monthly anniversary of the Commencement Date and shall be subject to the terms and conditions of the notice of grant and stock option agreement, attached hereto as Exhibits A and B, respectively (together, the “Option Agreement”). The Executive will also be eligible to receive annual option grants based on performance and grants for achievement of significant milestones as determined by the Board.

(d)           BENEFITS.  The Executive shall be entitled to participate in the health, life insurance, pension and other benefit plans and programs provided to senior executives of the Company on terms no less favorable than those available to such executives. The Executive shall also be entitled to six weeks vacation and the same number of holidays, sick days and other benefits as are generally allowed to senior executives of the Company in accordance with the Company policy in effect from time to time.

(e)           RELOCATION EXPENSES.  The Company shall reimburse Executive for reasonable and customary expenses incurred in connection with his relocation to the Durham, North Carolina area; provided that the total amount payable to Executive, including a gross-up for taxes incurred by him in connection with such reimbursement, shall not exceed $300,000.

Section 4.              EXCLUSIVITY.During the Employment Term, the Executive shall devote his full time to the business of the Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him by the Board in accordance with the terms of this Agreement, shall use his best efforts to

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promote and serve the interests of the Company and shall not, without the prior written approval of the Board, engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may (i) participate in the activities of professional trade organizations related to the business of the Company and (ii) engage in personal investing activities, provided that activities set forth in these clauses (i) and (ii), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder.

Section 5.              REIMBURSEMENT FOR EXPENSES.The Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, entertainment, lodging and similar items, in accordance with the Company’s expense reimbursement policy, as the same may be modified by the Board from time to time. The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of such expenditures in accordance with the financial policy of the Company, as in effect from time to time.

Section 6.         TERMINATION.

(a)           DEATH.  The Executive’s employment shall automatically terminate upon his death.

(b)           DISABILITY.  If the Executive is unable to perform the duties required of him under this Agreement because of any physical or mental disability or infirmity that prevents the performance of the Executive’s duties for a period of (i) ninety (90) consecutive calendar days or (ii) one hundred twenty (120) non-consecutive business days during any twelve (12) month period, the Company may terminate Executive’s employment immediately upon written notice. Any question as to the existence, extent or potentiality of the Executive’s disability upon which the Executive and the Company cannot agree shall be determined by a qualified, independent physician selected by the Company and approved by the Executive (which approval shall not be unreasonably withheld). The determination of any such physician shall be final and conclusive.

(c)           CAUSE.  The Company may terminate the Executive’s employment at any time, with or without Cause. Termination of the Executive’s employment hereunder shall be effective upon delivery of such notice of termination, except that, in the event of termination pursuant to this Section 6(c) for Cause, the Company shall deliver to the Executive written notice setting forth the basis for such termination, which notice shall specifically set forth the nature of action constituting Cause. If such actions are curable, the Executive shall have a period of thirty (30) calendar days to cure such actions and shall have the right, during such period, to be heard before the Board at a place and time to be designated by the Board and subject to Executive’s approval, which approval shall not be unreasonably withheld. If Executive does not attempt to cure such actions or fails to cure such actions to the satisfaction of the Board, Executive’s employment shall be deemed terminated for Cause on the thirtieth (30) day following the date specified in the original notice of termination. The Company, in its reasonable discretion, shall have the right to relieve Executive of all duties and responsibilities during such period and deny

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him access to Company premises, and any such actions taken by the Company shall not constitute “Good Reason” (as hereinafter defined) under this Agreement. For purposes of this Agreement, “Cause” shall mean (i) the Executive’s willful failure (except where due to a disability), gross neglect or refusal to perform his duties hereunder; (ii) any willful or intentional act of the Executive that has the effect of injuring the reputation or business of the Company or its affiliates in any material respect; (iii) public or consistent drunkenness by the Executive or his illegal use of narcotics which is, or could reasonably be expected to become, materially injurious to the reputation or business of the Company or which impairs, or could reasonably be expected to impair, the performance of the Executive’s duties hereunder; (iv) conviction of, or plea of guilty or NOLO CONTENDERE to, the commission of a felony by the Executive; (v) the commission by the Executive of an act of fraud, embezzlement or dishonesty against the Company; or (vi) the Executive’s breach of (A) any of the covenants contained in Section 7 hereof, (B) any provisions of the Confidentiality Agreement (as defined in Section 7 hereof) or (C) the representations set forth in Section 10 hereof.

