LIGAND PHARMACEUTICALS INC, DEF 14A, 1999-04-16

LIGAND PHARMACEUTICALS INC
DEF 14A, 1999-04-16
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

SCHEDULE 14A INFORMATION
(Rule 14a-101)

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12

Ligand Pharmaceuticals Incorporated
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2
LIGAND PHARMACEUTICALS INCORPORATED

April 16, 1999

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of the
Stockholders of Ligand Pharmaceuticals Incorporated, to be held on Thursday, May
20, 1999 at 9:00 a.m. at the La Jolla Marriott located at 4240 La Jolla Village
Drive, La Jolla, California.

Details of the business to be conducted at the Annual Meeting are
given in the attached Notice of Annual Meeting and Proxy Statement.

If you do not plan to attend the Annual Meeting, please sign,
date and return the enclosed proxy promptly in the accompanying reply envelope.
If you decide to attend the Annual Meeting and wish to change your proxy vote,
you may do so automatically by voting in person at the Annual Meeting.

We look forward to seeing you at the Annual Meeting.

San Diego, California David E. Robinson
Chairman, President and Chief Executive Officer

YOUR VOTE IS IMPORTANT

In order to assure your representation at the meeting, you are requested
to complete, sign and date the enclosed proxy as promptly as possible and return
it in the enclosed envelope. You do not need to add postage if mailed in the
United States.

<PAGE> 3
LIGAND PHARMACEUTICALS INCORPORATED
10275 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD May 20, 1999

Dear Stockholder:

The Annual Meeting of Stockholders of Ligand Pharmaceuticals
Incorporated (the "Company") will be held at the La Jolla Marriott located at
4240 La Jolla Village Drive, La Jolla, California on Thursday, May 20, 1999 at
9:00 a.m., Pacific Standard Time, for the following purposes:

1. To elect a Board of Directors for the following year.
Management has nominated the following persons for election at
the meeting: David E. Robinson, Henry F. Blissenbach, Alexander
D. Cross, John Groom, Irving S. Johnson, Carl C. Peck and Michael
A. Rocca.

2. To approve an amendment to the Company's 1992 Stock
Option/Stock Issuance Plan, to increase the number of shares of
the Company's common stock authorized for issuance from 8,088,457
to 9,073,457 shares.

3. To approve an amendment to the Company's 1992 Employee Stock
Purchase Plan, to increase the number of shares of the Company's
common stock available for purchase from 260,000 to 355,000
shares.

4. To ratify the selection of Ernst & Young LLP as independent
accountants for the fiscal year ending December 31, 1999.

5. To transact any other business as may properly come before the
meeting or any adjournment thereof.

Stockholders of record at the close of business on April 1, 1999
will be entitled to vote at the Annual Meeting. The stock transfer books of the
Company will remain open between the record date and the date of the meeting. A
list of stockholders entitled to vote at the Annual Meeting will be available
for inspection at the offices of the Company. Whether or not you plan to attend
the Annual Meeting in person, please sign, date and return the enclosed proxy in
the envelope provided. If you attend the Annual Meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the Annual Meeting
will be counted. The prompt return of your proxy will assist us in preparing for
the Annual Meeting.

By Order of the Board of Directors

WILLIAM L. RESPESS

Secretary
San Diego, California
April 16, 1999

<PAGE> 4
LIGAND PHARMACEUTICALS INCORPORATED
10275 Science Center Drive
San Diego, California 92121

PROXY STATEMENT

For the Annual Meeting of Stockholders
To Be Held
May 20, 1999

GENERAL

The enclosed proxy is solicited on behalf of the Board of
Directors of Ligand Pharmaceuticals Incorporated, a Delaware corporation (the
"Company"), for use at the annual meeting of stockholders to be held on May 20,
1999. The annual meeting will be held at 9:00 a.m. at the La Jolla Marriott
located at 4240 La Jolla Village Drive, La Jolla, California. Stockholders of
record on April 1, 1999 will be entitled to notice of and to vote at the Annual
Meeting.

This proxy statement and accompanying proxy were first mailed to
stockholders on or about April 16, 1999.

PURPOSE OF THE MEETING

The specific proposals to be considered and acted upon at the
annual meeting are summarized in the accompanying notice and are described in
more detail in this proxy statement.

VOTING

On April 1, 1999, the record date for determination of
stockholders entitled to vote at the annual meeting, there were approximately
46,621,520 shares of common stock, par value $.001 (the "Common Stock"),
outstanding. Each stockholder is entitled to one vote for each share of common
stock held by such stockholder on April 1, 1999. Stockholders may not cumulate
votes in the election of directors.

All votes will be tabulated by the inspector of election
appointed for the meeting who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions and broker non-votes will
be counted for purposes of determining whether a quorum is present at the annual
meeting. With regard to the election of directors, votes may be cast in favor
of, or withheld from, each nominee. However, the directors will be elected by
plurality vote, and votes that are withheld will be excluded entirely from the
vote and will have no effect. All other matters to be acted upon by the
stockholders at the annual meeting will require the approval of the holders of a
majority of the outstanding common stock present in person or represented by
proxy and entitled to vote at the annual meeting. With respect to such matters,
abstentions will have the effect of negative votes, and broker non-votes will
not be counted for purposes of determining whether any of those proposals have
been approved.

REVOCABILITY OF PROXIES

Any person giving a proxy has the power to revoke it at any time
before its exercise. It may be revoked by filing with the Secretary of the
Company at the Company's principal executive office, 10275 Science Center Drive,
San Diego, California 92121, a notice of revocation or another signed proxy with
a later date. You may also revoke your proxy by attending the annual meeting and
voting in person.

<PAGE> 5
SOLICITATION

The Company will bear the entire cost of solicitation, including
the preparation, assembly, printing and mailing of this proxy statement, the
proxy and any additional solicitation material furnished to stockholders. Copies
of solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. To assist in the solicitation process, the Company has retained
ChaseMellon Shareholder services. The fee for such services will be
approximately $5,000 plus reasonable expenses incurred to distribute
solicitation materials. No additional compensation will be paid to directors,
officers or employees of the Company for any such services. Except as described
above, the Company does not presently intend to solicit proxies other than by
mail.

<PAGE> 6
PROPOSAL NO. 1
ELECTION OF DIRECTORS

The persons named below are nominees for director to serve until
the next annual meeting of stockholders and until their successors have been
elected and qualified. The Company's bylaws provide that the authorized number
of directors shall be determined by resolution of the Board of Directors or by
the stockholders at an annual meeting and shall be within the range of seven to
11 individuals. The authorized number of directors is currently eight. The Board
of Directors has selected seven nominees, all of whom except Mr. Rocca are
currently directors of the Company. Each person nominated for election has
agreed to serve if elected, and management has no reason to believe that any
nominee will be unavailable to serve. Unless otherwise instructed, the
proxyholders will vote the proxies received by them for the nominees named
below. The proxies received by the proxyholders cannot be voted for more than
seven directors and, unless otherwise instructed, the proxyholders will vote
such proxies for the nominees named below. The seven candidates receiving the
highest number of affirmative votes of the shares entitled to vote at the annual
meeting will be elected directors of the Company.

NOMINEES

The following table sets forth information regarding the
nominees.

<TABLE>
<CAPTION>
Year First
Elected
Name Positions and Offices Held Director Age
- - ---- -------------------------- ---------- ---
<S> <C> <C> <C>
David E. Robinson Chairman, President, Chief 1991 50
Executive Officer and
Director
Henry F. Blissenbach (A) Director 1995 56
Alexander D. Cross, Ph.D. (B) Director 1991 67
John Groom (A)(B) Director 1995 60
Irving S. Johnson, Ph.D. Director 1989 73
Carl C. Peck, M.D. Director 1997 57
Michael A. Rocca Nominee N/A 54
</TABLE>

(A) Member of Compensation Committee.

(B) Member of Audit Committee.

BUSINESS EXPERIENCE OF DIRECTORS

DAVID E. ROBINSON has served as President, Chief Executive
Officer and a Director since 1991. Since May 1996, Mr. Robinson has also served
as Chairman of the Company. Prior to joining Company, he was Chief Operating
Officer at Erbamont, a pharmaceutical company. Prior to that, Mr. Robinson was
President of Adria Laboratories, Erbamont's North American subsidiary. He also
was employed in various executive positions for more than 10 years by Abbott
Laboratories, most recently as Regional Director of Abbott Europe. Mr. Robinson
received his B.A. in political science and history from MacQuaire University and
his M.B.A. from the University of South Wales, Australia. Mr. Robinson is a
Director of the Pharmaceutical Research and Manufacturers of America, the Cancer
Center Foundation of the University of California at San Diego and the
California Healthcare Institute, as well as Neurocrine Biosciences, Inc., and
Collateral Therapeutics, Inc., public biotechnology companies, and several
private health care companies.

HENRY F. BLISSENBACH has served as a Director since May 1995 and
currently serves as a member of the Company's Compensation Committee. Dr.
Blissenbach is currently President and Chief Operating Officer of Chronimed,
Inc., a public medical product mail-order company ("Chronimed"). Previously, Dr.
Blissenbach served

<PAGE> 7
as President of Diversified Pharmaceutical Services, a subsidiary of SmithKline
Beecham Corp. ("SmithKline Beecham"), from August 1986 until March 1997. He
earned his Doctor of Pharmacy (Pharm.D.) degree at the University of Minnesota,
College of Pharmacy. He has held an academic appointment in the College of
Pharmacy, University of Minnesota, since 1981. He has vast experience in managed
health care, and has served in numerous advisory capacities with pharmaceutical
manufacturers and managed care entities over the past many years. Dr.
Blissenbach currently serves on the Board of Directors of Chronimed.

ALEXANDER D. CROSS, Ph.D. has served as a Director of Company
since March 1991 and currently serves as a member of the Company's Audit
Committee. Dr. Cross has been an independent consultant in the fields of
pharmaceuticals and biotechnology since January 1986. Dr. Cross served as
President and Chief Executive Officer of Zoecon Corporation, a biotechnology
company, from April 1983 to December 1985, and Executive Vice President and
Chief Operating Officer from 1979 to 1983. Dr. Cross currently serves as
Chairman of the Board of Directors and Chief Executive Officer for Cytopharm,
Inc., a private company. He is a member of the Board of Directors of Myelos
Neurosciences, and Dermal Systems International Inc., private companies.

JOHN GROOM has served as a Director since May 1995 and currently
serves as a member of the Company's Audit and Compensation Committees. Mr. Groom
has served as President and Chief Operating Officer of Elan Corporation, plc
("Elan") since January 1997, having previously served from July 1996 to January
1997 as Chief Operating Officer and a director on the Board of Directors of
Elan. Previously, he was President, Chief Executive Officer, and a director on
the Board of Directors of Athena Neurosciences, Inc. from 1987 until its
acquisition by Elan in July 1996. From 1960 until 1985, Mr. Groom was employed
by Smith Kline & French Laboratories ("SK&F"), the pharmaceutical division of
the then - SmithKline Beechman. He held a number of positions at SK&F including
President of SK&F International, Vice President, Europe, and Managing Director,
United Kingdom. Mr. Groom has also served as Chairman of the International
Section of the Pharmaceutical Manufacturers Association. Mr. Groom also serves
as a director on the Board of Directors of IDEC Pharmaceuticals Corporation, a
public biotechnology company, and the California Healthcare Institute and is a
public trustee on the Board of Trustees of the American Academy of Neurology
Education and Research Foundation. Mr. Groom is Fellow of the Association of
Certified Accountants (UK).

IRVING S. JOHNSON, Ph.D. has served as a Director since March
1989. Dr. Johnson has been an independent consultant in biomedical research
since 1989. From 1953 until his retirement in November 1988, Dr. Johnson held
various positions with Eli Lilly & Company, a pharmaceutical company, including
Vice President of Research from 1973 until 1988. He has published almost 90
scientific articles, contributed to over 30 books and has served on numerous
editorial boards, society committees and advisory committees of the National
Academy of Sciences and the National Institutes of Health including the
Recombinant DNA Advisory Committee, and was the recipient of the First Annual
Congressional Award in Science and Technology. Dr. Johnson is a member of the
Board of Directors of Agouron Pharmaceuticals, Inc. and Allelix
Biopharmaceuticals, both public pharmaceutical companies. He currently serves on
the Scientific Advisory Boards of both the Company and Elan.

