CYGNUS INC /DE/, S-8, 1998-11-16

CYGNUS INC /DE/
S-8, 1998-11-16
PHARMACEUTICAL PREPARATIONS

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As filed with the Securities and Exchange Commission on November 16, 1998
Registration No. 333-____________
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------
FORM S-8

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

-------------
CYGNUS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 94-2978092
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices) (Zip Code)

-------------
CYGNUS, INC.
1994 STOCK OPTION/AWARD PLAN
AMENDED 1991 EMPLOYEE STOCK PURCHASE PLAN
CERTAIN OPTION GRANT TO MR. MARION
PURSUANT TO WRITTEN COMPENSATION AGREEMENT
(Full title of the Plans)

-------------
JOHN C. HODGMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
CYGNUS, INC.
400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
(Name and address of agent for service)
(650) 369-4300
(Telephone number, including area code, of agent for service)

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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share Price Fee
---------- ------------- --------- --------- ------------
<S> <C> <C> <C> <C>

1994 STOCK OPTION/AWARD PLAN
----------------------------
Common Stock 2,254,362 shares $5.96 (2) $13,435,997.52 (2) $3,735.21

AMENDED 1991 EMPLOYEE STOCK PURCHASE PLAN
-----------------------------------------
Common Stock 350,000 shares $5.96 (2) $2,086,000 (2) $579.91

OPTION GRANT TO MR. MARION
--------------------------
Common Stock 20,000 shares $3.25 (3) $65,000 (3) $18.07

Aggregate Filing Fee $4,333.19
- --------------------------------------------------------------------------------------------------------------
</TABLE>

(1) This Registration Statement shall also cover any additional shares of
Registrant's Common Stock which become issuable under the Cygnus, Inc. 1994
Stock Option/Award Plan, the Cygnus, Inc. Amended 1991 Employee Stock
Purchase Plan and the Option Grant to Mr. Marion by reason of any stock
dividend, stock split, recapitalization or other similar transaction
effected without the Registrant's receipt of consideration which results in
an increase in the number of the outstanding shares of Registrant's Common
Stock.

(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended (the "1933 Act"), on the basis of the
average of the high and low selling prices per share of the Registrant's
Common Stock on November 9, 1998, as reported on The Nasdaq National
Market.

(3) Calculated solely for purposes of this offering under Rule 457(h) of the
1933 Act on the basis of the exercise price in effect for the Option Grant
made to Mr. Marion.

<PAGE>

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE

Cygnus, Inc. (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed
with the Securities and Exchange Commission (the "Commission"):

(a) The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed with the Commission on February 6, 1998
pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act").

(b) The Registrant's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998 and June 30, 1998 filed with the
Commission on May 15, 1998 and August 4, 1998, respectively, pursuant
to Section 13 of the 1934 Act.

(c) The Registrant's Current Reports on Form 8-K filed with the Commission
(i) on February 4, 1998 (Film No. 98520744); (ii) on February 4, 1998
(Film No. 98521843), as amended by Form 8-K/A filed on February 17,
1998; (iii) on August 21, 1998; (iv) on October 28, 1998; and (v) on
October 30, 1998.

(d) The Registrant's Registration Statement No. 000-18962 on Form 8-A
filed with the Commission on December 21, 1990, including any
amendments or reports filed for the purpose of updating such
description, in which there is described the terms, rights and
provisions applicable to the Registrant's Common Stock.

(e) The Registrant's Registration Statement No. 000-18962 on Form 8-A
filed with the Commission on October 29, 1993, including any
amendments or reports filed for the purpose of updating such
description, in which there is described the terms, rights and
provisions applicable to the Registrant's Preferred Share Purchase
Rights.

All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date
of this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold
or which de-registers all securities then remaining unsold shall be deemed to
be incorporated by reference into this Registration Statement and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein
or in any subsequently filed document which also is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.

Item 4. DESCRIPTION OF SECURITIES

Not Applicable.

Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL

Not Applicable.

Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "Delaware
Law") provides for the indemnification of directors, officers, employees and
other agents under certain circumstances. The Registrant's Bylaws (the
"Bylaws") require the Registrant to indemnify each of its officers and
directors to the fullest extent

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<PAGE>

permitted by the Delaware Law against certain expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that such person is or was
an agent of the Registrant. In addition, the Bylaws grant the Registrant the
power to indemnify its employees and agents under certain circumstances to
the fullest extent permitted by Delaware Law against certain expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an agent of the Registrant.

Article IX of the Registrant's Certificate of Incorporation
provides that, to the fullest extent permitted by Delaware Law, the
Registrant's directors shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director.

The Registrant maintains directors' and officers' liability
insurance policies insuring the Registrant's directors and officers against
certain liabilities and expenses incurred by them in their capacities as
such, and insuring the Registrant under certain circumstances, in the event
that indemnification payments are made by the Registrant to such directors
and officers.

The Registrant has entered into indemnification agreements with its
officers and directors, pursuant to which the Registrant is obligated to
indemnify each officer and director against certain claims and expenses for
which the officer or director might be held liable.

Item 7. EXEMPTION FROM REGISTRATION CLAIMED

Not Applicable.

Item 8. EXHIBITS

EXHIBIT NUMBER EXHIBIT
<S> <C>
4 Instruments Defining the Rights of Stockholders. Reference is made to
Registrant's Registration Statements No. 000-18962 on Form 8-A,
together with the exhibits thereto, which are incorporated herein by
reference pursuant to Items 3(d) and 3(e).
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 Cygnus, Inc. 1994 Stock Option/Award Plan (As Amended and Restated as
of February 24, 1998).
99.2 Plan Amendment Cygnus, Inc. 1994 Stock Option/Award Plan.
99.3 Form of Special Addendum to Stock Option Agreement (Change in
Control).
99.4 Form of Special Addendum to Stock Option Agreement (Termination of
Employment Without Cause - Officers).
99.5 Form of Special Addendum to Stock Option Agreement (Termination of
Employment Without Cause - Key Employee).
99.6 Cygnus, Inc. Amended 1991 Employee Stock Purchase Plan (As Amended and
Restated as of February 24, 1998).
99.7 Written Compensation Agreement between Registrant and Mr. Marion.
99.8 Stock Option Agreement between Registrant and Mr. Marion.
</TABLE>

Item 9. 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: (i) to include any prospectus
required by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the
prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in this Registration Statement and (iii) to include
any material information with respect to the plan of distribution not
previously

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<PAGE>

disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided, however, that clauses
(1)(i) and (1)(ii) shall not apply if the information required to be included
in a post-effective amendment by those clauses is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of
the 1934 Act that are incorporated by reference into this Registration
Statement; (2) that for the purpose of determining any liability under the
1933 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; and (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 Registrant's 1994 Stock Option/Award Plan,
the Amended 1991 Employee Stock Purchase Plan or the Option Grant made to Mr.
Marion.

B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into this 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
1933 Act may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the indemnification provisions summarized in Item
6 or otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
1933 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 1933 Act and will be governed by the final adjudication of
such issue.

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<PAGE>

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 Redwood City, State of
California on this 16th day of November, 1998.

CYGNUS, INC.

By:/s/John C. Hodgman
--------------------------------------------
John C. Hodgman
President, Chief Executive Officer and Chief
Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned officers and directors of Cygnus, Inc., a
Delaware corporation, do hereby constitute and appoint John C. Hodgman the
lawful attorney-in-fact and agent with full power and authority to do any and
all acts and things and to execute any and all instruments which said
attorney and agent determines may be necessary or advisable or required to
enable said corporation to comply with the Securities Act of 1933, as
amended, and any rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Registration Statement. Without
limiting the generality of the foregoing power and authority, the powers
granted include the power and authority to sign the names of the undersigned
officers and directors in the capacities indicated below to this Registration
Statement, to any and all amendments, both pre-effective and post-effective,
and supplements to this Registration Statement, and to any and all
instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorney and agent
shall do or cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.

IN WITNESS WHEREOF, each of the undersigned has executed this Power
of Attorney as of the date indicated.

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

SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>

/s/John C. Hodgman
- ------------------- President, Chief Executive November 16, 1998
John C. Hodgman Officer (Principal Executive Officer),
Chief Financial Officer (Principal
Financial and Accounting Officer)
and Director
/s/Gary W. Cleary, Ph.D.
- ------------------- Chairman of the Board of Directors November 16, 1998
Gary W. Cleary, Ph.D.

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<PAGE>

/s/Andre F. Marion
- ------------------- Vice Chairman of the Board of November 16, 1998
Andre F. Marion Directors

/s/Frank T. Cary
- ------------------- Director November 16, 1998
Frank T. Cary

/s/Richard G. Rogers
- ------------------- Director November 16, 1998
Richard G. Rogers

/s/Walter B. Wriston
- ------------------- Director November 16, 1998
Walter B. Wriston
</TABLE>

II-5

<PAGE>

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

EXHIBITS

FORM S-8

UNDER

SECURITIES ACT OF 1933

CYGNUS, INC.