(d)           GOOD REASON.  The Executive may terminate his employment for Good Reason, but only if the Company receives written notice from the Executive describing in detail the specific nature of the action constituting Good Reason, and such action is not corrected by the Company within thirty (30) days of receipt of such notice (the “Cure Period”). Such notice must be given to the Company within ninety (90) days of the action allegedly constituting Good Reason. For this purpose, “Good Reason” shall mean without the Executive’s consent, (i) a change in the Executive’s title, or a material diminution in his duties, responsibilities, Salary or target Annual Bonus, (ii) a change whereby Executive no longer reports directly to the Board, (iii) a relocation of the Company’s principal executive offices to a location more than thirty (30) miles from Durham, North Carolina, or (iv) the failure of the Company to obtain the assumption in writing of its obligation to perform under the employment agreement by any successor to all or substantially all of the assets of the Company;

PROVIDED, HOWEVER, that Good Reason shall not include a termination of the Executive’s employment hereunder pursuant to Section 6(b) or (c) hereof. The date of termination of the Executive’s employment under this Section 6(d) shall be the effective date of any resignation specified in writing by the Executive, which may not be less than thirty (30) days after receipt by the Company of written notice of such resignation; Provided, However, that such resignation shall not be effective and the action constituting Good Reason shall be deemed to have been cured if such action is corrected by the Company during the Cure Period.

(e)           RESIGNATION.  The Executive shall have the right to terminate his employment other than for Good Reason upon sixty (60) days’ prior written notice to the Company.

(f)           PAYMENTS.

(i)           In the event that the Executive’s employment terminates for any reason, the Company shall pay to the Executive all accrued but unpaid Salary through the date of

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termination of the Executive’s employment and any unpaid or unreimbursed expenses incurred in accordance with Section 5 hereof (the “Accrued Obligations”).

(ii)          In the event the Executive’s employment is terminated by the Company without Cause (other than pursuant to Section 6(b) hereof), or by the Executive with Good Reason, in addition to the Accrued Obligations, the Executive shall (A) continue to receive the Salary (less any applicable withholding or similar taxes) at the rate in effect hereunder on the date of such termination periodically, in accordance with the Company’s prevailing payroll practices, and shall continue to receive medical and dental benefits at no additional cost to the Executive, in each case for a period of eighteen (18) months following the date of such termination, and (B) receive a prorated Annual Bonus for the year of termination, based on the number of days worked during such year, calculated on the basis of 100% achievement of the target Annual Bonus, such payment to be made at the time the Annual Bonus would otherwise have been paid for such year. The Executive’s right to receive severance, continued medical and dental benefits and prorated bonus pursuant to this Section 6(f)(ii) shall be expressly conditioned upon the Executive’s compliance with the provisions of Section 7 hereof and his execution of a general release in favor of the Company and its affiliates and related parties in such form as is reasonably required by the Company, and the expiration of any waiting periods contained in such release.

(iii)         In the event of any termination of employment, the Executive shall be under no obligation to mitigate amounts payable under this Section 6(f) by seeking other employment or otherwise and, except as provided in Section 7(d) hereof, there shall be no offset against amounts due to the Executive hereunder on account of subsequent employment or otherwise; Provided, However, that medical and dental benefits shall cease if Executive secures full-time employment during the 18-month period following his termination.

(iv)           Upon any termination of employment, the Executive’s rights with respect to the Option shall be governed by the terms of the Option Agreement.

(g)           SURVIVAL OF OPERATIVE SECTIONS.  Upon any termination of the Executive’s employment, the provisions of Section 6(f) and Section 7 through Section 17 of this Agreement shall survive to the extent necessary to give effect to the provisions thereof.

Section 7.         SECRECY AND NON-COMPETITION.

(a)           NO COMPETING EMPLOYMENT.  The Executive acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company’s business and assets and, by his current employment with the Company and its subsidiaries, the Executive has obtained and will obtain such knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company and to the Company’s substantial detriment. Therefore, the Executive agrees that during the Employment Term and for the period ending on the first anniversary of the termination of the Executive’s employment hereunder, the Executive shall not, anywhere in the

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world, participate or engage, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, whether as an employee, agent, officer, director, shareholder, partner, joint venturer, investor or otherwise, in any business activities related to the anti-viral segment of the pharmaceutical industry, or any other major segment of such industry in which the Company or any of its subsidiaries was engaged, or had decided to become engaged in a material way, during the Employment Term, as evidenced by written Company documentation.