CARL C. PECK, M.D. has served as a Director since May 1997. Dr.
Peck has been Professor of Pharmacology and Medicine and Director of the Center
for Drug Development Science at Georgetown University Medical Center since
September, 1994. Dr. Peck was Boerhaave Professor of Clinical Drug Research at
Leiden University from November 1993 to July 1995. From October 1987 to November
1993, Dr. Peck was Director, Center for Drug Evaluation and Research of the FDA.
He held many academic positions prior to October 1987, including Professor of
Medicine and Pharmacology, Uniformed Services University, from 1982 to October
1987. He is author of more than 100 original research papers, chapters and books
with regard to his area of expertise.

MICHAEL A. ROCCA has been nominated to serve on the Board of
Directors. Mr. Rocca is currently Senior Vice President and Chief Financial
Officer of Mallinckrodt, Inc., a global manufacturer and marketer of specialty
medical products, a position he has held since 1994. From 1966 until 1994, Mr.
Rocca was employed by Honeywell, Inc., a control technology company. He held a
number of positions at Honeywell which included Vice President and Treasurer,
Vice President of Finance, Europe, and Vice President and Controller
International. Mr. Rocca is a graduate of the University of Iowa and has a
strong background in finance and accounting.

<PAGE> 8
BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of 6 meetings
and acted by written consent one time during the fiscal year ended December 31,
1998. With the exception of Ms. Fash, during such year, each director attended
at least 75% of the aggregate number of meetings of the Board of Directors and
of the Board committees on which such director served. Ms. Fash attended 70% of
such total of meetings and was advised of all activity associated with meetings
she did not attend.

The Company has an Audit Committee and a Compensation Committee
of the Board of Directors. The Company does not have a Nominating Committee or a
committee that performs the functions of a Nominating Committee.

The Audit Committee was established in March 1992 and is
primarily responsible for reviewing the financial reporting process and the
Company's internal accounting controls, and approving the services performed by,
and the independence of, the Company's auditors. This Committee currently
consists of Dr. Cross and Mr. Groom. The Audit Committee held two meetings
during 1998.

The Compensation Committee was established in March 1992 and
reviews and approves the Company's compensation policies. This committee
currently consists of Messrs. Blissenbach and Groom, and Ms. Fash. Ms. Fash is
not standing for re-election. The Compensation Committee held four meetings and
acted by unanimous written consent two times during 1998.

DIRECTOR COMPENSATION

Certain non-employee Board members are paid fees for their Board
service and are reimbursed for expenses incurred in connection with such
service. Drs. Cross and Peck, and Mr. Blissenbach each receive a fee of $2,000
for each Board meeting attended, $750 for each committee meeting attended on
non-Board meeting dates and $500 for each Board meeting in which he participated
by telephone. The Company also reimburses Drs. Cross and Peck, and Mr.
Blissenbach for all reasonable and necessary travel and other incidental
expenses in connection with the performance of his Board duties. Under a
commitment with Dr. Johnson, the Company pays him a fee of $2,000 for each Board
meeting attended, $500 for each Board meeting in which he participates by
telephone and $1,000 for each day of service in excess of four days which he
renders as a member of the Scientific Advisory Board. The Company also
reimburses Dr. Johnson for all reasonable and necessary travel and other
incidental expense incurred in connection with such duties.

In addition, non-employee Board members are also eligible to
participate in the Automatic Option Grant Program in effect under the 1992 Stock
Option/Stock Issuance Plan. Each of the following individuals re-elected as a
non-employee Board member at the 1998 Annual Meeting, received an option to
purchase 10,000 shares of common stock with an exercise price of $14.50 per
share: Messrs. Blissenbach and Groom and Drs. Cross and Johnson and Peck. For
further information concerning such automatic option grants to directors, please
see "Proposal 2-Amendment of the 1992 Stock Option/Stock Issuance
Plan--Automatic Option Grant Program" below.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors unanimously recommends a vote FOR the
nominees listed herein.

<PAGE> 9
PROPOSAL NO. 2
AMENDMENT OF THE 1992 STOCK OPTION/STOCK ISSUANCE PLAN

The 1992 Stock Option/Stock Issuance Plan was originally adopted
by the Board and was approved by the stockholders in 1992. The amendments to the
1992 Plan which are the subject of this Proposal were approved by the Board in
February and March 1999, subject to stockholder approval at the annual meeting.

The proposed share increase will assure that a sufficient reserve
of common stock is available under the 1992 Plan to attract and retain the
services of key individuals essential to the Company's long-term growth and
success.

The following is a summary of the principal features of the 1992
Plan, as amended. The summary, however, does not purport to be a complete
description of all the provisions of the 1992 Plan. Copies of the actual plan
document may be obtained by any stockholder upon written request to the
Corporate Secretary at the Company's principal executive offices in San Diego,
California.

PLAN STRUCTURE

The 1992 Plan contains four separate equity programs:

o the Discretionary Option Grant Program,

o the Automatic Option Grant Program,

o the Stock Issuance Program, and

o the Director Fee Option Grant Program.

The principal features of these programs are described below. The 1992 Plan is
administered by the Compensation Committee of the Board. This committee (the
"Plan Administrator") has complete discretion (subject to the provisions of the
1992 Plan) to authorize option grants and direct stock issuances under the 1992
Plan. However, the Plan Administrator will not exercise any administrative
discretion under the Automatic Option Grant or Director Fee Option Grant Program
for the non-employee Board members. All grants under those programs will be made
in strict compliance with the express provisions of each such program.

ISSUABLE SHARES

A total of 9,073,457 shares of Common Stock has been reserved for
issuance over the 10 year term of the 1992 Plan, assuming stockholder approval
of the 985,000-share increase which forms part of this Proposal. As of March 1,
1999, options for 5,183,728 shares of Common Stock were outstanding under the
1992 Plan, 998,063 shares remained available for future option grant or direct
issuance (assuming stockholder approval of the 985,000-share increase which
forms part of this Proposal), and 2,887,551 shares have been issued under the
1992 Plan. Without such increase, only 13,063 shares would be available for
future grant.

In no event may any one participant in the 1992 Plan receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,000,000 shares in the aggregate over the term of the
1992 Plan.

Should an option expire or terminate for any reason prior to
exercise in full, the shares subject to the portion of the option not so
exercised will be available for subsequent option grants or stock issuances
under the 1992 Plan. In addition, unvested shares issued under the 1992 Plan and
subsequently repurchased by the Company, at the original exercise price or issue
price paid per share, will be added back to the number of shares of common stock
reserved for issuance under the 1992 Plan. Accordingly, such repurchased shares
will be available for reissuance through one or more subsequent option grants or
direct stock issuances under the 1992 Plan. However,

<PAGE> 10
shares subject to any option surrendered or canceled in accordance with the
stock appreciation right provisions of the 1992 Plan will reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent grants.

Should any change be made to the common stock issuable under the
1992 Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding common stock as a class without the Company's receipt of
consideration, then appropriate adjustments will be made to

o the maximum number and/or class of securities issuable
under the 1992 Plan;

o the number and/or class of securities for which any one
person may be granted options, separately exercisable
stock appreciation rights and direct stock issuances
over the remaining term of the 1992 Plan;

o the number and/or class of securities for which grants
are to be made under the Automatic Option Grant Program
to new or continuing non-employee Board members; and

o the number and/or class of securities and price per
share in effect under each outstanding option.

Such adjustments to the outstanding options will be effected in a manner which
will preclude the enlargement or dilution of rights and benefits under those
options.

ELIGIBILITY

Officers and other key employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board and consultants and independent contractors of the Company
and its parent and subsidiaries are eligible to participate in the 1992 Plan.

As of March 1, 1999, approximately 428 employees (including 10
executive officers) and six non-employee Board members were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
six non-employee Board members were also eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.

VALUATION

The fair market value per share of common stock on any relevant
date under the 1992 Plan will be deemed to be equal to the closing selling price
per share on that date on the Nasdaq National Market. If there is no reported
selling price for such date, then fair market value per share will be the
closing selling price on the next preceding date for which such quotation
exists. On March 1, 1999, the closing selling price per share was $9.625.

DISCRETIONARY GRANT PROGRAM

Option Price and Term. Options may be granted under the
Discretionary Option Grant program at an exercise price per share not less than
85% of the fair market value per share of common stock on the option grant date.
No option will have a term in excess of 10 years measured from the grant date.

<PAGE> 11
Vesting of Options. The vesting schedule for each granted option will be
determined by the 1992 Plan Administrator at the time of the grant. The granted
option may be

o immediately exercisable for vested shares,

o immediately exercisable for unvested shares subject to
the Company's repurchase rights or

o exercisable in installments for vested shares over the
optionee's period of service.

Payment. Upon exercise of the option, the option price for the
purchased shares will become immediately payable in cash or in shares of common
stock valued at fair market value on the exercise date. The option may also be
exercised through a cashless exercise procedure under which the optionee
provides irrevocable instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the sale
proceeds, an amount equal to the aggregate option price payable for the
purchased shares plus all applicable withholding taxes.

Termination of Service. Upon cessation of service, the optionee
will have a limited period of time in which to exercise any outstanding option
to the extent the option is exercisable for vested shares. The Plan
Administrator will have complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability or vesting of such options
in whole or in part. Such discretion may be exercised at any time while the
options remain outstanding.

Stockholder Rights and Option Assignability. No optionee is to
have any stockholder rights with respect to the option shares until such
optionee has exercised the option, paid the option price for the purchased
shares and been issued a stock certificate for such shares. Options are
generally not assignable or transferable other than by will or the laws of
inheritance and, during the optionee's lifetime, the option may be exercised
only by such optionee. However, the Plan Administrator may allow non-statutory
options to be transferred or assigned during the optionee's lifetime to one or
more members of the optionee's immediate family or to a trust established
exclusively for one or more such family members, to the extent such transfer or
assignment is in furtherance of the optionee's estate plan.

Stock Appreciation Rights. The 1992 Plan Administrator is
authorized to issue two types of stock appreciation rights in connection with
option grants made under the Discretionary Option Grant Program:

Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution
from the Company equal in amount to the excess of

o the fair market value of the vested shares of common
stock subject to the surrendered option over

o the aggregate exercise price payable for those shares.

Such appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of common stock.

Limited stock appreciation rights may be granted to officers of
the Company as part of their option grants. Any option with a
limited stock appreciation right will automatically be cancelled,
to the extent such option is at the time exercisable for
fully-vested shares of Common Stock, upon the occurrence of a
hostile take-over of the Company. Upon cancellation, the officer
will be entitled

<PAGE> 12
to a cash distribution from the Company in an amount per vested
option share equal to the excess of

o the take-over price over

o the exercise price payable for such share.

Cancellation/Regrant. The 1992 Plan Administrator will have the
authority to effect, on one or more separate occasions, the cancellation of
outstanding options under the Discretionary Grant Program which have exercise
prices in excess of the then current market price of the common stock and to
issue replacement options with an exercise price based on the lower market price
of the common stock at the time of grant.

AUTOMATIC GRANT PROGRAM

Each individual who first becomes a non-employee Board member on
or after the date of the annual meeting, whether through election by the
stockholders or appointment by the Board, will automatically be granted at the
time of such initial election or appointment a non-statutory stock option to
purchase 20,000 shares of common stock, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each annual
stockholders meeting, each individual who is at that time re-elected as a
non-employee Board member will automatically be granted a non-statutory stock
option to purchase 10,000 shares of common stock. There is no limit on the
number of such 10,000 share option grants a non-employee Board member may
receive over his or her period of Board service, and re-elected Board members
who have previously been in the Company's employ will be eligible to receive
such grants.

The provisions which will govern each such option grant may be
summarized as follows:

o The option will have an exercise price per share equal
to the fair market value per share of common stock on
the grant date.

o Each option will have a maximum term of 10 years
measured from the grant date.

o Each option will become exercisable for all the option
shares upon the optionee's completion of one year of
Board service measured from the grant date, subject to
immediate acceleration upon certain changes in control
of the Company if such option is not assumed not by the
successor entity.

o The option will remain exercisable for a three-month
period following the optionee's cessation of Board
service for any reason other than death. Should the
optionee die while any option is still exercisable, then
such option will remain exercisable for a 36-month
period following such optionee's death and may be
exercised by the personal representative of the
optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be
exercised after the expiration date of the maximum
option term. During the applicable exercise period, the
option may not be exercised for more than the number of
shares (if any) for which it was exercisable at the time
of the optionee's cessation of Board service.

The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under the
Discretionary Grant Program and will be incorporated into the option agreement
evidencing the automatic grant.