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT NUMBER EXHIBIT
- -------------- -------
<S> <C>
4 Instruments Defining the Rights of Stockholders. Reference is made to
Registrant's Registration Statements No. 000-18962 on Form 8-A,
together with the exhibits thereto, which are incorporated herein by
reference pursuant to Items 3(d) and 3(e).
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 Cygnus, Inc. 1994 Stock Option/Award Plan (As Amended and Restated as
of February 24, 1998).
99.2 Plan Amendment Cygnus, Inc. 1994 Stock Option/Award Plan.
99.3 Form of Special Addendum to Stock Option Agreement (Change in
Control).
99.4 Form of Special Addendum to Stock Option Agreement (Termination of
Employment Without Cause - Officers).
99.5 Form of Special Addendum to Stock Option Agreement (Termination of
Employment Without Cause - Key Employee).
99.6 Cygnus, Inc. Amended 1991 Employee Stock Purchase Plan (As Amended and
Restated as of February 24, 1998).
99.7 Written Compensation Agreement between Registrant and Mr. Marion.
99.8 Stock Option Agreement between Registrant and Mr. Marion.
</TABLE>

<PAGE>

EXHIBIT 5

OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP

November 16, 1998

Cygnus, Inc.
400 Penobscot Drive
Redwood City, CA 94063

Re: Cygnus, Inc. - Registration Statement for Offering of
an Aggregate of 2,624,362 Shares of Common Stock

Dear Ladies and Gentlemen:

We have acted as counsel to Cygnus, Inc., a Delaware corporation
(the "Company"), in connection with the registration on Form S-8 (the
"Registration Statement") under the Securities Act of 1933, as amended, of an
aggregate of 2,624,362 shares of common stock and related stock options and
purchase rights for issuance (the "Shares") under (i) the Company's 1994
Stock Option/Award Plan (the "1994 Plan"), (ii) the Company's Amended 1991
Employee Stock Purchase Plan (the "1991 Plan") and (iii) the Written
Compensation Agreement between the Company and Mr. Marion (the "Agreement").

This opinion is being furnished in accordance with the requirements
of Item 8 of Form S-8 and Item 601(b)(5)(i) of Regulation S-K.

We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the establishment and
amendment of the 1994 Plan, the 1991 Plan and the authorization of the
Agreement. Based on such review, we are of the opinion that if, as and when
the Shares are issued and sold (and the consideration therefor received)
pursuant to (a) the provisions of option agreements duly authorized under the
1994 Plan, the 1991 Plan and the Agreement and in accordance with the
Registration Statement, or (b) duly authorized direct stock issuances in
accordance with the provisions of the 1994 Plan and the 1991 Plan and the
Registration Statement, such Shares will be duly authorized, legally issued,
fully paid and nonassessable.

We consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement.

This opinion letter is rendered as of the date first written above
and we disclaim any obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company, the 1994 Plan, the 1991 Plan, the Agreement or the Shares.

Very truly yours,

/s/BROBECK, PHLEGER & HARRISON LLP

BROBECK, PHLEGER & HARRISON LLP

<PAGE>

EXHIBIT 23.1

OPINION AND CONSENT OF INDEPENDENT AUDITORS

CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 pertaining to the 1994 Stock Option/Award Plan, the
amended 1991 Employee Stock Purchase Plan and Option Grant to Mr. Marion of
Cygnus, Inc. of our report dated January 16, 1998 except, for the fourth
paragraph of Note 3 and for Note 8, as to which the date is February 5, 1998,
with respect to the consolidated financial statements and schedules of
Cygnus, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.

/s/ERNST & YOUNG LLP

ERNST & YOUNG LLP

Palo Alto, California
November 13, 1998

<PAGE>
EXHIBIT 99.1
CYGNUS, INC.

1994 STOCK OPTION\AWARD PLAN

(AS AMENDED AND RESTATED FEBRUARY 24, 1998)

I. PURPOSE

This Cygnus, Inc. 1994 Stock Option/Award Plan ("Plan") is intended to
enable Cygnus, Inc. (the "Company") to attract and retain the following
individuals by offering them incentives and rewards, in the form of options,
restricted shares, share rights, and share units ("awards") which will
encourage them to acquire a proprietary interest in the Company and to
continue in the service of the Company or its subsidiaries: (a) employees
(including officers and directors) of the Company and its subsidiaries, (b)
non-employee members of the Board of Directors of the Company ("Board"), and
(c) consultants and independent contractors who perform valuable services for
the Company and its subsidiaries.

This Plan supersedes the Company's Amended 1986 Stock Option Plan (the
"Prior Plan"), effective January 1, 1994.

II. ADMINISTRATION

The Plan will be administered by a committee or committees appointed by
the Board and consisting of one or more members of the Board. The Board may
delegate the responsibility for administration of the Plan with respect to
designated classes of award holders to different committees, subject to such
limitations as the Board deems appropriate. With respect to any matter, the
term "Committee," when used in this Plan, will refer to the committee that
has been delegated authority with respect to such matter. Members of a
committee will serve for such term as the Board may determine, and will be
subject to removal by the Board at any time.

A. 16(B). The composition of any committee responsible for
administration of the Plan with respect to award holders who are subject to
the trading restrictions of Section 16(b) of the Securities Exchange Act of
1934 ("1934 Act") with respect to securities of the Company will comply with
the applicable requirements of Rule 16b-3 of the Securities and Exchange
Commission.

B. AUTHORITY. Any committee appointed by the Board will have full
authority to administer the Plan within the scope of its delegated
responsibilities, including authority to interpret and construe any relevant
provision of the Plan, to adopt such rules and regulations as it may deem
necessary, and to determine the terms and conditions of awards made under the
Plan (which need not be identical). Decisions of a committee made within the
discretion delegated to it by the Board will be final and binding on all
persons who have an interest in the Plan.

<PAGE>

III. ELIGIBILITY FOR AWARDS

A. DISCRETIONARY AWARDS. From time to time the Committee may, in its
discretion, select individuals from among the following categories to receive
awards under the Plan:

1. EMPLOYEES. The Committee may select employees of the Company or
its subsidiaries (including officers, whether or not they are also members
of the Board).

2. CONSULTANTS AND INDEPENDENT CONTRACTORS. The Committee may
select consultants and independent contractors whose services tend to
contribute materially to the success of the Company or its subsidiaries or
whose services may reasonably be anticipated to so contribute.

B. AUTOMATIC GRANTS. Members of the Board who are not employees of
the Company or its subsidiaries will receive options in accordance with, and
only in accordance with, the Plan's automatic grant provisions.

IV. STOCK SUBJECT TO THE PLAN

A. CLASS. The stock subject to awards under the Plan is the Company's
authorized but unissued or reacquired Common Stock ("Common Stock"). In
connection with the grant of awards under the Plan, the Company may
repurchase shares in the open market or otherwise.

B. AGGREGATE AMOUNT

1. SHARES. Subject to adjustment under Sections IV(d) and IV(b)(2),
the aggregate maximum number of shares of Common Stock that may be subject
to awards under the Plan as amended is 7,916,385 shares.

2. LIMITATION ON NUMBER OF SHARES AVAILABLE FOR GRANT. The maximum
number of shares that may be granted in fiscal year 1996 is 500,000.

3. REUSE OF SHARES. If any outstanding option under the Plan or the
Prior Plan expires or is terminated or cancelled for any reason before
being exercised for the full number of shares to which it applies, then the
shares allocable to the unexercised portion of such option will not be
charged against the limitations of Section IV(b)(1) and will become
available for subsequent grants under the Plan. To the extent that a share
right or share unit expires or is terminated, or is cancelled or forfeited
for any reason without being paid in cash or shares of Common Stock, any
remaining shares allocable to the unpaid portion of such share right or
share unit shall not be charged against the limitations of Section IV(b)(1)
and will become available again for subsequent grants under the Plan.
Shares for which a cash payment is made in lieu thereof under a restricted
share or share right and shares forfeited to or repurchased by the Company
pursuant to its forfeiture and repurchase rights under this Plan will NOT
be available for subsequent option grants under the Plan.

<PAGE>

(c) INDIVIDUAL LIMIT. In no event shall any individual be granted
awards under the Plan covering or based on more than twenty-five percent
(25%) of the number of shares of Common Stock initially authorized for
issuance under the Plan pursuant to the first sentence of Section IV(a), plus
25% of any additional shares subsequently authorized for issuance by the
Corporation's shareholders (subject, in each case, to adjustment under
Section IV(d)).