(b)           NO INTERFERENCE.  During the Employment Term and for the period ending on the second anniversary of the termination of the Executive’s employment hereunder, the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company or its subsidiaries, or otherwise directly interfere with the relationship of the Company or its subsidiaries with any person who, to the knowledge of the Executive, is, or was within the then most recent twelve-month period, employed by or otherwise engaged to perform services for the Company or its subsidiaries (including, but not limited to, any independent sales representatives or organizations) or who is, or was within the then most recent twelve-month period, a clinical, medical, scientific or business advisor to, the Company, or any of its subsidiaries; provided that the Executive may engage clinical, medical, scientific or business advisors who had or have a business relationship with the Company for work unrelated to the pharmaceutical segments described in Section 7(a). The placement of any general classified or “help wanted” advertisements and/or general solicitations to the public at large shall not constitute a violation of this Section 7(b) unless the Executive’s name is contained in such advertisements or solicitations.

(c)           CONFIDENTIAL INFORMATION.  As a condition of the Executive’s employment hereunder, the Executive will execute, prior to the Commencement Date, the Company’s standard Confidentiality and Invention Assignment Agreement (the “Confidentiality Agreement”). During the Term of Employment and following any termination of the Executive’s employment, the Executive agrees to comply with the terms and conditions of the Confidentiality Agreement.

(d)           Upon a material breach by Executive of any provisions of this Section 7, Executive shall (i) be liable to the Company for an amount equal to the aggregate of all gains realized by Executive, within the 24-month period immediately preceding such breach, from the exercise of any options (including the Option) or vesting of any other equity awards, and (ii) forfeit his right to receive any termination payments described in Section 6(f)(ii) which have not been paid prior to the date of such breach.

Section 8.              Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company or its subsidiaries or affiliates for which there would be no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, in addition to the damages described in Section 7(d) hereof, the Company shall be

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entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach of Section 7 hereof, restraining the Executive from engaging in activities prohibited by Section 7 hereof and providing other relief as may be required specifically to enforce any of the covenants in Section 7 hereof.

Section 9.              EXTENSION OF RESTRICTED PERIOD.  In addition to the remedies the Company may seek and obtain pursuant to Section 8 of this Agreement, the Restricted Period shall be extended by any and all periods during which the Executive shall be found by a court to have been in violation of any of the covenants contained in Section 7 hereof.

Section 10.            REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.The Executive represents and warrants to the Company as follows:

(a)           This Agreement, upon execution and delivery by the Executive, will be duly executed and delivered by the Executive and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Executive enforceable against the Executive in accordance with its terms.

(b)           Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the performance of this Agreement in accordance with its terms and conditions by the Executive will (i) require the approval or consent of any governmental body or of any other person or (ii) conflict with or result in any breach or violation of, or constitute (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Executive. Without limiting the generality of the foregoing, the Executive is not a party to any non-competition, non-solicitation, no-hire or similar agreement that restricts in any way the Executive’s ability to engage in any business or to solicit or hire the employees of any person. In the performance of his duties under this Agreement, Executive shall not use any confidential or proprietary information which he may have obtained in connection with his employment with any prior employer.

The representations and warranties of the Executive contained in this Section 10 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

Section 11.       SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.

This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the parties, including, but not limited to, the Executive’s heirs and the personal representatives of the Executive’s estate; Provided, However, that neither party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the Company shall have the unrestricted right to assign this Agreement and to delegate all or any part of its obligations hereunder to any of its subsidiaries or affiliates, but in such event such assignee shall expressly assume all obligations of

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the Company hereunder and the Company shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. Nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement.

Section 12.       WAIVER AND AMENDMENTS.  Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; Provided, However, that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Board. No waiver by either of the parties hereto of its rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

Section 13.            SEVERABILITY; GOVERNING LAW; DISPUTE RESOLUTION.

(a)           The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.

(b)           Except for any disputes arising out of a breach or alleged breach by the Executive of any provisions of Section 7 of this Agreement or of the Confidentiality Agreement, as to which the Company shall be entitled to seek a restraining order and/or an injunction in any court of competent jurisdiction, all disputes arising under this Agreement shall be resolved by arbitration under the Commercial Arbitration Rules of the American Arbitration Association. The costs of any such arbitration shall initially be borne equally by the Company and the Executive, and each side shall initially bear its own legal and other related costs; Provided, However, that the prevailing party in any such dispute shall be entitled to reimbursement from the losing party of all such arbitration, legal and other related costs incurred in connection therewith.

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Section 14.       NOTICES.