<PAGE> 13
STOCK ISSUANCE PROGRAM

Issue Price. Shares may be issued under the Stock Issuance
Program at a price per share not less than 85% of their fair market value,
payable in cash or through a promissory note payable to the Company. Shares may
also be issued as a bonus for past services.

Vesting of Shares. The vesting schedule for each share issued
will be determined by the 1992 Plan Administrator at the time of issuance. The
shares may be fully and immediately vested upon issuance or may vest in one or
more installments, subject to the Company's repurchase right, over the
participant's period of service.

Stockholder Rights. The recipient of the shares will have full
stockholder rights, including voting and dividend rights, whether or not the
shares are vested. However, the recipient may not sell, transfer or assign any
unvested shares issued under the 1992 Plan, except for certain limited family
transfers.

Repurchase Rights. Should the recipient of unvested shares cease
to remain in the Company's service before vesting in such shares, then those
unvested shares must be immediately surrendered to the Company for cancellation,
and the recipient will have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
recipient for consideration paid in cash or promissory note, the Company will
refund the cash consideration paid for the surrendered shares and cancel the
remaining principal balance of the note to the extent attributable to such
surrendered shares. The 1992 Plan Administrator, however, will have the
discretion to waive any such cancellation of unvested shares in whole or in
part, thereby vesting those shares on an accelerated basis under such
circumstances as the 1992 Plan Administrator may deem appropriate.

Payment. Upon issuance of the shares, the issue price for the
purchased shares will become immediately payable in cash, in shares of common
stock valued at fair market value on the date of issuance, or by promissory note
payable to the Company. The promissory note may, at the discretion of the 1992
Plan Administrator, be subject to cancellation over the participant's period of
service. Shares may also be issued for past services, without any cash or other
payment required of the participant.

DIRECTOR FEE OPTION GRANT PROGRAM

Each non-employee Board member will have the right, to apply all
or a portion of the fee otherwise payable to him in cash each year to the
acquisition of a special option grant under the Director Fee Option Grant
Program. The Board member must make his election to participate in the program
for a particular calendar year by December 31 of the immediately preceding
calendar year. The grant for each year of participation will automatically be
made on the first trading day in January of that year and will have an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date. The number of option shares will be determined by dividing
the total dollar amount of the fees subject to the Board member's election by
two-thirds of the fair market value per share of common stock on the option
grant date. As a result, the total spread on the option (the fair market value
of the option shares on the grant date less the aggregate exercise price payable
for those shares) will be equal to the portion of the fee subject to the Board
member's election. Until the Company establishes an annual retainer fee for the
non-employee Board members, the dollar amount of the fee subject to the Board
member's election each year will be equal to the number of regularly-scheduled
Board meetings for that year multiplied by the per Board meeting fee in effect
for such year.

The option will become exercisable for the option shares in a
series of 12 successive equal monthly installments upon the optionee's
completion of each month of Board service during the calendar year of the option
grant. In the event the optionee ceases Board service for any reason (other than
death or permanent disability), the unvested shares subject to the option at the
time of such cessation will immediately terminate; however, the option will
remain exercisable for the vested shares subject to the option until the earlier
of

o the expiration of the 10-year option term or

o the end of the three-year period measured from the date
of the optionee's cessation of Board service.

<PAGE> 14
Should the optionee's service as a Board member cease by reason of death or
permanent disability, then the option will immediately become exercisable for
all the shares of common stock subject to the option and may be exercised for
such shares until the earlier of

o the expiration of the 10-year option term or

o the end of the three-year period measured from the date
of the optionee's cessation of Board service.

GENERAL PROVISIONS

Change in Control. In the event that the Company is acquired by
merger or asset sale, all outstanding options under the Discretionary Option
Grant, Automatic Option Grant and Director Fee Option Grant Programs will be
assumed by the successor corporation. If those options are not assumed, such
options will vest on an accelerated basis immediately prior to such acquisition
and will, to the extent not exercised for one or more option shares, terminate
immediately prior to such acquisition. All unvested shares under the
Discretionary Option Grant and Stock Issuance Programs will immediately vest
upon the consummation of such acquisition, except to the extent the Company's
repurchase rights with respect to those shares are assigned to the successor
corporation. All options outstanding under the Automatic Option Grant and
Director Fee Option Grant Programs at the time of such an acquisition will vest
in full immediately prior to the effective date of such acquisition, whether or
not assumed. Any options which are assumed in connection with such acquisition
will automatically be adjusted immediately following such transaction, to apply
and pertain to the number and class of securities that would be issuable to an
actual holder of the same number of shares of common stock as are subject to
such option immediately prior to the transaction.

Special Acceleration Agreements. The Company entered into an
agreement with each employee holding one or more outstanding options under the
1992 Plan (including each executive officer other than Mr. Robinson), pursuant
to which those options will automatically vest on an accelerated basis in the
event that such individual's employment is terminated following

o an acquisition of the Company by merger or asset sale in
which those options are assumed or

o a change in control of the Company effected through a
successful tender offer for more than 50% of the
Company's outstanding common stock or through a change
in the majority of the Board as a result of one or more
contested elections for Board membership.

These agreements assure such individuals that the economic benefit of their
outstanding options under the 1992 Plan will be preserved in the event of a
change in control or the subsequent termination of their employment by the
successor entity. Mr. Robinson has entered into an employment agreement with the
Company that provides for the immediate vesting of his options, except under
certain limited circumstances, upon his termination of employment in connection
with certain events, including a change in control of the Company. The terms of
this agreement are summarized below under "Executive Compensation And Other
Information-Employment Contracts, Severance Agreements and Change of Control
Arrangements."

The acceleration of options in the event of a change in control
may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.

FINANCIAL ASSISTANCE

The 1992 Plan Administrator may institute a loan program to
assist one or more participants in financing the exercise of outstanding options
or the purchase of shares under the Discretionary Option Grant or Stock Issuance
Program. The 1992 Plan Administrator will have complete discretion to determine
the terms of any

<PAGE> 15
such financial assistance. However, the maximum amount of financing provided any
individual may not exceed the cash consideration payable for the issued shares
plus all applicable taxes. Any such financing may be subject to forgiveness in
whole or in part, at the discretion of the 1992 Plan Administrator, over the
participant's period of service.

SPECIAL TAX WITHHOLDING ELECTION

The 1992 Plan Administrator may provide one or more participants
in the 1992 Plan with the election to have the Company withhold, from the shares
of common stock otherwise issuable upon the exercise of non-statutory options or
the vesting of unvested shares, a portion of those shares in satisfaction of the
tax liability incurred in connection with their acquisition or vesting. Any
election so made will be subject to the approval of the 1992 Plan Administrator,
and no shares will be accepted in satisfaction of such tax liability except to
the extent the 1992 Plan Administrator approves the election. Alternatively, one
or more participants may be granted the right, subject to 1992 Plan
Administrator approval, to deliver existing shares of common stock in
satisfaction of such tax liability. The withheld or delivered shares will be
valued at their then current fair market value.

AMENDMENT AND TERMINATION

The Board of Directors may amend or modify the 1992 Plan in any
or all respects whatsoever. However, no such amendment may adversely affect the
rights of existing optionees or participants without their consent. In addition,
certain amendments may require stockholder approval pursuant to applicable laws
or regulations.

The Board may terminate the 1992 Plan at any time, and the 1992
Plan will in all events terminate on November 16, 2002.

Each stock option outstanding at the time of such termination will remain in
force in accordance with the provisions of the documents evidencing such grant.

<PAGE> 16
STOCK AWARDS

The table below shows, as to the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers of
Company (collectively, the "Named Executive Officers") and the various indicated
individuals and groups, the number of shares of Common Stock subject to options
granted under the 1992 Plan between January 1, 1998 and April 1, 1999, together
with the weighted average exercise price payable per share.

<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Name and Principal Position (#) Price
- - --------------------------- ------- --------
<S> <C> <C>
DAVID E. ROBINSON .................................................. 100,000 $ 15.00
Chairman of the Board, President, Chief Executive Officer and
Director
WILLIAM L. RESPESS ................................................. 66,350 9.3125
Senior Vice President, General Counsel, Government Affairs and
Secretary
ANDRES F. NEGRO-VILAR .............................................. 70,875 9.3125
Senior Vice President, Research and Chief Scientific Officer
STEVEN D. REICH .................................................... 29,000 11.25
Senior Vice President, Clinical Research
PAUL V. MAIER ...................................................... 66,914 9.3125
Senior Vice President and Chief Financial Officer
HENRY F. BLISSENBACH ............................................... 10,000 14.50
Director-Nominee
ALEXANDER D. CROSS, PH.D ........................................... 10,000 14.50
Director-Nominee
JOHN GROOM ......................................................... 10,000 14.50
Director-Nominee
IRVING S. JOHNSON .................................................. 10,000 14.50
Director-Nominee
CARL C. PECK, M.D .................................................. 10,000 14.50
Director-Nominee
MICHAEL A. ROCCA ................................................... 0 0
Nominee
All current directors who are not executive officers (6 persons) ... 66,237 13.70
All current executive officers as a group (10 persons) ............. 486,139 10.66

All employees who are not executive officers ....................... 1,185,694 11.56
</TABLE>

NEW PLAN BENEFITS

As of March 1, 1999, no options have been granted, and no direct
stock issuances have been made, on the basis of the 985,000-share increase which
forms part of this Proposal. Provided stockholders approve this proposal, each
of the following non-employee Board members will, upon his or her re-election to
the Board at the annual meeting, receive an option grant under the Automatic
Option Grant Program for 10,000 shares of common

<PAGE> 17
stock: Messrs. Blissenbach and Groom and Drs. Cross, Johnson and Peck. In
addition, Mr. Rocca will receive an option grant under the Automatic Option
Grant Program for 20,000 shares of common stock upon his election to the Board
at the annual meeting. Each option will have an exercise price per share equal
to the fair market value per share of common stock on the grant date.

FEDERAL INCOME TAX CONSEQUENCES

Options granted under the 1992 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:

Incentive Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. However, the amount by which the
fair market value of the purchased shares at time of exercise exceeds the
exercise price may have an impact on taxes for purposes of the alternative
minimum tax. The optionee will recognize taxable income in the year in which the
purchased shares are sold or otherwise made the subject of a taxable
disposition. For Federal tax purposes, dispositions are divided into two
categories: qualifying and disqualifying. A qualifying disposition occurs if the
sale or other disposition is made more than two years after the option grant
date and more than one year after the date the option was exercised. If either
of these two holding periods is not satisfied, then a disqualifying disposition
will result.

Upon a qualifying disposition, the optionee will recognize
long-term capital gain in an amount equal to the excess of

o the amount realized upon the sale or other disposition
of the purchased shares over

o the exercise price paid for the shares.

If there is a disqualifying disposition of the shares, the optionee will
recognize taxable ordinary income for the amount equal to the excess of

o the fair market value of those shares on the exercise
date over

o the exercise price paid for the shares.

Any additional gain or loss recognized upon the disposition will be recognized
as a capital gain or loss by the optionee.

If the optionee makes a disqualifying disposition of the
purchased shares, then the Company will be entitled to an income tax deduction,
for the taxable year in which such disposition occurs, equal to the excess of

o the fair market value of such shares on the option
exercise date over

o the exercise price paid for the shares.

If the optionee makes a qualifying disposition, the Company will not be entitled
to any income tax deduction.

Non-Statutory Options. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income in the year in which the option is exercised equal to
the excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.

<PAGE> 18
If the shares acquired upon exercise of the non-statutory option
are unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of

o the fair market value of the shares on the date the
repurchase right lapses over

o the exercise price paid for the shares.

The optionee may, however, elect under Section 83(b) of the Internal Revenue
Code to include as ordinary income in the year of exercise of the option an
amount equal to the excess of

o the fair market value of the purchased shares on the
exercise date over

o the exercise price paid for such shares.

If the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.

The Company will be entitled to an income tax deduction equal to
the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.

Stock Appreciation Rights. An optionee who is granted a stock
appreciation right will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution. The Company will be entitled to
an income tax deduction equal to such distribution for the taxable year in which
the ordinary income is recognized by the optionee.

Direct Stock Issuance. The tax principles applicable to direct
stock issuances under the 1992 Plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.

Deductibility of Executive Compensation. The Company anticipates
that any compensation deemed paid by it in connection with the disqualifying
disposition of incentive stock option shares or the exercise of non-statutory
options granted with exercise prices equal to the fair market value of the
shares on the grant date will qualify as performance-based compensation for
purposes of Code Section 162(m) and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid under the 1992 Plan will
remain deductible by the Company without limitation under Code Section 162(m).