(d) ADJUSTMENTS. In the event any change is made to the Common Stock
subject to the Plan (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination of
shares, exchange of shares, or other change in corporate or capital structure
of the Company) then, unless such change results in the termination of all
awards, the Committee will make appropriate adjustments to the kind and
maximum number of shares subject to the Plan, the maximum number of shares
for which awards may be made to any individual, the kind and maximum number
of shares for which options are to be granted to non-employee directors, and
the kind and number of shares and, where applicable, price per share of stock
subject to outstanding awards.

(e) GENERAL LIMITATION. Non-performance based restricted stock and
stock awards will have a minimum twenty-four (24) month restriction period
before they are eligible to be resold.

V. TERMS AND CONDITIONS OF OPTIONS

Stock options granted under the Plan may, in the Committee's discretion,
be either incentive stock options ("Incentive Options") qualifying under
Section 422 of the Internal Revenue Code of 1986, as amended ("Internal
Revenue Code"), or nonstatutory options. Individuals who are not employees
of the Company or its subsidiaries may only be granted nonstatutory options.
Options will be evidenced by instruments in such form as the Committee may
from time to time approve. These instruments will conform to the following
terms and conditions and, in the discretion of the Committee, may contain
such other terms, conditions and restrictions as are not inconsistent with
the following:

A. OPTION PRICE. The option price per share will be fixed by the
Committee, but in no event will the option price per share be less than one
hundred percent (100%) of the Fair Market Value of the option shares on the
date of the option grant.

B. NUMBER OF SHARES, TERM AND EXERCISE

1. TERM AND NUMBER. Each option granted under the Plan will be
exercisable on such date or dates, during such period, and for such number
of shares of Common Stock as the Committee determines and sets forth in the
instrument evidencing the option. Except as provided in Article X, no
option shall vest at a rate greater than 25% per year beginning one (1)
year after the date of grant of the option. No option granted under the
Plan will have an expiration date that is more than ten (10) years after
the date of the option grant.

<PAGE>

2. EXERCISE. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Company at any time prior
to the termination of such option. Except as authorized by the Committee
in accordance with Section VIII, the option price for the number of shares
for which the option is exercised will become due and payable upon
exercise.

3. PAYMENT. The option price will be payable in full in cash
(including cash equivalents); provided, however, that the Committee may,
either at the time the option is granted or at the time it is exercised and
subject to such limitations as it may determine, authorize payment of all
or a portion of the option price in one or a combination of the following
alternative forms:

a. a promissory note authorized pursuant to Section VIII;

b. full payment in shares of Common Stock valued as of the
exercise date and held for the requisite period to avoid a charge to
the Company's earnings; or

c. by delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan Proceeds to pay the option price.

C. TERMINATION OF SERVICES. The Committee will determine and set
forth in each option whether the option will continue to be exercisable, and
the terms and conditions of such exercise, on and after the date that an
optionee ceases to be employed by, or to provide services to, the Company or
its subsidiaries. The date of termination of an optionee's employment or
services will be determined by the Committee, which determination will be
final.

D. INCENTIVE OPTIONS. Options granted under the Plan that are
intended to be Incentive Options will be subject to the following additional
terms and conditions:

1. DOLLAR LIMITATION. To the extent that the aggregate Fair Market
Value (determined as of the respective date or dates of grant) of shares
with respect to which options that are granted after 1986 and that would
otherwise be Incentive Options are exercisable for the first time by any
individual during any calendar year under the Plan (or any other plan of
the Company, a parent or subsidiary corporation or predecessor thereof)
exceeds the sum of $100,000 (or such greater amount as may be permitted
under the Internal Revenue Code), whether by reason of acceleration or
otherwise, such options will not be treated as Incentive Options. In
making such a determination, options will be taken into account in the
order in which they were granted.

2. 10% SHAREHOLDER. If any employee to whom an Incentive Option is
to be granted pursuant to the provisions of the Plan is, on the date of
grant, the owner of stock (determined with application of the ownership
attribution rules of Section 424(d) of the

<PAGE>

Internal Revenue Code) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of his or her employer
corporation or of its parent or subsidiary corporation ("10% Shareholder"),
then the following special provisions will apply to the option granted to
such individual:

a. The option price per share of the stock subject to such
Incentive Option will not be less than one hundred ten
percent (110%) of the Fair Market Value of the option shares
on the date of grant; and

b. The option will not have a term in excess of five (5) years
from the date of grant.

3. PARENT AND SUBSIDIARY. For purposes of this Section V(d) "parent
corporation" and "subsidiary corporation" will have the meaning attributed
to those terms, as they are used in Section 422(b) of the Internal Revenue
Code.

E. WITHHOLDING

1. OBLIGATION. The Company's obligation to deliver stock
certificates upon the exercise of an option will be subject to the
optionee's satisfaction of all applicable federal, state and local income
and employment tax withholding requirements.

2. PAYMENT. In the event that an optionee is required to pay to the
Company an amount with respect to income and employment tax withholding
obligations in connection with exercise of an option, the Committee may, in
its discretion and subject to such limitations and rules as it may adopt,
permit the optionee to satisfy the obligation, in whole or in part, by
delivering shares of Common Stock already held by the optionee or by making
an irrevocable election that a portion of the total value of the shares
subject to the option be paid in the form of cash in lieu of the issuance
of Common Stock, and that such cash payment be applied to the satisfaction
of the withholding obligations.

F. REPURCHASE RIGHTS. The Committee may in its discretion establish
as a term of one or more options exercised under the Plan that the Company
(or its assigns) will have the right, exercisable upon the optionee's
termination of employment with, or cessation of services for, the Company and
its subsidiaries, to repurchase at the original option price any or all of
the shares of Common Stock acquired by the optionee upon the exercise of the
granted option. Any such repurchase right will be exercisable by the Company
(or its assigns) upon such terms and conditions (including provisions for the
expiration of such right in one or more installments) as the Committee may
specify in the instrument evidencing such right. The Committee will also
have full power and authority to provide for the automatic termination of the
Company's repurchase rights, in whole or in part, thereby accelerating the
vesting of any or all of the purchased shares (other than purchased shares
obtained pursuant to the Automatic Option Grant provisions of this Plan) upon
the occurrence of a specified corporate event or other event.

<PAGE>

G. RIGHT OF FIRST REFUSAL. The Committee may, in its discretion,
establish as a term of one or more options granted under the Plan that the
Company has a right of first refusal with respect to the proposed disposition
by the optionee (or any successor in interest by reason of purchase, gift or
other mode of transfer) of any shares of Common Stock acquired by the
optionee upon the exercise of the granted option. Any such right of first
refusal will be exercisable by the Company or its assigns in accordance with
the terms and conditions specified in the instrument evidencing such right.

VI. RESTRICTED SHARES, SHARE RIGHTS AND SHARE UNITS

(a) NATURE OF AWARDS. The terms, conditions and restrictions to
which restricted shares, share rights, and share units are subject shall be
determined in the sole discretion of the Committee, shall be evidenced by
instruments in such form as the Committee may from time to time approve, and
may vary from grant to grant. However, except as provided in Article X, no
award shall vest at a rate greater than 33 1/3% per year beginning one year
after the date of grant of the award. In addition, the total number of
shares underlying grants of restricted shares, share rights and share units
shall not exceed 1,200,000 shares.

(1) RESTRICTED SHARES. A restricted share granted under the Plan
shall consist of shares of Common Stock, the retention and transfer of
which is subject to such terms, conditions and restrictions (whether based
on performance standards or periods of service or otherwise and including
repurchase and/or forfeiture rights in favor of the Company) as the
Committee shall determine. The Committee shall have the absolute
discretion to determine whether any consideration (other than the services
of the potential award holder) is to be received by the Company or its
subsidiaries as a condition precedent to the issuance of restricted shares.

(2) SHARE RIGHTS. A share right granted under the Plan shall consist
of the right, subject to such terms, conditions and restrictions (whether
based on performance standards or periods of service or otherwise), to
receive a share of Common Stock (together with cash dividend equivalents if
so determined by the Committee) as the Committee shall determine. The
Committee shall have the absolute discretion to determine whether any
consideration (other than the services of the potential award holder) is to
be received by the Company or its subsidiaries as a condition precedent to
the issuance of shares pursuant to share rights.

(3) SHARE UNITS. A share unit granted under the Plan shall consist
of the right to receive an amount in cash equal to the fair market value of
one share of Common Stock on the date of valuation of the unit (together
with cash dividend equivalents if so determined by the Committee) less such
amount, if any, as the Committee shall specify. The date of valuation and
payment of cash under a share unit and the conditions, if any, to which
such payment will be subject (whether based on performance standards or
periods of service or otherwise) shall be determined by the Committee.

<PAGE>

(b) WITHHOLDING. The Committee may require, or permit an award holder
to elect, that a portion of the total value of the shares of Common Stock
subject to restricted shares or share rights held by one or more award
holders be paid in the form of cash in lieu of the issuance of Common Stock
and that such cash payment be applied to the satisfaction of the federal,
state and local income and employment tax withholding obligations that arise
at the time the restricted shares and share rights become free of all
restrictions under the Plan.