(a)           All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or certified mail, postage prepaid:

(i)           if to the Executive, at his home address for payroll purposes, or at such other address as the Executive may have furnished the Company in writing, with copy to Robert Edmonds, Esq., Edmonds & Company, P.C., 420 Fifth Avenue, New York, New York 10018;

(ii)          if to the Company, at its principal executive offices in Durham, North Carolina, marked for the attention of the Board, or at such other address as it may have furnished in writing to the Executive.

(b)           Any notice so addressed shall be deemed to be given: if delivered by hand, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing.

Section 15.            SECTION HEADINGS.The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, or affect the meaning or interpretation of this Agreement or of any term or provision hereof.

Section 16.            ENTIRE AGREEMENT.  This Agreement, together with the Exhibits attached hereto, constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement.

Section 17.            COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same instrument.

[Signatures appear on next page.]

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[Signature page to Employment Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

	TRIANGLE PHARMACEUTICALS, INC.
	By:	/s/ Jonathan S. Leff
		Name:	Jonathan S. Leff
		Title:	Chairman, Executive Search Committee
			of the Board of Directors
/s/ Daniel G. Welch
Daniel G. Welch

TRIANGLE PHARMACEUTICALS, INC.

NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Common Stock of Triangle Pharmaceuticals, Inc. (the “Company”):

OPTIONEE:  Daniel G. Welch
GRANT DATE:  August 5, 2002
VESTING COMMENCEMENT DATE:  August 5, 2002
EXERCISE PRICE		$			per share
NUMBER OF OPTION SHARES:				2,300,000	shares
EXPIRATION DATE:  August 4, 2012
TYPE OF OPTION:			Incentive Stock Option
	X		Non-Statutory Stock Option
EXERCISE SCHEDULE:
Subject to the terms and conditions of the attached Stock Option Agreement, the Option shall vest and be exercisable as to one-sixtieth (1/60th) of the Option Shares on each monthly anniversary of the Grant Date.

Optionee understands and agrees that the Option is being granted outside of the Triangle Pharmaceuticals, Inc. 1996 Stock Incentive Plan (the “Plan”) but shall be subject to the terms and conditions of the Plan as if the option were granted thereunder, and all sections of such plan that are applicable to the “Discretionary Option Grant Program” are incorporated by reference herein; provided, however, that if any provision of this Notice or the attached Stock Option Agreement is inconsistent with a provision of the Plan, the provisions of this Notice and/or the Stock Option Agreement shall apply.  Subject to the preceding sentence, Optionee agrees to be bound by the terms of the Plan and the Stock Option Agreement.

A copy of the Plan is available upon request made to the Corporate Secretary at the Company’s principal offices.

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DEFINITIONS.  All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Stock Option Agreement.

Dated:  August 5, 2002

TRIANGLE PHARMACEUTICALS, INC.
By:	/s/ Jonathan Leff
Title:		Jonathan Leff
Chairman, Executive Search Committee of the Board of Directors
/s/ Daniel G. Welch
OPTIONEE
Address:			4 University Place
4611 University Drive, Durham, NC  27707

ATTACHMENT – STOCK OPTION AGREEMENT

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EXHIBIT B

TRIANGLE PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT

RECITALS

A.            The option granted hereunder is being granted to the Optionee in connection with the Employment Agreement between Optionee and the Company dated as of August 5, 2002, to which this Stock Option Agreement is attached as Exhibit B (the “Employment Agreement”).

B.            All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1.             GRANT OF OPTION.  The Company hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice.  The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price.

2.             OPTION TERM.  This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.

3.             LIMITED TRANSFERABILITY.  Subject to the prior approval of the Board, this option may be assigned in whole or in part during Optionee’s lifetime.  The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such assignment.  The terms applicable to the assigned portion shall be the same as those in effect for this 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.

4.             DATES OF EXERCISE.  This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice.  As the option becomes exercisable for such installments, those installments shall accumulate and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6.

5.             CESSATION OF SERVICE.  The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(i)            Except as otherwise specifically provided in this Paragraph 5 or in Paragraph 6, should Optionee cease to remain in Service for any reason while this option is outstanding, then Optionee shall have a period of three (3) months (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date.

(ii)           Should Optionee die while this option is outstanding, this option shall immediately vest and become exercisable for that number of Option Shares which would have vested over the 18-month period following the date of Optionee’s death, had Optionee remained in Service.  The personal representative of Optionee’s estate or the person or persons to whom the option is transferred pursuant to Optionee’s will or in accordance with the laws of descent and distribution shall have a period of the twelve (12) months (commencing with the date of Optionee’s death) during which to exercise this option.  In no event shall this option be exercisable at any time after the Expiration Date.