ACCOUNTING TREATMENT

Under the current accounting principles in effect for equity
incentive programs such as the 1992 Plan, the option grants under the 1992 Plan
will not result in any direct charge to the Company's reported earnings.
However, the fair value of those options is required to be disclosed in the
notes to the Company's financial statements, and the Company must also disclose,
in footnotes to the Company's financial statements, the pro-forma impact those
options would have upon the Company's reported earnings were the fair value of
those options at the time of grant treated as a compensation expense and
amortized over the applicable vesting period. In addition, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.

Under a recently-proposed amendment to the current accounting
principles, option grants made to non-employee Board members or consultants
after December 15, 1998 will result in a direct charge to the Company's reported
earnings based upon the fair value of the option measured on the vesting date of
each installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment) and the vesting date of each installment of the option shares.

<PAGE> 19
Should one or more individuals be granted tandem or stand-alone
stock appreciation rights under the 1992 Plan, then such rights would result in
a compensation expense to be charged against the Company's reported earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which the
fair market value of the shares of Common Stock subject to such outstanding
stock appreciation rights has increased from the prior quarter-end would be
accrued as compensation expense, to the extent such fair market value is in
excess of the aggregate exercise price in effect for those rights.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding voting
shares of the Company present or represented and entitled to vote at the annual
meeting is required for approval of the amendments to the 1992 Plan. Should such
stockholder approval not be obtained, then the 985,000-share increase to the
share reserve will not be implemented, any stock options granted on the basis of
the 985,000-share increase to the 1992 Plan will immediately terminate without
becoming exercisable for the shares of Common Stock subject to those options,
and no additional options will be granted on the basis of such share increase.
However, in the absence of such stockholder approval, the 1992 Plan will
continue to remain in effect, and option grants and direct stock issuances may
continue to be made pursuant to the provisions of the 1992 Plan in effect prior
to the amendment summarized in this Proposal, until the available reserve of
Common Stock as last approved by the stockholders has been issued pursuant to
the exercise of options granted or direct stock issuances made under the 1992
Plan.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors unanimously recommends a vote FOR the
amendments to the 1992 Plan.

<PAGE> 20
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1992 EMPLOYEE STOCK PURCHASE PLAN

The Company's stockholders are being asked to approve an
amendment to the 1992 Employee Stock Purchase Plan which will increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Purchase Plan by an additional 95,000 shares.

The purpose of the share increase is to ensure that the Company
will continue to have a sufficient reserve of Common Stock available under the
purchase plan to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.

The purchase plan was adopted by the Board of Directors and
approved by the stockholders in 1992. In February and March 1999, the Board
approved the increase in the share reserve of the purchase plan which is the
subject of this Proposal.

The following is a summary of the principal features of the
purchase plan, as amended. This summary does not, however, purport to be a
complete description of all the provisions of the purchase plan. Any stockholder
who wishes to obtain a copy of the actual plan document may do so by written
request to the Corporate Secretary at the Company's principal executive offices
in San Diego, California.

SHARE RESERVE AND PLAN ADMINISTRATION

355,000 shares of common stock have been reserved for issuance
over the 10-year term of the purchase plan, including the 95,000-share increase
for which stockholder approval is sought under this Proposal. As of April 1,
1999, 259,915 shares of Common Stock had been issued under the purchase plan,
and 95,085 shares will be available for future issuance, assuming stockholder
approval of the 95,000-share increase which is the subject of this Proposal.
Without such increase, 85 shares would be available for future issuance.

Should any change be made to the outstanding Common Stock by
reason of any stock dividend, stock split, combination of shares or other
similar change affecting the outstanding Common Stock as a class without the
Company's receipt of consideration, appropriate adjustments will be made to

o the class and maximum number of securities issuable over
the term of the purchase plan,

o the class and maximum number of securities purchasable
per participant during any one offering period and

o the class and number of securities and the price per
share in effect under each outstanding purchase right.

Such adjustments are designed to preclude the dilution or enlargement of rights
and benefits under the purchase plan.

The purchase plan is administered by the Compensation Committee
of the Board of Directors. The committee as Plan Administrator has full
authority to administer the purchase plan, including the authority to interpret
and construe any provision of the purchase plan.

ELIGIBILITY

Any individual who is employed by either the Company or any
participating parent or subsidiary (including any corporation which subsequently
becomes such at any time during the term of the purchase plan) on a

<PAGE> 21
regularly-scheduled basis of more than 20 hours per week and more than five
months per calendar year is eligible to participate in the purchase plan. An
eligible employee may join an offering period on the first day of the first
calendar quarter within that period following his or her completion of at least
five months of employment with the Company.

As of March 1, 1999, approximately 339 employees (including 10
officers of the Company) were eligible to participate in the purchase plan.

PLAN OPERATION

Shares of common stock will be made available to participants
through a series of one-year offering periods, each coincidental with the
calendar year. Each participant will be granted a separate purchase right for
each offering period in which he or she participates. The purchase right will be
granted on the first day of the offering period (the first business day in
January) and will be automatically exercised in successive quarterly
installments on the last business day of March, June, September and December
during the offering period.

Each participant may, through authorized payroll deductions,
contribute up to 10% of his or her base salary (in 1% multiples) during each
offering period. However, no participant may purchase more than 1,330 shares of
common stock during any one offering period nor more than $25,000 worth of
Common Stock (based upon the value of the common stock at the time the offering
period begins) per calendar year.

The purchase price on each quarterly purchase date will be equal
to the lower of

o 85% of the fair market value per share of common stock
on the participant's entry date into the offering period
or

o 85% of the fair market value per share of common stock
on the quarterly purchase date.

However, in no event will the fair market value in the first clause be less than
the fair market value per share of common stock on the start date of such
offering period.

The fair market value of the common stock on any relevant date
will be deemed to be equal to the closing selling price per share on such date
as reported on the Nasdaq National Market. As of March 1, 1999, the fair market
value per share of common stock determined on such basis was $9.625.

No participant will have any stockholder rights with respect to
the shares covered by his or her outstanding purchase right until the shares are
actually purchased on his or her behalf. No purchase right will be assignable or
transferable except by will or by the laws of descent and distribution following
the participant's death. Accordingly, during the participant's lifetime, the
purchase right will be exercisable only by the participant.

The purchase right of a participant will terminate upon his or
her cessation of employee status, and any payroll deductions collected from such
individual during the calendar quarter in which such termination occurs will, at
such participant's election, either

o be refunded to the participant or

o held for the purchase of shares on the next quarterly
purchase date.

<PAGE> 22
CHANGE IN OWNERSHIP

In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of

o the fair market value per share of common stock on the
participant's entry date into the offering period in
which such acquisition occurs or

o the fair market value per share of common stock
immediately prior to the effective date of such
acquisition, but in no event will the fair market value
on the participant's entry date be less than the fair
market value per share of common stock on the start date
of the offering period in which such acquisition occurs.

AMENDMENT AND TERMINATION

The purchase plan will terminate upon the earlier of

o December 31, 2002 or

o the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase
rights.

However, the Company has specifically reserved the right, exercisable in the
sole discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the purchase plan immediately following any quarterly purchase
date. If such right is exercised by the Company, then the purchase plan will
terminate in its entirety, and no further purchase rights will be granted or
exercised thereunder.

The Board may amend or modify the provisions of the purchase plan
at any time. However, the Board may not, without stockholder approval,

o increase the number of shares issuable under the
purchase plan or the maximum number of shares which any
one participant may purchase during a single offering
period,

o alter the purchase price formula so as to reduce the
purchase price, or

o materially increase the benefits accruing to
participants.

FEDERAL TAX CONSEQUENCES

The purchase plan is intended to be an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code. Under a
plan which so qualifies, no taxable income will be recognized by a participant,
and no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the purchase
plan or in the event the participant should die while still owning the purchased
shares.

<PAGE> 23
If the participant sells or otherwise disposes of the purchased
shares within two years after his or her entry date into the offering period in
which such shares were acquired or within one year after the quarterly purchase
date on which those shares were actually acquired, then the participant will
recognize ordinary income in the year of sale or disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and the Company will be entitled to an
income tax deduction, for the taxable year in which such disposition occurs,
equal in amount to such excess.

If the participant sells or disposes of the purchased shares more
than two years after his or her entry date into the offering period in which the
shares were acquired and more than one year after the quarterly purchase date of
those shares, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lower of

o the amount by which the fair market value of the shares
on the sale or disposition date exceeded the purchase
price paid for those shares or

o 15% of the fair market value of the shares on the
participant's entry date into that offering period. Any
additional gain upon the disposition will be taxed as a
long-term capital gain.

The Company will not be entitled to an income tax deduction with respect to such
disposition.

If the participant still owns the purchased shares at the time of
death, his or her estate will recognize ordinary income in the year of death
equal to the lower of

o the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or

o 15% of the fair market value of the shares on his or her
entry date into the offering period in which those
shares were acquired.

ACCOUNTING TREATMENT

The issuance of common stock under the purchase plan will not
result in a direct compensation expense chargeable against the Company's
reported earnings. However, the Company must disclose, in pro-forma statements
to the Company's financial statements, the impact the purchase rights granted
under the purchase plan would have upon the Company's reported earnings were the
value of those purchase rights treated as compensation expense.

STOCK ISSUANCES

The table below shows, as to the Named Executive Officers and as
to the various indicated groups, the number of shares of Common Stock and the
weighted average purchase price per share, with respect to transactions under
the purchase plan effected during the period from January 1, 1998 to April 1,
1999:

<PAGE> 24
Non-employee directors are not eligible to participate in the purchase plan.

<TABLE>
<CAPTION>
Weighted
Average
Shares Purchase
(#) Price
------ --------
<S> <C> <C>
DAVID E. ROBINSON ................................................. 0 $ 0
Chairman of the Board, President and Chief Executive Officer
WILLIAM L. RESPESS ................................................ 0 0
Senior Vice President, General Counsel, Government Affairs
and Secretary
STEVEN D. REICH ................................................... 0 0
Senior Vice President, Clinical Research
ANDRES F. NEGRO-VILAR ............................................. 0 0
Senior Vice President, Research and Chief
Scientific Officer
PAUL V. MAIER ..................................................... 1,737 8.96
Senior Vice President and Chief Financial Officer
All current directors who are not executive officers (6 persons) .. 0 0

All current executive officers as a group (10 persons) ............ 4,493 8.80
All employees who are not executive officers ...................... 60,498 9.09
</TABLE>

NEW PURCHASE PLAN BENEFITS

No shares of Common Stock have been issued under the purchase
plan on the basis of the 95,000-share increase for which stockholder approval is
sought under this Proposal.

STOCKHOLDER APPROVAL

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors unanimously recommends that the
stockholders vote FOR this proposal.

<PAGE> 25
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT AUDITORS

The Company is asking the stockholders to ratify the selection of
Ernst & Young LLP ("Ernst & Young") as the Company's independent auditors for
the year ending December 31, 1999. The affirmative vote of the holders of a
majority of the shares represented and voting at the annual meeting will be
required to ratify the selection of Ernst & Young.

In the event the stockholders fail to ratify the selection, the
Board of Directors will reconsider its selection. Even if the selection is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a different independent auditing firm at any time during the year if the
Board of Directors feels that such a change would be in the Company's and its
stockholders' best interests.

Representatives of Ernst & Young are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors unanimously recommends that the
stockholders vote FOR the ratification of the selection of Ernst & Young to
serve as the Company's independent auditors for the year ending December 31,
1999.

<PAGE> 26
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the
Company with respect to the beneficial ownership of the Company's common stock
as of March 1, 1999, by

o all persons who are beneficial owners of 5% or more of
the Company's common stock,

o each director and nominee for director,

o the Named Executive Officers and

o all current directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Percentage of ownership is based on
46,151,837 shares of common stock outstanding on March 1, 1999. Shares of common
stock underlying options includes options which are currently exercisable or
will become exercisable within 60 days after March 1, 1999, are deemed
outstanding for computing the percentage of the person or group holding such
options, but are not deemed outstanding for computing the percentage of any
other person or group. The address for individuals for whom an address is not
otherwise indicated is 10275 Science Center Drive, San Diego, CA 92121. On March
8, 1999, Eli Lilly and Company acquired an additional 434,546 shares of common
stock. As a result, Lilly owned 2,675,160 shares or approximately 5.7% of common
stock outstanding on that date.