(c) CASH PAYMENTS. The Committee may provide award holders with an
election to receive a percentage of the total value of the Common Stock
subject to restricted shares or share rights in the form of a cash payment,
subject to such terms conditions and restrictions as the Committee shall
specify.

(d) ELECTIVE AND TANDEM AWARDS. The Committee may award restricted
shares, share rights and share units independently of other compensation or
in lieu of compensation that would otherwise be paid in cash or stock
options, whether at the election of the potential award holder or otherwise.
The number of restricted shares, share rights or share units to be awarded in
lieu of any cash compensation amount or number of stock options shall be
determined by the Committee in its sole discretion and need not be equal to
such foregone compensation in fair market value. In addition, restricted
shares, share rights and share units may be awarded in tandem with stock
options, so that a portion of such award becomes payable or becomes free of
restrictions only if and to the extent that the tandem options are not
exercised or are forfeited, subject to such terms and conditions as the
Committee may specify.

(e) MODIFICATION OF AWARDS. The Committee may, in its sole discretion,
modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding restricted share, share right or share unit;
provided, however, that no such modification or waiver shall, without the
consent of the holder of an outstanding award, adversely affect the holder's
rights thereunder.

VII. AUTOMATIC OPTION GRANTS TO DIRECTORS.

A. GRANTS. Non-employee members of the Board shall automatically be
granted nonstatutory options ("Automatic Option Grants") to purchase shares
of Common Stock as set forth below (subject to adjustment under Section IV(d)
hereof):

- each non-employee Board member who was first elected or appointed
to the Board before January 1, 1993 shall receive an Automatic Option Grant
for 7,260 shares on June 1, 1994;

- each non-employee Board member who was first elected or appointed
to the Board on or after January 1, 1993 and before January 1, 1994 shall
receive an Automatic Option Grant for 6,600 shares on June 1, 1994; and

<PAGE>

- each non-employee Board member who is first elected or appointed
to the Board on or after January 1, 1994 shall receive an Automatic Option
Grant for 6,000 shares on the first trading day in June on or after his or
her initial election or appointment at any time on or after June 1, 1994.
However, any non-employee Board member who is first elected or appointed as
such between June 1 and December 31 of any year beginning with the 1994
calendar year (and who is not already serving on the Board at that time)
shall receive an Automatic Option Grant on the date of such initial
election or appointment for the number of shares he or she would have
received on the first trading day in June of that year had she or she then
been eligible.

- In addition, on the anniversary of each Board member's initial
automatic option grant on the first trading day in June (or between June 1
and December 31, as applicable), each such continuing non-employee Board
member shall receive an additional Automatic Option Grant for that number
of shares equal to 110% of the number of shares he or she received under
the previous year's Automatic Option Grant.

B. TERMS AND CONDITIONS. The terms and conditions applicable to each
Automatic Option Grant shall be as follows:

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

2. TERM. Each Automatic Option Grant shall have a term of ten (10)
years measured from the date of grant, and shall be exercisable for
fully-vested shares of Common Stock at any time beginning twelve (12)
months after the date of grant and during their term for all or any part of
the covered shares; provided, however, that no options may be exercised
prior to approval of the Plan by the Company's shareholders.

3. PAYMENT. Upon exercise of the option, the option price for the
purchased shares shall be payable immediately in cash or in shares of
Common Stock that the optionee has held for at least six (6) months.
Payment may also be made by delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds to pay the option price.

4. CESSATION. In the event the optionee ceases to provide services
to the Company or its subsidiaries as a non-employee Board member, the
option may be exercised, within the term of the option, for a period of
three (3) months after the date of such cessation of Board service;
provided, however, that the post-service exercise period shall be twelve
(12) months in the case of cessation by reason of the optionee's disability
or death. In the case of death, the option may be exercised within such
period by the estate or heirs of the optionee.

C. ADMINISTRATION. This automatic option grant program for the
non-employee Board members shall be self-executing in accordance with the
terms of such program (as provided

<PAGE>

for under the Plan), and neither the Board nor any other administrator of the
Plan shall exercise any discretionary functions with respect to any option
grants made under this program.

VIII. LOANS AND INSTALLMENT PAYMENTS

In order to assist an award holder (including an employee who is an
officer or director of the Company) in the acquisition of shares of Common
Stock pursuant to an award granted under the Plan (other than pursuant to the
Automatic Option Grant provisions of this Plan), the Committee may authorize,
at either the time of the grant of an award or the time of the acquisition of
Common Stock pursuant to the award (i) the extension of a loan to the award
holder by the Company, (ii) the payment by the award holder of the purchase
price, if any, of the Common Stock in installments, or (iii) the guarantee by
the Company of a loan obtained by the award holder from a third party. The
terms of any loans, guarantees or installment payments, including the
interest rate and terms of repayment, will be subject to the discretion of
the Committee. Loans, installment payments and guarantees may be granted
without security, the maximum credit available being the purchase price, if
any, of the Common Stock acquired plus the maximum federal and state income
and employment tax liability that may be incurred in connection with the
acquisition.

IX. ASSIGNABILITY

No award granted under the Plan is assignable or transferable by the
award holder other than by will or by the laws of descent and distribution,
and during the lifetime of the award holder, only the award holder may
exercise options or exercise the rights provided under awards granted under
the Plan.

X. ACCELERATION AND TERMINATION OF OPTIONS

A. ACCELERATION. In the event of an agreement to dispose of all or
substantially all of the assets or outstanding capital stock of the Company
by means of a sale, merger, reorganization, or liquidation, each award will
be automatically accelerated so that (1) options become fully exercisable
with respect to the total number of shares purchasable under the options,
provided, however, that the exercise of accelerated Incentive Options granted
prior to 1987 will remain subject to any limitations imposed by the Internal
Revenue Code's sequential exercise rule, (2) restrictions on restricted
shares will be eliminated, and the shares will immediately vest, and (3)
share rights and share units will immediately vest and become payable. The
Committee may also provide for the automatic termination of repurchase rights
upon the occurrence of such an event.

B. NO ACCELERATION. No acceleration of awards will occur if the terms
of the agreement require as a prerequisite to the consummation of any such
sale, merger, reorganization or liquidation that each such award will be
either assumed by the successor corporation or parent thereof or be replaced
with a comparable award subject to shares of the successor corporation or
parent thereof. The determination of such comparability will be made by the
Committee, and its determination will be final, binding and conclusive. Upon
consummation of the sale, merger, reorganization or liquidation contemplated
by the agreement, all awards, whether or not

<PAGE>

accelerated, will terminate unless assumed pursuant to a written agreement by
the successor corporation or parent thereof.

C. CORPORATE STRUCTURE. The grant of awards under this Plan will in
no 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.

XI. VALUATION

For purposes of this Plan, the Fair Market Value of a share of Common
Stock on any relevant date will be determined in accordance with the
following provisions:

A. If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as
quoted on such exchange (or the exchange with the greatest volume of trading
in Common Stock) or system on the day of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Committee deems reliable,
or;

B. If the Common Stock is quoted on the NASDAQ system (but not on the
National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock
on the day of such determination, as reported in THE WALL STREET JOURNAL or
such other source as the Board deems reliable, or;

C. In the absence of an established market for the Common Stock, then
the Fair Market Value will be determined by the Committee after taking into
account such factors as the Committee deems appropriate, or in the case of
Automatic Option Grants, by an independent third party valuation.

XII. EFFECTIVE DATE AND TERM OF PLAN

A. EFFECTIVE DATE. The Plan is effective on the earlier of January 1,
1994 or the date that it is approved by the Company's shareholders; provided
that no option shall be exercisable and no shares shall be issued under the
Plan before it is approved by the Company's shareholders. If shareholder
approval is not obtained, all awards hereunder shall be cancelled and the
Prior Plan shall continue in accordance with its terms.

B. TERM. No further grants may be made under this Plan after the
tenth anniversary of the date of adoption of this Plan by the Board.

XIII. AMENDMENT OR DISCONTINUANCE

<PAGE>

A. BOARD. The Board may amend, suspend or discontinue the Plan in
whole or in part at any time; provided, however, that (1) except to the
extent necessary to qualify as Incentive Options any or all options granted
under the Plan that are intended to so qualify, such action may not, without
the consent of the award holder, adversely affect rights and obligations with
respect to awards outstanding under the Plan; (2) to the extent necessary to
comply with Rule 16b-3, the provisions of the Plan concerning the eligibility
of non-employee members of the Board for awards and the amount, price and
timing of Automatic Option Grants under this Plan may not be amended more
than once every six months, other than to comport with changes in the
Internal Revenue Code or rules thereunder; and (3) the Board may not, without
the approval of the Company's shareholders (i) materially increase the number
of shares of Common Stock subject to awards under the Plan (unless necessary
to effect the adjustments required under Section IV(c)), (ii) materially
modify the eligibility requirements for awards under the Plan, or (iii) make
any other change with respect to which the Board determines that shareholder
approval is required by applicable law or regulatory standards.