(iii)          Should Optionee cease to remain in Service by reason of Disability while this option is outstanding, this option shall immediately vest and become exercisable for that number of Option Shares which would have vested over the 18-month period following the date of such cessation of Service, had Optionee remained in Service.  The Optionee shall have a period of twelve (12) months (commencing with the date of such cessation of Service) during which to exercise this option.  In no event shall this option be exercisable at any time after the Expiration Date.

(iv)          Should Optionee’s Service be terminated by the Company (or its successor) without Cause, or by Optionee for Good Reason, either (A) prior to the occurrence of a Corporate Transaction or Change in Control, or (B) more than eighteen (18) months following the occurrence of a Corporate Transaction or a Change in Control, this option (or any replacement grant) shall immediately vest and become exercisable for that number of Option Shares which would have vested over the 18-month period following the date of such termination, had Optionee remained in Service.  The Optionee shall have a period of six (6) months (commencing with the date of cessation of Service) during which to exercise this Option.  In no event shall this Option be exercisable at any time after the Expiration Date.

(v)           During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of vested Option Shares for which the option is exercisable at the time of Optionee’s cessation of Service, including any accelerated exercisability which occurs in connection with such cessation or otherwise.  Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any vested Option Shares for which the option has not been exercised.  However, this option shall, immediately upon Optionee’s cessation of Service for any reason, terminate and cease to be outstanding with respect to any Option Shares in which Optionee is not otherwise at that time vested (by reason of normal or accelerated vesting) or for which this option is not otherwise at that time exercisable.

(vi)          Should Optionee’s Service be terminated for Cause, or if Optionee breaches any provision of Section 7(d) of the Employment Agreement, then this option shall terminate immediately and cease to remain outstanding.  In addition, if the Company has given notice to Optionee of its intention to terminate his employment for Cause pursuant to Section 6(c) of the Employment Agreement, this Option shall not be exercisable after the giving of such notice, unless and until Executive cures the actions constituting Cause to the satisfaction of the Board as provided in Section 6(c) of the Employment Agreement.

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6.             SPECIAL ACCELERATION OF OPTION.

(a)           This option, to the extent outstanding at the time of a Corporate Transaction but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully-vested shares of Common Stock.  No such acceleration of this option, however, shall occur if and to the extent:  (i) this option is, in connection with the Corporate Transaction, either to be assumed by the successor company (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor company (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor company which preserves the spread existing on the unvested Option Shares at the time of the Corporate Transaction (the excess of the Fair Market Value of those Option Shares over the aggregate Exercise Price payable for such shares) and provides for subsequent pay-out in accordance with the option exercise/vesting schedule set forth in the Grant Notice.  The determination of option comparability under clause (i) shall be made by the Plan Administrator, acting reasonably and consistent with normal commercial practices, and such determination shall be final, binding and conclusive.

(b)           Immediately following the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor company (or parent thereof) in connection with the Corporate Transaction.

(c)           If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, PROVIDED the aggregate Exercise Price shall remain the same.

(d)           If this option is assumed in connection with a Corporate Transaction, or if a Change in Control occurs and, in either case, the Optionee’s employment is terminated on the date of or within eighteen (18) months following the date of such Corporate Transaction or Change in Control (i) by the Company (or its successor) without Cause, or (ii) by Optionee for Good Reason, then this option (or any replacement grant) shall immediately vest and become exercisable as to all Option Shares, and shall remain so exercisable until the earlier of (i) the Expiration Date, or (ii) one year from the date of such termination of employment.

(e)           This Agreement shall not in any way affect the right of the Company 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.

7.             ADJUSTMENT IN OPTION SHARES.  Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of

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shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

8.             STOCKHOLDER RIGHTS.  The holder of this option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares.

9.             MANNER OF EXERCISING OPTION.

(a)           In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:

(i)            Execute and deliver to the Company a Notice of Exercise for the Option Shares for which the option is exercised.

(ii)           Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

cash or check payable to the Company;

a promissory note payable to the Company, but only to the extent authorized by the Plan Administrator in accordance with the Paragraph 13;

shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

to the extent the option is exercised for vested Option Shares, through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable written instructions (I) to a Company-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, 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 Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise and (II) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.

Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Company in connection with the option exercise.

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(iii)          Furnish to the Company appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.