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES SHARES PERCENT
BENEFICIALLY UNDERLYING OF CLASS
BENEFICIAL OWNER OWNED OPTIONS OWNED
- - ---------------- ---------------- ---------- --------
<S> <C> <C> <C>
Henry F. Blissenbach........................ 0 32,473 *
Alexander D. Cross.......................... 18,766 32,473 *
Victoria R. Fash............................ 0 16,273 *
John Groom.................................. 0 32,473 *
Irving S. Johnson........................... 22,909 32,473 *
Carl C. Peck................................ 0 16,237 *
Michael A. Rocca............................ 0 0 *
David E. Robinson........................... 249,002 324,290 1.2%
William L. Respess.......................... 141,741 206,128 *
Andres F. Negro-Vilar....................... 5,013 73,443 *
Steven D. Reich............................. 2,000 83,458 *
Paul V. Maier............................... 10,780 174,471 *
Directors and executive officers
as a group (16) persons..................... 462,056 1,518,670 4.2%
</TABLE>

- - --------------------
* Less than 1%

<PAGE> 27
EXECUTIVE OFFICERS

The executive officers of the Company as of March 1, 1999 are as follows:

<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
David E. Robinson 50 Chairman of the Board, President, Chief
Executive Officer and Director

Paul V. Maier 51 Senior Vice President, Chief Financial Officer

Andres F. Negro-Vilar, M.D., Ph.D. 59 Senior Vice President, Research and Chief
Scientific Officer

William A. Pettit 49 Senior Vice President, Human Resources and
Administration

Steven D. Reich, M.D. 53 Senior Vice President, Clinical Research

William L. Respess, J.D., Ph.D. 59 Senior Vice President, General Counsel,
Government Affairs and Secretary

Russell L. Allen 52 Vice President, Corporate Development and
Strategic Planning

George M. Gill, M.D. 65 Vice President, Medical Affairs

Howard T. Holden, Ph.D. 54 Vice President, Regulatory Affairs and Compliance

James R. Mirto 56 Vice President, Marketing and Business Development
</TABLE>

BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS

DAVID E. ROBINSON is being considered for the position of
director of the Company. See "Election of Directors" for a discussion of Mr.
Robinson's business experience.

PAUL V. MAIER joined the Company in October 1992 as Vice
President and Chief Financial Officer and became Senior Vice President and Chief
Financial Officer in November 1996. Prior to joining the Company, Mr. Maier
served as Vice President, Finance at DFS West, a division of DFS Group, L.P., a
private multinational retailer. From February 1990 to October 1990, Mr. Maier
served as Vice President and Treasurer of ICN Pharmaceuticals, Inc., a
pharmaceutical and biotechnology research products company. Mr. Maier held
various positions in finance and administration at SPI Pharmaceuticals, Inc., a
publicly held subsidiary of ICN Pharmaceuticals Group, from 1984 to 1988,
including Vice President, Finance from February 1984 to February 1987. Mr. Maier
received an M.B.A. from Harvard Graduate School of Business and a B.S. from
Pennsylvania State University.

ANDRES F. NEGRO-VILAR, M.D., Ph.D. joined the Company in
September 1996 as Senior Vice President, Research, and Chief Scientific Officer.
Prior to joining the Company, Dr. Negro-Vilar was Vice President of Research and
Head of the Women's Health Research Institute for Wyeth-Ayerst Laboratories, a
division of American Home Products, from 1993 to 1996. From 1983 to 1993, Dr.
Negro-Vilar served at the National Institute of Environmental Health Sciences of
the National Institutes of Health as the Director of Clinical Programs and Chief
of the Laboratory of Molecular and Integrative Neurosciences. Dr. Negro-Vilar
received a Ph.D. in physiology from the University of Sao Paulo, Brazil, an M.D.
from the University of Buenos Aires, Argentina, and a B.S. in science from
Belgrano College.

WILLIAM A. PETTIT joined the Company in November 1996 as Senior
Vice President, Human Resources and Administration. Prior to joining the
Company, Mr. Pettit was Senior Vice President, Human Resources at Pharmacia, and
Upjohn, Inc., a global pharmaceutical and healthcare company, where he was
employed from 1986 to 1996. From 1984 to 1986, Mr. Pettit served as Corporate
Director, Human Resources at Browning Ferris Industries, a waste services
company. From 1975 to 1984, Mr. Pettit served in various positions at
Bristol-Myers Company (now Bristol-Myers Squibb Company) including Director,
Human Resources. Mr. Pettit received a B.A. in English from Amherst College.

<PAGE> 28
STEVEN D. REICH, M.D. joined the Company in December 1995 as the
Senior Vice President, Clinical Research. Prior to joining the Company, Dr.
Reich was at the clinical contract research organization PAREXEL International
Corporation, acontract research and contract marketing company, from 1987 to
1995, where he served as Senior Vice President, Medical Affairs responsible for
worldwide medical and clinical affairs services including clinical trials
management, medical consulting and medical writing. From 1986 to 1987, Dr. Reich
served as worldwide Medical Research Director of Biogen, Inc., a
biopharmaceutical company ("Biogen"), and held various positions at Biogen from
1983 to 1986. Earlier in his career Dr. Reich served as Associate Director of
Clinical Cancer Research for Bristol Laboratories (1978-1979). He is a Board
certified Medical Oncologist and has held academic positions as a clinical
pharmacologist at Northwestern University, SUNY-Upstate Medical School, and
University of Massachusetts Medical Center. Dr. Reich received an M.D. from the
New Jersey College of Medicine and an A.B. from Princeton University.

WILLIAM L. RESPESS, J.D., Ph.D. joined the Company in December
1988 as Vice President and General Counsel, became Senior Vice President and
General Counsel in August 1993 and assumed responsibility for Government Affairs
in March 1995. Prior to joining the Company, Dr. Respess was Vice President and
General Counsel at Gen-Probe, Inc., a biotechnology company, from 1987 to 1988.
From 1983 to 1986, he served as Vice President and General Counsel at Hybritech,
Inc., a biotechnology company. From 1974 to 1983, he was an attorney with the
patent law firm of Lyon & Lyon of Los Angeles, serving as Partner from 1980 to
1983. Dr. Respess received a J.D. from George Washington University, a Ph.D. in
organic chemistry from the Massachusetts Institute of Technology and a B.S. in
chemistry from the Virginia Military Institute.

RUSSELL L. ALLEN joined the Company in February 1997 as Vice
President, Corporate Development and Strategic Planning. Prior to joining
Company, Mr. Allen was General Manager, Central America, Sanofi Winthrop Inc.
and previously served as Vice President, Business Development Strategic Analysis
at Sterling Winthrop Inc. where he was employed from 1985 to 1996. From 1980 to
1985, Mr. Allen served in various positions at Bristol-Myers Company (now
Bristol-Myers Squibb Company) and from 1973 to 1980, held various positions at
Procter & Gamble. Mr. Allen received an M.B.A. from Harvard Graduate School of
Business and a B.A. from Amherst College.

GEORGE M. GILL, M.D. joined the Company in September 1992 as Vice
President, Clinical Research and became Vice President, Medical Affairs in
January 1996. Prior to joining the Company, Dr. Gill was Senior Director,
Clinical Research at ICI Pharmaceutical Research and Development, a bioscience
company, where he also served as Director of Clinical Research, Clinical and
Medical Affairs from 1990 to 1992. From 1984 to 1990, Dr. Gill served in various
positions at Bristol-Myers Company (now Bristol-Myers Squibb Company), including
Vice President, Worldwide Regulatory Affairs. Dr. Gill received an M.D. from the
University of Pennsylvania and a B.S. in chemistry from Dickinson College and is
Board certified in pediatrics.

HOWARD T. HOLDEN, Ph.D. joined the Company in September 1992 as
Vice President, Regulatory Affairs and Compliance. Prior to joining the Company,
Dr. Holden was Senior Director, Worldwide Regulatory Affairs at Parke-Davis
Pharmaceutical Research Division of the Warner-Lambert Company. From 1986 to
1988, Dr. Holden served as Director, Regulatory Affairs and Compliance at
Centocor Inc., a pharmaceutical company. Dr. Holden received a Ph.D. in
microbiology from the University of Miami and a B.A. in zoology from Drew
University.

JAMES R. MIRTO joined the Company in August 1993 as Vice
President, New Product Development and Licensing and became Vice President,
Marketing and Business Development in October 1996. Prior to joining the
Company, Mr. Mirto served as Vice President of New Product Planning and
Development at Immunex Corporation, a biopharmaceutical company, from November
1992 to August 1993 where he oversaw tactical and strategic planning,
collaborative arrangements and world-wide licensing activities. From 1987 to
1992, he worked for Adria Laboratories, a division of Erbamont, where he last
served as Vice President of Sales and Marketing from April 1990 to November 1992
and was responsible for the company's oncology and general pharmaceuticals. Mr.
Mirto received an M.Ed. in education from the University of Pittsburgh and
received a B.S. in health and physical education from Slippery Rock State
College in Pennsylvania.

<PAGE> 29
EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides certain summary information
concerning the compensation earned, by the Named Executive Officers, for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal years ended December 31, 1998, 1997 and 1996, respectively.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------- ----------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary($) (1) Bonus($)(2) Compensation($)(3) Options/ SARs(#)
- - --------------------------- ---- ------------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
DAVID E. ROBINSON.................. 1998 531,650 -- 2,592 100,000
Chairman of the Board, 1997 511,832 85,000 58,448 100,000
President and CEO 1996 486,295 80,000 68,292 100,000

WILLIAM L. RESPESS................ 1998 294,821 -- 3,300 66,350
Senior Vice President, 1997 282,125 21,000 3,994 50,000
General Counsel, Government Affairs 1996 268,625 124,000 3,465 6,750
and Secretary

ANDRES F. NEGRO-VILAR (4).......... 1998 288,864 -- 56,220 70,875
Senior Vice President, 1997 274,410 24,000 92,236 --
Research and Chief Scientific 1996 90,000 -- 103,912 100,000
Officer

STEVEN D. REICH.................... 1998 249,613 -- 27,200 29,000
Senior Vice President, Clinical 1997 240,013 18,000 47,600 --
Research 1996 227,500 22,500 38,510 90,000

PAUL V. MAIER..................... 1998 238,444 -- 2,024 66,914
Senior Vice President 1997 226,550 28,500 17,169 --
and Chief Financial Officer 1996 212,627 22,500 17,379 58,563
</TABLE>

(1) Compensation deferred at the election of the executive, pursuant to the
Ligand Pharmaceuticals 401(k) Plan and Ligand Deferred Compensation Plan
are included in the year earned.

(2) Bonuses to be paid to the Named Executive Officers for services rendered
during 1998 will be determined following the mailing of this proxy
statement.

(3) The amounts for 1998 include the following: for Dr. Negro-Vilar,
includes $37,920 loan forgiveness and $15,000 housing allowance; for Dr.
Reich, includes $25,088 loan forgiveness. The amounts for 1997 include
the following: for Mr. Robinson, includes $52,660 loan forgiveness; for
Dr. Negro-Vilar, includes $15,000 housing allowance, $32,604 relocation
reimbursements and $39,900 loan forgiveness; for Dr. Reich, includes
$11,000 housing allowance, $9,088 relocation reimbursements and $26,360
loan forgiveness; and for Mr. Maier, includes $15,798 loan forgiveness.
The amounts for 1996 include the following: for Mr. Robinson, includes
$10,876 relocation reimbursements and $55,230 loan forgiveness; for Dr.
Negro-Vilar includes $103,912 relocation reimbursements; for Dr. Reich,
includes $25,358 relocation reimbursements and $12,000 housing
allowance; and for Mr. Maier, includes $16,596 loan forgiveness.

(4) Dr. Negro-Vilar joined the Company in August 1996.