B. COMMITTEE. The Committee will have full power and authority to
modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding award, (other than Automatic Option Grants and
repricing options) to the extent not inconsistent with the Plan.

XIV. NO OBLIGATION

Nothing contained in the Plan (or the Prior Plan) shall confer upon any
employee, consultant, or independent contractor any right to continue in the
employ of, or to provide services to, the Company or any affiliate or
constitute a contract or agreement of employment or for the provision of
services, or interfere in any way with the right of the Company or an
affiliate to reduce such employee's, consultant's or independent contractor's
compensation from the rate in existence at the time of the granting of award
or to terminate such employee's, consultant's or independent contractor's
employment or services at any time, with or without cause; but nothing
contained in the Plan or in any award granted under this Plan shall affect
any contractual rights of an employee pursuant to a written employment
agreement.

XV. USE OF PROCEEDS

The cash proceeds received by the Company pursuant to awards granted
under the Plan will be used for general corporate purposes.

XVI. COMPLIANCE

No option may be exercised, and the Company will not be obligated to
issue stock under any award unless, in the opinion of counsel for the
Company, such exercise and issuance is in compliance with all applicable
federal and state securities laws. As a condition to the grant of any award,
or to the issuance of stock under any award, the Committee may require that
the award

<PAGE>

holder agree to comply with such provisions of federal and state securities
laws as may be applicable to such grant, or to the sale of stock acquired
pursuant to the Plan, and that the award holder deliver to the Company a
written agreement, in form and substance satisfactory to the Company and its
counsel, implementing such agreement.

<PAGE>

EXHIBIT 99.2

CYGNUS, INC.

1994 STOCK OPTION/AWARD PLAN

PLAN AMENDMENT

The Cygnus, Inc. 1994 Stock Option/Award Plan (the "Plan") is
hereby amended, effective as of August 28, 1998, as follows:

1. Section V, Paragraph B.1 is hereby amended to read as follows:

"1 TERM AND NUMBER. Each option granted under the Plan will be
exercisable on such date or dates, during such period, and for such
number of shares of Common Stock as the Committee determines and sets
forth in the instrument evidencing the option. Except as otherwise
provided in Article X or as otherwise determined by the Committee in
its sole discretion either at the time the option is granted or any
time while the option remains outstanding, no option granted under the
Plan shall vest at a rate greater than 25% per year beginning one (1)
year after the date of grant of the option. In addition, no option
granted under the Plan will have an expiration date that is more than
ten (10) years after the date of the option grant."

2. Except as modified by this Plan Amendment, all the terms and
provisions of the Plan as in effect on the date hereof shall continue in full
force and effect.

IN WITNESS WHEREOF, Cygnus, Inc. has authorized this Plan Amendment
to be executed on its behalf by its duly-authorized officer effective as of
August 28, 1998.

CYGNUS, INC.

By:
----------------------------------

Title:
--------------------------------

<PAGE>

EXHIBIT 99.3

SPECIAL ADDENDUM
TO
STOCK OPTION AGREEMENT

The provisions of this Special Addendum are hereby incorporated into,
and are hereby made a part of, that certain Stock Option Agreement (the
"Option Agreement") between Cygnus, Inc. (the "Corporation") and
_________________________________ ("Optionee") evidencing the grant on this
date of a stock option (the "Option") to Optionee under the terms of the
Corporation's 1994 Stock Option/Award Plan. The provisions of this Special
Addendum shall be effective immediately for such Option.

All capitalized terms in this Special Addendum, to the extent not
otherwise defined herein, shall have the meanings assigned to them in that
certain change in control benefit agreement (the "Change in Control
Agreement") between the Corporation and Optionee dated February 5, 1996 and
as subsequently modified and restated on August 28, 1998 and shall continue
to have those meanings whether or not the Change in Control Agreement remains
in effect throughout the term of each Option subject to this Special Addendum.

CHANGE IN CONTROL

1. The Option, to the extent outstanding at the time of a Change in
Control but not otherwise fully exercisable for all of the Option Shares
pursuant to the Exercise Schedule, shall, immediately prior to the closing
date of such Change in Control, vest in full and become exercisable for all
of the Option Shares and may be exercised for any or all of those shares as
fully-vested shares.

2. Immediately following the consummation of the Change in Control,
the Option shall terminate and cease to be outstanding, except the extent
assumed by the successor entity (or its parent entity) or otherwise continued
in full force and effect pursuant to the express terms of the Change in
Control transaction.

<PAGE>

3. To the extent the Option is assumed in the Change in Control or
otherwise continued in full force and effect, the Option shall remain fully
exercisable for the option shares until the EARLIER of (i) the Expiration
Date or (ii) the expiration of the one (1)-year period measured from the Date
of Termination.

4. For purposes of this Addendum, the following definitions shall be
in effect:

CHANGE IN CONTROL shall have the meaning given such term in
Exhibit A to the Change in Control Agreement.

DATE OF TERMINATION refers to cessation of employment and shall
have the meaning given such term in Exhibit A to the Change in Control
Agreement.

EXERCISE SCHEDULE shall mean the schedule set forth in the
Stock Option Agreement for the Option, pursuant to which the Option is
to vest and become exercisable for the Option Shares in a series of
installments over Optionee's period of employment with the
Corporation.

EXPIRATION DATE shall mean the expiration date of the ten
(10)-year term of the Option.

OPTION SHARES shall mean the shares of the Corporation's
Common Stock subject to the Option in question.

5. The provisions of this Special Addendum shall govern the period for
which the Option is to remain exercisable following the termination of the
Optionee's employment after the Change in Control and shall supersede any
provisions to the contrary in the Option Agreement.

<PAGE>

6. The provisions of this Special Addendum shall survive the
expiration or termination of the Change in Control Agreement and shall
accordingly remain in full force and effect following any such expiration or
termination.

IN WITNESS WHEREOF, Cygnus, Inc. has caused this Addendum to be executed
by its duly-authorized officer as of the Effective Date specified below.

CYGNUS, INC.

By:_____________________________

Title:__________________________

EFFECTIVE DATE:__________________ , 199__

<PAGE>

EXHIBIT 99.4

SPECIAL ADDENDUM
TO
STOCK OPTION AGREEMENT

All capitalized terms in this Special Addendum, to the extent not
otherwise defined herein, shall have the meanings assigned to them in that
certain severance benefit agreement (the "Severance Agreement") between the
Corporation and Optionee dated August 28, 1998 and shall continue to have
those meanings whether or not the Severance Agreement remains in effect
throughout the term of each Option subject to this Special Addendum.

TERMINATION OF EMPLOYMENT WITHOUT CAUSE

A. Should Optionee's employment be terminated by the Corporation for
any reason other than Cause while the Option remains outstanding but not
otherwise fully exercisable for all of the Option Shares, then the Option
shall immediately become exercisable on an accelerated basis for that number
of Option Shares equal to the LESSER of (i) the total number of Option Shares
for which the Option is not otherwise, in accordance with the Exercise
Schedule in effect for that Option, exercisable on the Date of Termination or
(ii) twenty percent (20%) of (x) the total number of unvested Option Shares
at the time subject to the Option plus (y) the number of vested and
exercisable shares of the Corporation's common stock held by Optionee on the
Date of Termination. The Option shall remain outstanding until the EARLIEST
to occur of (i) the Expiration Date, (ii) the expiration of the nine
(9)-month period measured from the Date of Termination or (iii) the closing
date of any Change in Control in which the Option is not assumed by the
successor entity (or parent company) or otherwise continued in full force and
effect and will continue to vest and become exercisable for additional Option
Shares during the first five (5) months of that post-employment exercise
period. Accordingly, during that five (5)-month period, the Option will
continue to vest and become exercisable for any remaining unexercisable
Option Shares at a monthly rate equal to one percent (1%) of (x) the total
number of unvested shares at the time subject to the Option plus (y) the
number of vested and exercisable shares held by Optionee on such Date of
Termination. The Option shall become exercisable for those additional one
percent (1%) increments at the end of each month within that five (5)-month
post-employment exercise period.

<PAGE>

B. After the end of such five (5)-month post-employment period, all
further vesting of the Option Shares shall cease, and the Option shall
thereupon terminate and cease to be exercisable for any Option Shares for
which those options have not otherwise become exercisable pursuant to the
vesting provisions of this Special Addendum. Optionee shall have until the
EARLIEST to occur of (i) the Expiration Date, (ii) the expiration of the nine
(9)-month period measured from the Date of Termination or (iii) the closing
date of any Change in Control in which the option is not assumed by the
successor entity (or parent company) or otherwise continued in full force and
effect in which to exercise the Option for any or all Option Shares for which
the Option is exercisable at the end of the five (5)-month post employment
exercise period.