(iv)          Make appropriate arrangements with the Company (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise.

(b)           As soon as practical after the Exercise Date, the Company shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.

(c)           In no event may this option be exercised for any fractional shares.

10.           COMPLIANCE WITH LAWS AND REGULATIONS.

(a)           The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance.

(b)           The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Company of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained.  The Company, however, shall use its best efforts to obtain all such approvals.

11.           SUCCESSORS AND ASSIGNS.  Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Optionee, Optionee’s assigns and the legal representatives, heirs and legatees of Optionee’s estate.

12.           NOTICES.  Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company at its principal corporate offices.  Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice.  All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

13.           FINANCING.  The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse promissory note payable to the Company.  The terms

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of any such promissory note (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Plan Administrator in its sole discretion.

14.           CONSTRUCTION.  All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on the Optionee and any person to whom all or any portion of this option is assigned.

15.           GOVERNING LAW.  The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without resort to that State’s conflict-of-laws rules.

16.           LEAVE OF ABSENCE.  The following provisions shall apply upon the Optionee’s commencement of a leave of absence authorized by the Board (it being understood that the Board shall be under no obligation to authorize any such leave of absence):

(a)           The exercise schedule in effect under the Grant Notice shall be frozen as of the first day of the authorized leave, and this option shall not become execisable for any additional installments of the Option Shares during the period Optionee remains on such leave.

(b)           Should Optionee resume active Employee status within sixty (60) days after the start date of the authorized leave, Optionee shall, for purposes of the exercise schedule set forth in the Grant Notice, receive Service credit for the entire period of such leave.  If Optionee does not resume active Employee status within such sixty (60) day period, then no Service credit shall be given for the period of such leave.

(c)           In no event shall this option become exercisable for any additional Option Shares or otherwise remain outstanding if Optionee does not resume Employee status prior to the Expiration Date of the option term.

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EXHIBIT I

NOTICE OF EXERCISE

I hereby notify Triangle Pharmaceuticals, Inc. (the “Company”) that I elect to purchase ______ shares of the Company’s Common Stock (the “Purchased Shares”) at the option exercise price of $ _______ per share (the “Exercise Price”) pursuant to that certain option (the “Option”) granted to me in connection with my Employment Agreement on __________, 2002.

Concurrently with the delivery of this Exercise Notice to the Company, I shall hereby pay to the Company the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Company (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise.  Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price.

________________, 20__
Date
	Optionee
	Address:
Print name in exact manner
it is to appear on the stock
certificate:
Address to which certificate
is to be sent, if different from
address above:
Social Security Number:
Employee Number:

APPENDIX

The following definitions shall be in effect under the Agreement:

A.AGREEMENT shall mean this Stock Option Agreement.

B.BOARD shall mean the Company’s Board of Directors.

C.CAUSE shall have the meaning ascribed to such term in the Employment Agreement.

D.CHANGE IN CONTROL has the meaning ascribed to such term in the Plan.

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

F.COMMON STOCK shall mean the Company’s common stock.

G.CORPORATE TRANSACTION shall mean either of the following stockholder-approved transactions to which the Company is a party:

(i)            a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii)           the sale, transfer or other disposition of all or substantially all of the Company’s assets in complete liquidation or dissolution of the Company.

H.COMPANY shall mean Triangle Pharmaceuticals, Inc., a Delaware corporation.

I.DISABILITY shall have the meaning ascribed to such term in the Employment Agreement.

J.EMPLOYEE shall mean an individual who is in the employ of the Company (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.

K.EMPLOYMENT AGREEMENT shall have the meaning set forth in the recitals to the Agreement.

L.EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.

M.EXERCISE PRICE shall mean the exercise price per share as specified in the Grant Notice.

N.EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice.

O.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 the price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system.  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.  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.

P.GOOD REASON shall have the meaning ascribed to such term in the Employment Agreement.

Q.GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice.

R.GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.

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

T.NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as Exhibit I.

U.OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice.

V.OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice.

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W.PARENT shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company, provided each company in the unbroken chain (other than the Company) 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 companies in such chain.

X.PLAN shall mean the Company’s 1996 Stock Incentive Plan.

Y.PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its administrative capacity under the Plan.

Z.SERVICE shall mean the Optionee’s performance of services for the Company (or any Parent or Subsidiary) in the capacity of an Employee.

AA.	STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange.
BB.	SUBSIDIARY shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company, provided each company (other than the last company) 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 companies in such chain.

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