<PAGE> 30
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

The following table provides information on the option grants
made to the Named Executive Officers during the fiscal year ended December 31,
1998. No stock appreciation rights were granted to the Named Executive Officers
during that fiscal year.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options/SARs Stock Price
Underlying Granted to Appreciation for
Options/SARs Employees in Exercise or Option Term(4)
Granted Fiscal Base Price Expiration -------------------
Name (#)(1)(2) Year ($/Sh)(3) Date 5%($) 10%($)
- - ---- ------------ ------------ ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson 100,000 6.3% 15.00 04/09/08 943,342 2,390,613
William L. Respess 66,350 4.2% 9.3125 10/01/08 388,584 984,749
Andres Negro-Vilar 70,875 4.5% 9.3125 10/01/08 415,085 1,051,907
Steven D. Reich 29,000 1.8% 11.25 02/05/08 205,177 519,958
Paul V. Maier 66,914 4.2% 9.3125 10/01/08 391,887 993,119
</TABLE>

(1) Each option has a maximum term of 10 years measured from such grant
date, subject to earlier termination upon the optionee's cessation of
service with the Company. The shares subject to each option will vest in
four successive equal annual installments upon the optionee's completion
of each year of service with the Company over the four-year period
measured from the option grant date. The shares subject to the options
granted to Mr. Robinson will accelerate in connection with his
termination of employment under certain circumstances, including a
change in control of the Company, as described below in the
"--Employment Contracts, Severance Agreements and Change of Control
Arrangements." The shares subject to the option granted to the other
Named Executive Officers will immediately vest in full in the event
their employment were to terminate following certain changes in control
of the Company.

(2) The Plan Administrator may grant tandem stock appreciation rights in
connection with option grants which require the holder to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of such option for a distribution from the Company, payable in
cash or shares of Common Stock, based upon the appreciated value of the
option shares.

(3) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state tax liability incurred in connection with such exercise. The
optionee may be permitted, subject to the approval of the Plan
Administrator, to apply a portion of the shares purchased under the
option (or to deliver existing shares of Common Stock) in satisfaction
of such tax liability.

(4) The Company does not provide assurance to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will
be realized from the option grants made to the executive officers.

<PAGE> 31
OPTION/SAR EXERCISES AND HOLDINGS

The following table sets forth certain information concerning
option exercises and holdings for the fiscal year ended December 31, 1998 with
respect to each of the Named Executive Officers. No stock appreciation rights
were exercised by the Named Executive Officers during such fiscal year, and no
stock appreciation rights were held by them at the end of such fiscal year.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS VALUE OF UNEXERCISED IN-THE-MONEY
AT DECEMBER 31, 1998 OPTIONS/SARS AT DECEMBER 31, 1998(2)
------------------------------------ -------------------------------------
NAME EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
David E. Robinson 296,165 181,250 661,523 51,693

William L. Respess 193,668 93,433 505,239 153,434

Andres Negro-Vilar 56,250 114,625 0 163,898

Steven D. Reich 73,542 45,458 213,203 78,922

Paul V. Maier 161,523 94,414 368,842 154,739
</TABLE>

(1) Equal to the fair market value of the shares on the date the option was
exercised for those shares minus the exercise price paid for such
shares.

(2) Equal to the fair market value of the securities underlying the option
at fiscal year-end ($11.625 per share), less the exercise price payable
for those securities.

EMPLOYMENT CONTRACTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

In May 1996, the Company entered into an employment agreement
with Mr. Robinson pursuant to which he is to be employed as President and Chief
Executive Officer until May 1, 1999. In October 1998, this agreement was renewed
for an additional three year term until May 1, 2002. This agreement will
automatically be renewed for successive additional three year terms, unless
earlier terminated by the Company or Mr. Robinson. During the remainder of the
employment term, Mr. Robinson will receive a base salary of at least $540,225
per year and annual incentive bonuses based upon his performance and the
Company's attainment of designated performance goals. If Mr. Robinson's
employment is terminated without cause, or if he resigns for specified reasons,
such as

o a change in positions, duties and responsibilities
without consent,

o a reduction in salary or benefits, or

o certain events occurring upon a change in control of the
Company,

he will be entitled to a severance payment equal to 24 months of base salary (at
the rate in effect for him at the time of such termination), and all of his
outstanding options will (except under certain limited circumstances) vest and
become exercisable for all the option shares on an accelerated basis in
connection with his termination of employment, including a termination following
a change in control of the Company.

In September 1996, the Company entered into an employment
agreement with Dr. Negro-Vilar pursuant to which he is employed as Senior Vice
President, Research and Chief Scientific Officer for an unspecified term. The
agreement provides that Dr. Negro-Vilar is an at-will employee. In connection
with the agreement, the Company loaned Dr. Negro-Vilar the principal sum of
$150,000 with an interest rate of 6.6% per annum. The

<PAGE> 32
principal balance, together with accrued interest, will be forgiven in five
successive equal annual installments upon his completion of each year of
employment with the Company over the five-year period measured from November
1996. Upon his termination of employment, the entire unpaid balance will become
immediately due and payable. In addition, Dr. Negro-Vilar was granted an option
to purchase 100,000 shares of the Common Stock at an exercise price of $12.13
per share. The shares will vest in a series of four successive equal annual
installments upon his completion of each year of employment with the Company
over the four-year period measured from the grant date. In the event his
employment is terminated without cause, he will be entitled to 12 months of
salary continuation payments, and all of his outstanding options will
immediately vest and become exercisable for all of the option shares.

In December 1996, the Company entered into an employment
agreement with Dr. Reich pursuant to which he is employed as Senior Vice
President, Clinical Research. In connection with the agreement, the Company
loaned Dr. Reich the principal sum of $100,000 with an interest rate of 6.36%
per annum. The principal balance, together with accrued interest, will be
forgiven in five successive equal annual installments upon his completion of
each year of employment with the Company over the five-year period measured from
May 1996. Upon his termination of employment, the entire unpaid balance will
become immediately due and payable. Dr. Reich was also granted an option to
purchase 90,000 shares of Common Stock at an exercise price of $8.50 per share.
If Dr. Reich's employment is terminated by the Company without cause, he will be
entitled to six months of salary continuation payments.

In September 1992, Ligand entered into an employment agreement
with Paul V. Maier pursuant to which Mr. Maier is employed as Senior Vice
President and Chief Financial Officer. In connection with the agreement, Ligand
loaned Mr. Maier $75,000 which, with the accrued interest, was forgiven in equal
annual installments over five years. In connection with the agreement, Mr. Maier
was granted an option to purchase 81,188 shares of Ligand Common Stock, which
shares vest over four years, at an average price of $8.87 per share. If Mr.
Maier's employment is terminated by the Company without cause, Ligand has agreed
to pay him six months base salary.

The Company has entered into an agreement with each employee
holding one or more outstanding options under the 1992 Plan (including each of
the Named Executive Officers other than Mr. Robinson), pursuant to which such
options will automatically vest on an accelerated basis in the event that such
individual's employment is terminated following

o an acquisition of the Company by merger or asset sale or

o a change in control of the Company effected through a
successful tender offer for more than 50% of the
Company's outstanding Common Stock or through a change
in the majority of the Board as a result of one or more
contested elections for Board membership.

As indicated above, all of Mr. Robinson's outstanding options will (except under
certain limited circumstances) vest and become exercisable for all the option
shares on an accelerated basis in connection with his termination of employment,
including a termination following a change in control of the Company.

Effective January 5, 1998, the Company entered into severance
agreements with each of the Named Executive Officers, other than Mr. Robinson,
and certain other executive officers pursuant to which such individuals will, in
the event their employment is involuntarily terminated in connection with a
change in control of the Company, receive a severance benefit equal to

o one times the annual rate of base salary in effect for
such officer at the time of involuntary termination plus

<PAGE> 33
o one times the average of bonuses paid to such officer
for services rendered in the two fiscal years
immediately preceding the fiscal year of involuntary
termination. The severance amount will be payable in 12
monthly installments following the officer's termination
of employment.

The following Board Compensation Committee Report on Executive
Compensation and Performance Graph should be not be considered to be part of
this proxy statement and any current or future cross references to this proxy
statement in filings with the SEC under either the Securities Act or the
Securities Exchange Act shall not include the Board Compensation Committee
Report on Executive Compensation or the Performance Graph reproduced below.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The following is the report delivered by the Compensation
Committee of the Company's Board of Directors with respect to the principal
factors considered by such Committee in determining the compensation of the
Company's executive officers.

As members of the Compensation Committee of the Board of
Directors, it is our duty to set the base salary of the Company's executive
officers and to administer the Company's 1992 Stock Option/Stock Issuance Plan
under which grants may be made to them and other key employees. In addition, we
approve the individual bonus programs to be effective for the executive officers
each fiscal year.

GENERAL COMPENSATION POLICY. Our fundamental policy is to offer
the Company's executive officers competitive compensation opportunities based
upon their contribution to the financial success of the Company and their
personal performance. It is our objective to have a substantial portion of each
officer's compensation contingent upon the Company's performance as well as upon
his or her own level of performance. Accordingly, each executive officer's
compensation package is comprised of three elements:

o base salary which reflects individual performance and is
designed primarily to be competitive with salary levels
in the industry,

o annual variable performance awards payable in cash and
tied to the achievement of financial performance goals
established by us, and

o long-term stock-based incentive awards which strengthen
the mutuality of interests between the executive
officers and the Company's stockholders.

As an officer's level of responsibility increases, it is our intent to have a
greater portion of his or her total compensation be dependent upon the Company's
performance and stock price appreciation rather than base salary.

FACTORS. The principal factors which we considered in
establishing the components of each executive officer's compensation package for
the 1998 fiscal year are summarized below. We may in our discretion apply
entirely different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years, but all
compensation decisions will be designed to further the general compensation
policy indicated above.

BASE SALARY. The base salary for each officer is set on the basis
of:

o industry experience, knowledge and qualifications,

o the salary levels in effect for comparable positions
within the Company's principal industry marketplace
competitors and

o internal comparability considerations.

<PAGE> 34
We did not rely upon any specific compensation surveys for comparative
compensation purposes. Instead, we made our decisions as to the appropriate
market level of base salary for each executive officer on the basis of our
understanding of the salary levels in effect for similar positions at those
companies with which the Company competes for executive talent. We estimate that
the salary levels of the Company's executive officers range from the 50th
percentile to the 90th percentile of the salary levels in effect for comparable
positions at those other companies.

ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer solely on the basis of the Company's achievement of the
corporate performance targets we establish at the start of the fiscal year. For
fiscal year 1998, the performance targets were based upon individual goals
supporting key corporate objectives, and each executive will be evaluated in
relation to his or her contribution to the attainment of those targets.
Accordingly, this element of executive compensation is earned solely on the
basis of the Company's success in achieving the corporate goals. This element of
compensation has not been determined as of the date of the mailing of this
proxy.

LONG-TERM INCENTIVE COMPENSATION. During 1998, we approved the
grant of stock options to certain executive officers under the 1992 Plan. The
grants are designed to align the interests of each executive officer with those
of the stockholders and provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business. The number of shares subject to each option grant was based on the
officer's level of responsibilities and relative position in the Company.
However, we do not adhere to any specific set of guidelines and determine the
size of each grant as circumstances warrant.

Each grant allows the officer to acquire shares of Common Stock
the market price on the grant date over a specified period of time, up to 10
years. Accordingly, the option will provide a return to the executive officer
only if the market price of the shares appreciates over the option term.

CEO COMPENSATION. In setting the compensation payable to the
Company's Chief Executive Officer, Mr. Robinson, we have sought to be
competitive with other companies in the industry, while at the same time tying a
significant percentage of such compensation to the Company's performance and
stock price appreciation. As described above under "Employment Contracts and
Change in Control Agreements," an employment agreement effective May 1996
between the Company and Mr. Robinson sets forth the terms and conditions,
including compensation, governing Mr. Robinson's employment.

We established Mr. Robinson's base salary upon our evaluation of
his personal performance and our objective to have his base salary keep pace
with salaries being paid to similarly situated chief executive officers. We
estimate that his base salary is at the 75th to 90th percentile of the salary
levels paid to such other chief executive officers.

The remaining components of Mr. Robinson's 1998 fiscal year
compensation, however, were entirely dependent upon financial performance and
provided no dollar guarantees. The cash bonus paid to him for the 1998 fiscal
year will be based entirely on the Company's attainment of certain objectives
based on key corporate goals. This cash bonus has not been determined as of the
date of the mailing of this proxy. It is our objective to have an increasing
percentage of Mr. Robinson's total compensation each year tied to the attainment
of performance targets and stock price appreciation on his option shares.

We conclude our report with the acknowledgement that no member of
the Compensation Committee is a current officer or employee of the Company or
any of its subsidiaries.