C. Should a Change in Control occur during the period of Optionee's
employment with the Corporation, then the vesting acceleration and
post-service exercise provisions of that certain change in control benefit
agreement (the "Change in Control Agreement") between the Corporation and
Optionee dated ______________ __, 1996 and August 28, 1998 and any Special
Addendum to Stock Option Agreement implemented in evidence of those
provisions shall govern Optionee's rights under the Option and shall
supersede and replace the terms and conditions of this Special Addendum.

D. Should a Change in Control occur after the involuntary termination
of Optionee's employment by the Corporation other than for Cause but within
the five (5)-month post-employment period during which the Option Shares
would otherwise continue to vest and become exercisable for additional Option
Shares hereunder, then the vesting acceleration provisions of the Change in
Control Agreement and any Special Addendum to Stock Option Agreement
implemented in evidence of those provisions shall govern the accelerated
vesting of the Option and shall supersede and replace the vesting
acceleration provisions of this Special Addendum. However, the expiration of
the post-employment exercise period for the Option shall continue to remain
in effect until the EARLIEST to occur of (i) the Expiration Date, (ii) the
expiration of the nine (9)-month period measured from the Date of Termination
or (iii) the closing date of any Change in Control in which the Option is not
assumed by the successor entity (or parent company) or otherwise continued in
full force and effect.

E. Should a Change in Control occur more than five (5) months after
the termination of Optionee's employment with the Corporation for any reason,
then the Option shall not accelerate or vest as to any additional Option
Shares in connection with that Change in Control.

F. For purposes of this Addendum, the following definitions shall be
in effect:

CAUSE shall have the meaning given such term in Exhibit A to
the Severance Agreement.

<PAGE>

CHANGE IN CONTROL shall have the meaning given such term in Exhibit A
to the Severance Agreement.

DATE OF TERMINATION refers to cessation of employment and
shall have the meaning given such term in Exhibit A to the Severance
Agreement.

EXERCISE SCHEDULE shall mean the schedule set forth in the
Stock Option Agreement for the Option, pursuant to which the Option is
to vest and become exercisable in a series of installments over
Optionee's period of employment with the Corporation.

EXPIRATION DATE shall mean the expiration date of the ten
(10)-year term of the Option.

OPTION SHARES shall mean the shares of the Corporation's
common stock subject to the Option in question.

G. The provisions of this Special Addendum shall govern the period for
which the Option is to remain exercisable following the termination of
Optionee's employment without Cause and shall supersede any provisions to the
contrary in the Option Agreement.

H. The provisions of this Special Addendum shall survive the
expiration or termination of the Severance Agreement and shall accordingly
remain in full force and effect following any such expiration or termination.

IN WITNESS WHEREOF, Cygnus, Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.

CYGNUS, INC.

By:____________________________

Title:_________________________

EFFECTIVE DATE:_________________ , 199___

<PAGE>

EXHIBIT 99.5

SPECIAL ADDENDUM
TO
STOCK OPTION AGREEMENT

The provisions of this Special Addendum are hereby incorporated
into, and are hereby made a part of, that certain Stock Option Agreement (the
"Option Agreement") between Cygnus, Inc. (the "Corporation") and
_________________________________ ("Optionee") evidencing the grant on this
date of a stock option (the "Option") to Optionee under the terms of the
Corporation's 1994 Stock Option/Award Plan. The provisions of this Special
Addendum shall be effective immediately for such Option.

All capitalized terms in this Special Addendum, to the extent not
otherwise defined herein, shall have the meanings assigned to them in that
certain severance benefit agreement (the "Severance Agreement") between the
Corporation and Optionee dated August 28, 1998 and shall continue to have those
meanings whether or not the Severance Agreement remains in effect throughout the
term of each Option subject to this Special Addendum.

TERMINATION OF EMPLOYMENT WITHOUT CAUSE

1. Should Optionee's employment be terminated by the Corporation
for any reason other than Cause while the Option remains outstanding but not
otherwise fully exercisable for all of the Option Shares, then the Option
shall immediately become exercisable on an accelerated basis for that number
of Option Shares equal to the LESSER of (i) the total number of Option Shares
for which the Option is not otherwise, in accordance with the Exercise
Schedule in effect for that Option, exercisable on the Date of Termination or
(ii) twenty-five percent (25%) of (x) the total number of unvested Option
Shares at the time subject to the Option plus (y) the number of vested and
exercisable shares of the Corporation's common stock held by Optionee on the
Date of Termination. The Option shall continue to remain outstanding and
exercisable for any or all Option Shares for which the Option is exercisable
on the Date of Termination, including the Option Shares for which the Option
becomes exercisable on an accelerated basis at that time pursuant to this
Special Addendum, until the EARLIEST to occur of (i) the Expiration Date,
(ii) the expiration of the nine (9) month-period measured from the Date of
Termination or (iii) the closing date of a Change in Control in which the
Option is not assumed by the successor entity (or parent company) or
otherwise continued in full force and effect. However, the Option shall
immediately terminate on the Date of Termination with respect to any other
Option Shares for which the Option is not exercisable and vested at that
time.

2. For purposes of this Addendum, the following definitions shall
be in effect:

CAUSE shall have the meaning given such term in Exhibit A to the
Severance Agreement.

CHANGE IN CONTROL shall have the meaning given such term in Exhibit
A to the Severance Agreement.

<PAGE>

DATE OF TERMINATION refers to cessation of employment and shall
have the meaning given such term in Exhibit A to the Severance Agreement.

EXERCISE SCHEDULE shall mean the schedule set forth in the Stock
Option Agreement for the Option, pursuant to which the Option is to vest and
become exercisable for the Option Shares in a series of installments over
Optionee's period of employment with the Corporation.

EXPIRATION DATE shall mean the expiration date of the ten (10)-year
term of the Option.

OPTION SHARES shall mean the shares of the Corporation's common
stock subject to the Option in question.

3. The provisions of this Special Addendum shall govern the
period for which the Option is to remain exercisable following the
termination of Optionee's employment without Cause and shall supersede any
provisions to the contrary in the Option Agreement.

4. The provisions of this Special Addendum shall survive the
expiration or termination of the Severance Agreement and shall accordingly
remain in full force and effect following any such expiration or termination.

IN WITNESS WHEREOF, Cygnus, Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.

CYGNUS, INC.

By:________________________

Title:_____________________

EFFECTIVE DATE: ________________, 199___

<PAGE>
EXHIBIT 99.6
CYGNUS, INC.

AMENDED 1991 EMPLOYEE STOCK PURCHASE PLAN

(AS AMENDED AND RESTATED FEBRUARY 24, 1998)

The following constitute the provisions of the Amended 1991 Employee
Stock Purchase Plan of Cygnus, Inc., as last amended on February 24, 1998.

1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan quality as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.

2. DEFINITIONS.

(a) "BOARD" shall mean the Board of Directors of the Company or a
Committee appointed by the Board pursuant to paragraph 13.

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

(d) "COMPANY" shall mean Cygnus, Inc.

(e) "COMPENSATION" shall mean all base straight time gross
earnings, including bonuses, but excluding payments for overtime, shift
premiums and commissions, awards, and other compensation.

(f) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g) "EMPLOYEE" shall mean any individual who is a regular employee
of the Company for purposes of tax-withholding under the Code. For purposes
of the Plan, the employment relationship shall be treated as continuing
intact while the individual is on sick leave or other leave of absence
approved by the Company. Where the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on
the 91st day of such leave.

(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.

<PAGE>

(i) "EXERCISE DATE" shall mean the last Trading Day of each
Purchase Period.

(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such exchange (or the exchange with the greatest
volume of trading in Common Stock) or system on the day of such
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable, or;

(2) If the Common Stock is quoted on the NASDAQ system (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high and low asked prices for the
Common Stock on the day of such determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable, or;

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

(k) "OFFERING PERIOD" shall mean, subject to the discretion of the
Board pursuant to paragraph 4, a period of approximately twenty-four (24)
months, commencing on the first Trading Day on or after October 1 and
terminating on the last Trading Day in the September twenty-four (24) months
later, or commencing on the first Trading Day on or after April 1 and
terminating on the last Trading Day in the March twenty-four (24) months
later.

(l) "PLAN" shall mean this Amended 1991 Employee Stock Purchase
Plan.

(m) "PURCHASE PRICE" shall mean an amount equal to a designated
percentage of the Fair Market Value of a share of Common Stock on the
Enrollment Date or a designated percentage of the Fair Market Value on the
Exercise Date, whichever is lower. Each designated percentage shall be 85%
unless determined otherwise by the Board with respect to any Offering Period,
but shall in no event be less than 85%.

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

(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each purchase right under the Plan which have not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but not yet placed under

<PAGE>

purchase right.

(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.

(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated
Quotation (NASDAQ) System are open for trading.

3. ELIGIBILITY.

(a) Any Employee, as defined in paragraph 2, who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted a purchase right under the Plan (i) if, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
stock and/or hold outstanding purchase rights to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits his or her rights to purchase stock under all employee stock
purchase plans of the Company and its subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at
the fair market value of the shares at the time such purchase right is
granted) for each calendar year in which such purchase right is outstanding
at any time.

4. OFFERING PERIODS. The Plan shall be implemented by consecutive and
overlapping Offering Periods, with the first Offering Period beginning
October 1, 1991 and continuing unless terminated in accordance with the Plan.
The Board shall have the power to change the duration of Offering Periods
with respect to future offerings without shareholder approval if such change
is announced at least fifteen (15) days prior to the scheduled beginning of
the first Offering Period to be affected. Absent action by the Board, each
Offering Period shall be for a period of approximately twenty-four months
(24) and new Offering Periods shall commence on the first Trading Day of
April and October of each year. No Offering Period shall exceed twenty-four
(24) months in length.

5. PARTICIPATION.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form provided by the Company and filing it with the Company's payroll office
prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the
first payroll period following the Enrollment Date and shall end on the last
payroll period in the Offering

<PAGE>

Period, unless sooner terminated by the participant as provided in paragraph
10.

6. PAYROLL DEDUCTIONS.

(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding fifteen percent
(15%) of the Compensation which he or she receives on each pay day during the
Offering Period, and the aggregate of such payroll deductions during the
Offering Period shall not exceed fifteen percent (15%) of the participant's
Compensation during said Offering Period.

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

(c) A participant may discontinue his or her participation in the
Plan as provided in paragraph 10, or may increase or decrease the rate of his
or her payroll deductions during the current Purchase Period by filing with
the Company a new subscription agreement authorizing such a change in the
payroll deduction rate. The change in rate shall be effective with the first
full payroll period following such advance notice period as the Company shall
specify. A participant's subscription agreement shall remain in effect for
successive Purchase Periods and Offering Periods unless terminated as
provided in paragraph 10. The Board shall be authorized to limit the number
of participation rate changes during any Offering Period. A participant may
at any tune elect to have his or her participation agreement become
irrevocable for such period of time as he or she may designate.

(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during
any Purchase Period which is scheduled to end during the current calendar
year (the "Current Purchase Period") that the aggregate of all payroll
deductions which were previously used to purchase stock under the Plan in a
prior Purchase Period which ended during that calendar year plus all payroll
deductions accumulated with respect to the Current Purchase Period equal
$21,250. The Company may provide either (i) that payroll deductions shall
recommence at the rate provided in such participant's subscription agreement
at the beginning of the first Purchase Period which is scheduled to end in
the following calendar year, unless terminated by the participant as provided
in paragraph 10, or (ii) that participation shall recommence only upon filing
a new enrollment form following such waiting period as the Company shall
specify, which, in the case of a person subject to section 16(b), shall be no
less than the time period necessary to quality the plan for exemption under
Rule 16b-3.

(e) At the time the purchase right is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the purchase right or the disposition of the

<PAGE>

Common Stock. At any time, the Company may, but will not be obligated to,
withhold from the participant's compensation the amount necessary for the
Company to meet applicable withholding obligations, including any withholding
required to make available to the Company any tax deductions or benefit
attributable to sale or early disposition of Common Stock by the Employee.

7. GRANT OF PURCHASE RIGHT. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted a purchase right to purchase on each Exercise Date during such
Offering Period (at the applicable Purchase Price) up to a number of shares
of the Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase
Price; provided that such purchase shall be subject to the limitations set
forth in Section 3(b) and 12 hereof. Exercise of the purchase right shall
occur as provided in Section 8, unless the participant has withdrawn pursuant
to Section 10, and the purchase right shall expire on the last day of the
Offering Period.

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

9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her purchase right.

10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.

(a) A participant may, subject to the terms of any irrevocable
participation agreement elected by the participant, withdraw all but not less
than all the payroll deductions credited to his or her account and not yet
used to exercise his or her purchase right under the Plan at any time by
giving written notice to the Company in the form provided by the Company.
All of the participant's payroll deductions credited to his or her account
will be paid to such participant promptly after receipt of notice of
withdrawal and such participant's purchase right for the Offering Period will
be automatically terminated, and no further payroll deductions for the
purchase of shares will be made during the Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers
to the Company a new subscription agreement.

<PAGE>

(b) Upon a participant's ceasing to be an Employee for any reason
or upon termination of a participant's employment relationship (as described
in Section 2(g)), the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the purchase
right will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under paragraph 14, and such
participant's purchase right will be automatically terminated.

11. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.

12. STOCK.

(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 925,000
shares, subject to adjustment upon changes in capitalization of the Company
as provided in paragraph 18. If on a given Exercise Date the number of
shares with respect to which purchase rights are to be exercised exceeds the
number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform
a manner as shall be practicable and as it shall determine to be equitable.

(b) The participant will have no interest or voting right in
shares covered by his purchase right until such purchase right has been
exercised.

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

13. ADMINISTRATION.

(a) ADMINISTRATIVE BODY. The Plan shall be administered by the
Board of the Company or a committee of members of the Board appointed by the
Board. The Board or its committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to
determine eligibility and to adjudicate all disputed claims filed under the
Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding
upon all parties. Members of the Board who are eligible Employees are
permitted to participate in the Plan, provided that:

(1) Members of the Board who are eligible to participate in
the Plan may not vote on any matter affecting the administration of the Plan
or the grant of any purchase right pursuant to the Plan.

(2) If a Committee is established to administer the Plan, no
member of the Board who is eligible to participate in the Plan may be a
member of the Committee.

(b) RULE 16B-3 LIMITATIONS. Notwithstanding the provisions of
Subsection (a)

<PAGE>

of this Section 13, in the event that Rule 16b-3 promulgated under The
Securities Exchange Act of 1934, as amended, or any successor provision
("Rule 16b-3") provides specific requirements for the administrators of plans
of this type, the Plan shall be only administered by such a body and in such
a manner as shall comply with the applicable requirements of Rule 16b-3.
Unless permitted by Rule 16b-3, no discretion concerning decisions regarding
the Plan shall be afforded to any committee or person that is not
"disinterested" as that term is used in Rule 16b-3.

14. DESIGNATION OF BENEFICIARY.

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

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

15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of a
purchase right or to receive shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in paragraph 14 hereof)
by the participant. Any such attempt at assignment, transfer, pledge or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds from an Offering Period in
accordance with paragraph 10.

16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.

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

<PAGE>

18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.

(a) CHANCES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each purchase right under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to a
purchase right. The Board may, if it so determines in the exercise of its
sole discretion, make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding purchase right,
in the event the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of
shares of its outstanding Common Stock.

(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board.

(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each purchase right under the Plan
shall be assumed or an equivalent purchase right shall be substituted by such
successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Periods then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Periods then in progress
in lieu of assumption or substitution in the event of a merger or sale of
assets, the Board shall notify each participant in writing, at least ten (10)
days prior to the New Exercise Date, that the Exercise Date for his purchase
right has been changed to the New Exercise Date and that his purchase right
will be exercised automatically on the New Exercise Date, unless prior to
such date he has withdrawn from the Offering Period as provided in paragraph
10. For purposes of this paragraph, a purchase right granted under the Plan
shall be deemed to be assumed if, following the sale of assets or merger, the
purchase right confers the right to purchase, for each share of purchase
right stock subject to the purchase right immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities
or property) received in the sale of assets or merger by holders of Common
Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided,

<PAGE>

however, that if such consideration received in the sale of assets or merger
was not solely common stock of the successor corporation or its parent (as
defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation and the participant, provide for the consideration
to be received upon exercise of the purchase right to be solely common stock
of the successor corporation or its parent equal in fair market value to the
per share consideration received by holders of Common Stock in the sale of
assets or merger.

19. AMENDMENT OR TERMINATION.

(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in paragraph 18,
no such termination can affect purchase rights previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is in
the best interests of the Company and its shareholders. Except as provided
in paragraph 18, no amendment may make any change in any purchase right
theretofore granted which adversely affects the rights of any participant.
To the extent necessary to comply with Rule 16b-3 or under Section 423 of the
Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.

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

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

21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to a purchase right unless the exercise of such purchase right
and the issuance and delivery of such shares pursuant thereto shall comply
with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the

<PAGE>

approval of counsel for the Company with respect to such compliance.

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

22. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under paragraph 19.

23. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
purchase rights granted hereunder to, and the purchase of shares by, persons
subject to Section 16 of the Exchange Act shall comply with the applicable
provisions of Rule 16b-3. This Plan shall be deemed to contain, and such
purchase rights shall contain, and the shares issued upon exercise thereof
shall be subject to, such additional conditions and restrictions as may be
required by Rule 16b-3 to quality for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.

24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
purchase rights on such Exercise Date and automatically reenrolled in the
immediately following Offering Period as of the first day thereof.