COMPENSATION COMMITTEE

HENRY F. BLISSENBACH
VICTORIA R. FASH
JOHN GROOM

<PAGE> 35
PERFORMANCE GRAPH

The graph below shows the five-year cumulative total stockholder
return assuming the investment of $100 and the reinvestment of dividends,
although dividends have not been declared on the common stock, and is based on
the returns of the component companies weighted according to their market
capitalizations as of the end of each monthly period for which returns are
indicated in each of the common stock, and compares total stockholder returns of
common stock, the Nasdaq Composite Index, in CBOE Biotech Index, and the Nasdaq
Pharmaceutical Index. The Nasdaq Composite Index tracks the aggregate price
performance of equity securities of companies traded on the Nasdaq. The common
stock is traded on the Nasdaq National Market. The Nasdaq Pharmaceutical Index
tracks approximately 25 domestic stocks in the biotechnology sector.

On November 24, 1994, each outstanding share of the Class A
common stock was automatically converted into 1.33 shares of common stock, which
is currently traded in the over-the-counter market. The stockholder return of
Common Stock shown below for the period prior to November 24, 1994, has been
adjusted for such automatic conversion by dividing the share price in those
periods by 1.33.

The stockholder return shown on the graph below is not
necessarily indicative of future performance and the Company will not make or
endorse any predictions as to future stockholder returns.

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
Ligand NASDAQ Composite Index NASDAQ Pharmaceutical Index
------ ---------------------- ---------------------------
<S> <C> <C> <C>
12/31/93 100 100 100
12/31/94 70.213 97.752 75.262
12/31/95 91.489 138.256 138.04
12/31/96 126.596 170.015 138.469
12/31/97 109.574 208.58 142.976
12/31/98 98.936 293.209 183.019
</TABLE>

<PAGE> 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain holders of the common stock, and the common Stock
issuable upon exercise of warrants, are entitled to certain registration rights
with respect to such stock.

The bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law
(the "Delaware Law"). The Company is also empowered under its Bylaws to enter
into indemnification contracts with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
Pursuant to this provision, the Company has entered into indemnity agreements
with each of its directors and officers.

In addition, the company's certificate of incorporation provides
that to the fullest extent permitted by Delaware Law, the Company's directors
will not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under Delaware Law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
an improper personal benefit, for acts or omissions involving a reckless
disregard for the director's duty to the Company or its stockholders when the
director was aware or should have been aware of a risk of serious injury to the
Company or its stockholders, for acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the director's duty to
the Company or its stockholders, for improper transactions between the director
and the Company and for improper distributions to stockholders and loans to
directors and officers. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the Nasdaq. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to
the Company, or written representations that no Forms 5 were required, the
Company believes that, during the period from January 1998 through December
1998, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were satisfied, with the
exception of George M. Gill for which two transactions were inadvertently not
filed on a timely basis.

STOCKHOLDER PROPOSALS FOR 2000 PROXY STATEMENT

Under the present rules of the SEC, the deadline for stockholders
to submit proposals to be considered for inclusion in the Company's Proxy
Statement for next year's Annual Meeting of Stockholders is expected to be
December 18, 1999 (120 days prior to April 16, 2000). Such proposals may be
included in next year's Proxy Statement if they comply with certain rules and
regulations promulgated by the SEC and the procedure set forth in the Bylaws of
the Company, which requires notice to be delivered or mailed and received at the
Company's executive offices on or before December 18, 1999.

<PAGE> 37
In addition, the proxy solicited by the Board of Directors for
the year 2000 Annual Meeting of Stockholders will confer discretionary authority
to rate on any stockholder proposal presented at that meeting, unless the
Company receives notice of such proposal no later than December 18, 1999.

ANNUAL REPORT

A copy of the Annual Report of the Company for the 1998 Fiscal
Year has been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the annual meeting. The Annual Report is
not incorporated into this Proxy Statement and is not considered proxy
solicitation material.

FORM 10-K

THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A
COPY OF THE ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS,
SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS.

OTHER BUSINESS

The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are properly
brought before the Annual Meeting, however, it is the intention of the persons
named in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgment.

Dated: April 16, 1999 William L. Respess
Secretary

<PAGE> 38
LIGAND PHARMACEUTICALS INCORPORATED

1992 STOCK OPTION/STOCK ISSUANCE PLAN
AS AMENDED THROUGH MAY 20, 1999
ARTICLE ONE
GENERAL

I. PURPOSE OF THE PLAN

A. This 1992 Stock Option/Stock Issuance Plan ("Plan") is
intended to promote the interests of Ligand Pharmaceuticals Incorporated, a
Delaware corporation (the "Corporation"), by providing (i) key employees
(including officers) of the Corporation (or its parent or subsidiary
corporations) who are responsible for the management, growth and financial
success of the Corporation (or its parent or subsidiary corporations), (ii)
non-employee members of the Board of Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest in the Corporation as
an incentive for them to remain in the service of the Corporation (or its parent
or subsidiary corporations).

B. The Plan became effective on November 17, 1992, the date on
which the shares of the Corporation's common stock were first registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such date is hereby designated as the "Effective Date" of this Plan.

C. This Plan shall serve as the successor to the Corporation's
Restricted Stock Purchase Plan (the "Stock Plan") and 1988 Stock Option Plan
(the "Option Plan") (such Plans are hereinafter referred to as the "Predecessor
Plans"), and no further option grants or share issuances shall be made under the
Predecessor Plans from and after the Effective Date. Each outstanding option or
share issuance under the Predecessor Plans immediately prior to the Effective
Date were incorporated into this Plan and are to be treated as outstanding
options or stock issuances under this Plan. However, each such option or share
issuance shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and, except as otherwise expressly
provided herein, no provision of this Plan shall affect or otherwise modify the
rights or obligations of the holders of such incorporated options or shares with
respect to their acquisition of shares of the Corporation's common stock or
otherwise modify the rights or obligations of the holders of such options or
shares.

D. For purposes of this Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:

<PAGE> 39

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

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

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into four separate components: the
Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three, the Stock Issuance Program
specified in Article Four, and the Director Fee Option Grant Program specified
in Article Five. Under the Discretionary Option Grant Program, eligible
individuals may be granted options to purchase shares of the Corporation's
common stock at not less than 85% of the Fair Market Value (as defined below) of
such shares on the grant date. Under the Automatic Option Grant Program,
eligible non-employee members of the Board of Directors will be granted options
to purchase shares of the Corporation's common stock at 100% of the Fair Market
Value of such shares on the grant date. Subject to the limitations contained in
this Plan, the Stock Issuance Program shall allow eligible individuals to
purchase shares of the Corporation's common stock at discounts from the Fair
Market Value of such shares of up to 15%. Such shares may be issued as
fully-vested shares or as shares to vest over time. Under the Director Fee
Option Grant Program, non-employee Board members may elect to apply all or a
portion of the fee otherwise payable in cash to him or her each year to the
acquisition of a special option grant.

B. The provisions of Articles One and Six of the Plan shall apply
to both the Discretionary Option Grant Program and the Stock Issuance Program
and shall accordingly govern the interests of all individuals in the Plan.

C. With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934 ("1934 Act"), transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the Plan or action
by the Committee (as defined below) fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.

<PAGE> 40

III. ADMINISTRATION OF THE PLAN

A. Plan Administrator. The Board shall appoint a committee of two
(2) or more non-employee Board members (the "Primary Committee") to have sole
and exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs to administer the Plan with respect to officers and directors
subject to Section 16 of the 1934 Act ("Section 16 Insiders").

B. Committees. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, in the Board's discretion, be vested in the
Primary Committee or a committee of two (2) or more Board members appointed by
the Board (the "Secondary Committee"), or the Board may retain the power to
administer those programs with respect to all such persons.

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

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

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

F. Restriction on Discretion. The administration of the Automatic
Option Grant Program under Article Three and the Director Fee Option Grant
Program under Article Five shall be self executing in accordance with the terms
and provisions of those programs, and no Plan Administrator shall exercise any
discretionary functions with respect to such programs.

<PAGE> 41

IV. OPTION GRANTS AND STOCK ISSUANCES

A. The persons eligible to receive stock issuances under the
Stock Issuance Program ("Participant") and/or option grants pursuant to the
Discretionary Option Grant Program ("Optionee") are as follows:

(i) officers and other key employees of the Corporation
(or its parent or subsidiary corporations) who render services
which contribute to the management, growth and financial success
of the Corporation (or its parent or subsidiary corporations);

(ii) non-employee members of the Board of Directors; and

(iii) those consultants or other independent contractors
who provide valuable services to the Corporation (or its parent
or subsidiary corporations).

B. Only non-employee members of the Board shall be eligible to
participate in the Automatic Option Grant Program and the Director Fee Option
Grant Program.

C. Each Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the time or times when such grants are to be made, the number of shares to be
covered by each such grant, whether the granted option is to be an incentive
stock option ("Incentive Option") which satisfies the requirements of Section
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(ii) with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.

D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with Article Two of the Plan or to effect
stock issuances in accordance with Article Four of the Plan. The Plan
Administrator will have no discretion with respect to the grant of options under
the Automatic Option Grant Program and the Director Fee Option Grant Program.

V. STOCK SUBJECT TO THE PLAN

A. Shares of the Corporation's Common Stock (hereinafter referred
to as "Common Stock") shall be available for issuance under the Plan and shall
be drawn from either the Corporation's authorized but unissued shares of Common
Stock or from reacquired shares of Common Stock, including shares repurchased by
the Corporation on the open market. The maximum number of shares issuable under
the Plan is 9,073,457 shares of Common Stock. Such share reserve includes an
increase of 985,000 shares authorized by the Board effective as of March 13,
1999, subject to stockholder approval at the 1999 Annual Meeting.

<PAGE> 42

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

C. Should one or more outstanding options under this Plan
(including outstanding options under the Predecessor Plans incorporated into
this Plan) expire or terminate for any reason prior to exercise in full
(including any option cancelled in accordance with the cancellation-regrant
provisions of Section IV of Article Two of the Plan), then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant or share issuance under this Plan. Unvested shares issued under the
Plan and subsequently cancelled or repurchased by the Corporation, at the
original exercise or issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. However, shares subject to any option or portion
thereof surrendered or cancelled in accordance with Section V of Article Two
shall reduce on a share-for-share basis the number of shares of the same class
of Common Stock available for subsequent option grant or stock issuance under
the Plan. In addition, should the exercise price of an outstanding option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an
outstanding option under the Plan, then the number of shares of Common Stock of
the same class available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised, and not by the net
number of shares of Common Stock actually issued to the option holder.

D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, conversion or other change affecting
the outstanding Common Stock, or any class of Common Stock as a class, without
the Corporation's receipt of consideration, then appropriate adjustments shall
be made to (i) the number and/or class of shares issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances over the term of the Plan, and (iii) the number and/or class of shares
and price per share in effect under each outstanding option under this Plan
(including outstanding options incorporated into this Plan from the Predecessor
Plans). Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.

E. Common Stock issuable under the Discretionary Option Grant
Program or the Stock Issuance Program may be subject to such restrictions on
transfer, repurchase rights or other restrictions as determined by the Plan
Administrator.

VI. DETERMINATION OF FAIR MARKET VALUE

The "Fair Market Value" of a share of Common Stock shall be
determined in accordance with the following provisions:

<PAGE> 43

- If shares of Common Stock to be valued are not at the
time listed or admitted to trading on any national stock exchange but is
traded on the Nasdaq National Market, the Fair Market Value shall be the
closing selling price per share of a share of that class on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
reported closing selling price for the series on the date in question,
then the closing selling price on the last preceding date for which such
quotation exists shall be determinative of Fair Market Value.

- If shares of the class of common stock to be valued are
at the time listed or admitted to trading on any national stock
exchange, then the Fair Market Value of a share of that class shall be
the closing selling price per share on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of a share of the class on such exchange on the date in question,
then the Fair Market Value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.

<PAGE> 44

ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM

I. TERMS AND CONDITIONS OF OPTIONS

Options granted pursuant to this Article Two shall be authorized
by action of the Plan Administrator and, at the Plan Administrator's discretion,
may be either Incentive Options or Non-Statutory Options. Individuals who are
not Employees of the Corporation or its parent or subsidiary corporations may
only be granted Non-Statutory Options. Each granted option shall be evidenced by
one or more instruments in the form approved by the Plan Administrator;
provided, however, that each such instrument shall comply with the terms and
conditions specified below. Each instrument evidencing an Incentive Option
shall, in addition, be subject to the applicable provisions of Section II of
this Article Two.

A. Option Price.

(1) The option price per share shall be fixed by the
Plan Administrator. In no event, however, shall the price for any share be less
than eighty-five percent (85%) of the Fair Market Value of that share on the
date of the option grant.