<PAGE>

EXHIBIT 99.7

COMPENSATION AGREEMENT

This Agreement is made as of the 28th day of August, 1998 by and
between Cygnus, Inc., a Delaware corporation (the "Corporation"), and Andre
F. Marion ("Optionee").

W I T N E S S E T H

WHEREAS, in consideration for the services to be performed by
Optionee in his capacity as a member of the Corporation's Board of Directors
(the "Board"), the Corporation will grant Optionee a stock option in August,
1998, to purchase 20,000 shares of the Corporation's Common Stock (the
"Option") upon the terms and conditions set forth in the documentation
evidencing such Option attached hereto.

NOW, THEREFORE, in consideration of the above premises, the parties
hereto agree as follows:

1. The Corporation and Optionee acknowledge and agree that the
Option is granted solely as compensation for the Board services to be
rendered by Optionee and not for any capital-raising purposes or in
connection with any capital-raising activities of the Corporation.

2. The Option shall not be transferable or assignable except in
connection with Optionee's death.

3. This Agreement is intended to memorialize the agreement and
understanding which exists between Optionee and the Corporation concerning
the grant of the Option and is intended to constitute a written compensation
contract for purposes of registering the shares of Common Stock subject to
the Option on a Form S-8 Registration Statement under the Securities Act of
1933, as amended.

4. Nothing herein or in the documentation evidencing the Option
shall interfere with or otherwise restrict in any way the rights of the
Corporation or the Corporation stockholders to remove Optionee from the Board
at any time in accordance with applicable law.

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

CYGNUS, INC.

By:
- ----------------------------------- -----------------------------------
ANDRE F. MARION
Title:
--------------------------------

<PAGE>

EXHIBIT 99.8

CYGNUS, INC.

STOCK OPTION AGREEMENT

NOTICE OF STOCK OPTION GRANT

OPTIONEE'S NAME: Andre Marion

OPTIONEE'S ADDRESS: AM Services, 556 Kingsley Avenue, Palo Alto, CA
94301

You (the "Optionee") have been granted an option (the "Option") to
purchase shares of common stock ("Shares") of Cygnus, Inc. (the "Company"),
subject to the terms and conditions of this Stock Option Agreement ("Option
Agreement"), as follows:

GRANT NUMBER:
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DATE OF GRANT: AUGUST 31, 1998
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VESTING COMMENCEMENT DATE: AUGUST 31, 1998
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EXERCISE PRICE PER SHARE: $3.25
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TOTAL NUMBER OF OPTION SHARES: 20,000 Shares

TOTAL EXERCISE PRICE: $65,000
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TYPE OF OPTION: Nonstatutory Stock Option

EXPIRATION DATE: AUGUST 30, 2008
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VESTING SCHEDULE:

This Option shall become exercisable for all the Option Shares upon
the Optionee's completion of twelve (12) months of Service measured
from the Vesting Commencement Date. Once this Option become
exercisable, the Option may be exercised for any or all of the Option
Shares at any time prior to the expiration or sooner termination of
the option term.

In no event shall this Option become exercisable for any Option Shares
after Optionee's cessation of Service. For purposes of this
Agreement, Optionee shall be deemed to continue in Service for so
long as Optionee remains a member of the Corporation's Board of
Directors or performs services for the Corporation as an independent
consultant.

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TERMINATION PERIOD:

TERMINATION OF SERVICE. If the Optionee's Service terminates for
any reason other than permanent disability or death, Optionee shall have a
period of three (3) months measured from the date of such termination in
which to exercise this Option for any or all of the Option Shares for which
this Option is exercisable at the time of such termination of Service. Upon
the expiration of such three (3)-month period, the Option shall terminate and
cease to be outstanding for any exercisable Option Shares for which the
Option has not previously been exercised. However, to the extent this Option
is not exercisable for one or more Option Shares at the time of the
Optionee's termination of Service, the Option shall terminate immediately and
cease to be outstanding with respect to those Option Shares.

DISABILITY OF OPTIONEE. In the event Optionee is unable to
continue in Service as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Internal Revenue Code), Optionee shall
have a period of six (6) months measured from the date of termination, in
which to exercise this Option for any or all of the Option Shares for which
this Option is exercisable at the time of such termination of Service. Upon
the expiration of such six (6)-month period, the Option shall terminate and
cease to be outstanding for any exercisable Option Shares for which the
Option has not previously been exercised. However, to the extent this Option
is not exercisable for one or more Option Shares at the time of the
Optionee's termination of Service, the Option shall terminate immediately and
cease to be outstanding with respect to those Option Shares.

DEATH OF OPTIONEE. Exercise of this Option upon Optionee's death
will be governed by one of the following provisions:

(i) In the event of the Optionee's death prior to his termination
of Service, the Optionee's estate or the person who acquired the right to
exercise the Option by bequest or inheritance shall have a period of six (6)
months measured from the date of the Optionee's death in which to exercise
this Option for any or all of the Option Shares for which this Option is
exercisable at the time of Optionee's death plus any additional Option Shares
for which the Option would have become exercisable had Optionee continued in
Service for an additional six (6) months. Upon the expiration of such
six-month period, the Option shall terminate and cease to be outstanding for
any exercisable Option Shares for which the Option has not previously been
exercised. However, to the extent this Option is not exercisable for one or
more Option Shares at the time of the Optionee's death, after taking into
account the number of additional Option Shares which may first become
exercisable hereunder at the time of Optionee's death, the Option shall
terminate immediately and cease to be outstanding with respect to those
Option Shares.

(ii) In the event of Optionee's death within thirty (30) days after
termination of Service, Optionee's estate or the person who acquired the
right to exercise the Option by bequest or inheritance shall have a period of
six (6) months measured from the date of the Optionee's death in which to
exercise this Option for any or all of the Option Shares for which this
Option is exercisable at the time of Optionee's termination of Service. Upon
the expiration of such six (6)-month period, the Option shall terminate and
cease to be outstanding for any exercisable Option Shares for which the
Option has not previously been exercised. However, to

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the extent this Option is not exercisable for one or more Option Shares at
the time of the Optionee's termination of Service, the Option shall terminate
immediately and cease to be outstanding with respect to those Option Shares.

EXPIRATION DATE. Notwithstanding the foregoing, in no event may
this Option be exercised later than the Expiration Date specified above.

AGREEMENT

GRANT OF OPTION. The Company hereby grants to the Optionee an
option (the "Option") to purchase the Option Shares at the Exercise Price per
Share set forth above subject to the terms and conditions of this Option
Agreement.

EXERCISE OF OPTION.

RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set forth above and the applicable
provisions of this Option Agreement. In the event of Optionee's death,
disability or other termination of Optionee's Service, the exercisability of
the Option is governed by the applicable provisions of this Option Agreement.
The Option may not be exercised for a fraction of a share.

METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, which shall state the election to exercise the Option, the
number of Option Shares for which the Option is being exercised (the
"Exercised Shares"), and such other representations and agreements as may be
required by the Company. The Exercise Notice shall be signed by the Optionee
and shall be delivered in person or by certified mail to the Chief Financial
Officer of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price per Share as to all Exercised Shares. This
Option shall be deemed to be exercised upon receipt by the Company of such
fully executed Exercise Notice accompanied by payment of the aggregate
Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Optionee on the date the Option
is exercised with respect to such Exercised Shares.

METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall
be made by cash or check, or in any other form which the Board of Directors
may, in its discretion, approve at the time of exercise, including, among
other methods, by delivery of a properly executed notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the option price.

NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of this Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.

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TERM OF OPTION. This Option may only be exercised on or before the
Expiration Date set forth in Part I above, and may be exercised during such
term only in accordance with the terms of this Option Agreement.

TAX CONSEQUENCES. Some of the federal and California tax
consequences relating to this Option, as of the date of this Option, are set
forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

EXERCISING THE OPTION.

NONQUALIFIED STOCK OPTION ("NSO"). Because this Option is not an
incentive stock option under the federal tax laws, the Optionee may incur
regular federal income tax and California income tax liability upon exercise.
The Optionee will be treated as having received compensation income (taxable
at ordinary income tax rates) equal to the excess, if any, of the fair market
value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price paid for those shares. If the Optionee is an employee at the
time of such exercise, then the Company will be required to withhold from his
compensation or collect from the Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at
the time of exercise.

DISPOSITION OF SHARES. If the Optionee holds NSO Shares for more
than one year, any gain realized on the subsequent sale or other taxable
disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes.

Optionee and the Company hereby agree that this Option is granted
under and governed by the terms and conditions of this Option Agreement.
Optionee has reviewed this Option Agreement in its entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of this Option Agreement.

Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions relating to this
Option Agreement.

OPTIONEE: CYGNUS, INC.

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(Signature) (Signature)

Andre Marion By:
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(Print Name) (Print Name)
(Print Title)