(2) The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Article Six, Section II
and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:

- full payment in cash or check drawn to the
Corporation's order;

- full payment in shares of Common Stock held for at
least six (6) months and valued at Fair Market Value on the
Exercise Date;

- full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at Fair Market
Value on the Exercise Date and cash or check; or

- full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall
provide irrevocable instructions to a designated brokerage firm
to effect the immediate sale of the purchased shares and remit
to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option
price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be
withheld by the Corporation in connection with such purchase and
(II) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.

<PAGE> 45

For purposes of this subparagraph (2), the Exercise Date shall
be the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.

B. Term and Exercise of Options. Each option granted under this
Article Two shall be exercisable at such time or times and during such period as
is determined by the Plan Administrator and set forth in the stock option
agreement evidencing the grant. No such option, however, shall have a maximum
term in excess of ten (10) years from the grant date.

C. Termination of Service.

(1) Except to the extent otherwise provided pursuant to Section
VI of this Article Two, the following provisions shall govern the exercise
period applicable to any outstanding options under this Article Two which are
held by the Optionee at the time of his or her cessation of Service or death.

- Should an Optionee's Service terminate for any reason
(including death or permanent disability as defined in Section 22(e)(3)
of the Internal Revenue Code) while the holder of one or more
outstanding options under the Plan, then none of those options shall
(except to the extent otherwise provided pursuant to Section VI of this
Article Two) remain exercisable beyond the limited post-Service period
designated by the Plan Administrator at the time of the option grant and
set forth in the option agreement.

- Any option granted to an Optionee under this Article Two and
exercisable in whole or in part on the date of the Optionee's death may
be subsequently exercised, by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution, provided and only if such exercise
occurs prior to the earlier of (i) the third anniversary of the date of
the Optionee's death or (ii) the specified expiration date of the option
term. Upon the occurrence of the earlier event, the option shall
terminate and cease to be exercisable.

- Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.

- During the limited post-Service period of exercisability, the
option may not be exercised in the aggregate for more than the number of
shares for which the option is exercisable on the date the Optionee's
Service terminates. Upon the expiration of such limited exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable.

<PAGE> 46

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

- to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited period of post-Service
exercisability provided under subparagraph (1) above, not only with
respect to the number of shares for which each such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more subsequent installments of purchasable
shares for which the option would otherwise have become exercisable had
such cessation of Service not occurred, and

- to extend the period of time for which any option granted
under this Article Two is to remain exercisable following the Optionee's
cessation of Service or death from the limited period in effect under
subparagraph (1) above to such greater period of time as the Plan
Administrator shall deem appropriate; provided, however, that in no
event shall such option be exercisable after the specified expiration
date of the option term.

(3) For purposes of the foregoing provisions of this Section I.C
(and for all other purposes under the Plan):

- The Optionee shall (except to the extent otherwise
specifically provided in the applicable option or issuance agreement) be
deemed to remain in the SERVICE of the Corporation for so long as such
individual renders services on a periodic basis to the Corporation (or
any parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the Board or an independent consultant or
advisor.

- The Optionee shall be considered to be an EMPLOYEE for so long
as he or she remains in the employ of the Corporation or one or more
parent or subsidiary corporations, subject to the control and direction
of the employer entity not only as to the work to be performed but also
as to the manner and method of performance.

D. Stockholder Rights. An Optionee shall have no stockholder
rights with respect to any shares covered by the option until such individual
shall have exercised the option, paid the option price for the purchased shares
and been issued a stock certificate for such shares.

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

<PAGE> 47

F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options may, to
the extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.

II. INCENTIVE OPTIONS

The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Incentive Options may only
be granted to individuals who are Employees of the Corporation. Options which
are specifically designated as "non-statutory" options when issued under the
Plan shall not be subject to such terms and conditions.

A. Option Price. The option price per share of any share of
Common Stock subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such share of Common Stock on
the grant date.

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

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

Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Six of the Plan shall apply to all
Incentive Options granted hereunder.

III. CORPORATE TRANSACTIONS

A. For purposes of this Section III, a "Corporate Transaction"
shall mean any one of the following stockholder-approved transactions:

<PAGE> 48

(i) a merger or consolidation in which the Corporation
is not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Corporation's
incorporation,

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

(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to holders different from those
who held such securities immediately prior to such merger.

B. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same. Appropriate adjustments shall also be
made to the class and number of securities available for issuance under the Plan
on both an aggregate and per participant basis following the consummation of
such Corporate Transaction.

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

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under this Article Two covering the same or
different numbers of shares of Common Stock but having an option price for each
share which is not less than (i) eighty-five percent (85%) of the Fair Market
Value of such share on the new grant date or (ii) one hundred percent (100%) of
such Fair Market Value in the case of an Incentive Option.

<PAGE> 49

V. STOCK APPRECIATION RIGHTS

A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees under the Discretionary Option Grant Program may be
granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) the Fair Market Value (on the option surrender
date) of the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the aggregate
option price payable for such vested shares.

B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled under
this Section V may be made in shares of any class of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.

C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.

D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over effected at any time when the Corporation's
outstanding Common Stock is registered under Section 12(g) of the 1934 Act, each
outstanding option with such a limited stock appreciation right shall
automatically be cancelled, to the extent such option is at the time exercisable
for fully-vested shares of Common Stock. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to the cancelled option (or cancelled portion of such option) over
(ii) the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
consummation of the Hostile Take-Over. The Plan Administrator shall pre-approve,
at the time the limited right is granted, the subsequent exercise of that right
in accordance with the terms of the grant and the provisions of this Section
V.D. No additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option cancellation and cash distribution.
The balance of the option (if any) shall continue to remain outstanding and
exercisable in accordance with the terms of the instrument evidencing such
grant.

<PAGE> 50

E. For purposes of Section V.D, the following definitions shall
be in effect:

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

The TAKE-OVER PRICE per share shall be deemed to be equal
to the greater of (a) the Fair Market Value per share on the date
of cancellation, as determined pursuant to the valuation
provisions of Section VI of Article One, or (b) the highest
reported price per share paid in effecting such Hostile
Take-Over. However, if the cancelled option is an Incentive
Option, the Take-Over Price shall not exceed the clause (a) price
per share.

F. The shares of Common Stock subject to any option surrendered
or cancelled for an appreciation distribution pursuant to this Section V shall
NOT be available for subsequent option grant under the Plan.

<PAGE> 51

ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM

I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS

A. Grant Dates. Option grants will be made under this Article
Three on the dates specified below:

(1) Each individual who first becomes a non-employee
Board member on or after the date of the 1998 Annual Meeting, whether
through election by the Corporation's stockholders or appointment by the
Board, shall automatically be granted, at the time of such initial
election or appointment, a Non-Statutory Option to purchase 20,000
shares of Common Stock upon the terms and conditions of this Article
Three, provided SUCH INDIVIDUAL HAS NOT OTHERWISE BEEN IN THE PRIOR
EMPLOY OF THE CORPORATION.

(2) On the date of each Annual Stockholders Meeting,
beginning with the 1998 Annual Meeting, each individual re-elected as a
non-employee Board member at such Annual Meeting shall automatically be
granted a Non-Statutory Option to purchase 10,000 shares of Common Stock
upon the terms and conditions of this Article Three. There shall be no
limit on the number of 10,000-share option grants any one non-employee
Board member may receive over the period of Board service, and
non-employee Board members previously in the Corporation's employ shall
be entitled to one or more such annual option grants over his or her
period of Board service.

B. Exercise Price. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the Fair Market Value per share of the Common Stock on the date of
grant under this Automatic Option Grant Program.

C. Payment.

The exercise price shall be payable in one of the
alternative forms specified below:

(i) full payment in cash or check drawn to the
Corporation's order;

(ii) full payment in shares of Common Stock held for at
least six (6) months and valued at Fair Market Value on the Exercise
Date (as such term is defined below);

(iii) full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at Fair Market Value
on the Exercise Date and cash or check; or

<PAGE> 52

(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (A)
shall provide irrevocable instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and state income taxes
required to be withheld by the Corporation in connection with such
purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.

For purposes of this paragraph C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.

D. Option Term. Each automatic grant under this Article Three
shall have a term of ten (10) years measured from the automatic grant date.

E. Exercisability. Each automatic grant shall become exercisable
in full one (1) year after the automatic grant date. The option shall not become
exercisable for any additional option shares after the optionee has ceased for
any reason to be a member of the Board.

F. Effect of Termination of Board Membership.

(1) Should the optionee cease to serve as a Board member
for any reason (other than death) while holding one or more automatic option
grants under this Article Three, then such optionee shall have a three (3) month
period following the date of such cessation of Board service in which to
exercise each such option for any or all of the shares of Common Stock for which
the option was exercisable at the time of such cessation of Board service. Each
such option shall immediately terminate and cease to be outstanding, at the time
of such cessation of Board service, with respect to any shares for which the
option is not otherwise at that time exercisable.

(2) Should the optionee die while serving as a Board
member or within three (3) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option was exercisable at the time of the optionee's cessation of
Board service (less any option shares subsequently purchased by the optionee
prior to death), by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Any
such exercise must occur within thirty-six (36) months after the date of the
optionee's death. However, each such automatic option grant shall immediately
terminate and cease to be outstanding, at the time of the optionee's cessation
of Board service, with respect to any option shares for which it is not
otherwise at such time exercisable.

<PAGE> 53

(3) In no event shall any automatic grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable exercise period in
accordance with subparagraphs (1) and (2) above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any unexercised shares for which the option was
exercisable at the time of the optionee's cessation of Board service.

G. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.

II. CORPORATE TRANSACTION

A. For purposes of this Section II, a "Corporate Transaction"
shall be one or more of the following stockholder-approved transactions:

(i) a merger or consolidation in which the Corporation
is not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Corporation's
incorporation,

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

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

<PAGE> 54

C. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same.

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

III. REMAINING TERMS

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

<PAGE> 55

ARTICLE FOUR
STOCK ISSUANCE PROGRAM

I. TERMS AND CONDITIONS OF STOCK ISSUANCES

Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.

A. CONSIDERATION

(1) Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Plan for one or more of the following items of consideration
which the Plan Administrator may deem appropriate in each individual instance:

(i) cash or cash equivalents (such as a personal
check or bank draft) paid the Corporation;

(ii) a promissory note payable to the
Corporation's order in one or more installments, which may be subject to
cancellation in whole or in part upon terms and conditions established
by the Plan Administrator; or

(iii) past services rendered to the Corporation
or any parent or subsidiary corporation.

(2) Newly Issued Shares may, in the absolute discretion of
the Plan Administrator, be issued for consideration with a value less than
one-hundred percent (100%) of the Fair Market Value of such shares, but in no
event less than eighty-five percent (85%) of such Fair Market Value.

(3) Shares of Common Stock reacquired by the Corporation
and held as treasury shares ("Treasury Shares") may be issued under this Article
Four for such consideration (in whatever form) as the Plan Administrator may
deem appropriate. Accordingly, such Treasury Shares may, in lieu of any cash
consideration, be issued subject to such vesting requirements tied to the
Participant's period of future Service or the Corporation's attainment of
specified performance objectives as the Plan Administrator may establish at the
time of issuance.

<PAGE> 56

B. VESTING PROVISIONS

(1) Shares of Common Stock issued under this Article Four
may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service (as such term is defined in Section I.C.(3)
of Article Two). The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Plan, namely:

(i) the Service period to be completed by the
Participant or the performance objectives to be achieved by the
Corporation,

(ii) the number of installments in which the
shares are to vest,

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

(iv) the effect which death, disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,

shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.

(2) The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to him or her under this
Article Four, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. Any new, additional or
different shares of stock or other property (including money paid other than as
a regular cash dividend) which the Participant may have the right to receive
with respect to his or her unvested shares by reason of any stock dividend,
stock split, reclassification of Common Stock or other similar change in the
Corporation's capital structure shall be issued, subject to (i) the same vesting
requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.

(3) Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock under this Article
Four, then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the principal balance of any outstanding purchase-money
note of the Participant to the extent attributable to such surrendered shares.
The surrendered shares may, at the Plan Administrator's discretion, be retained
by the Corporation as Treasury Shares or may be retired to authorized but
unissued share status.

(4) The Plan Administrator may in its discretion elect to
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets

<PAGE> 57

attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.

II. TRANSFER RESTRICTIONS/SHARE ESCROW

A. Unvested shares under this Article Four may, in the Plan
Administrator's discretion, be held in escrow by the Corporation until the
Participant's interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing such
unvested shares. To the extent an escrow arrangement is utilized, the unvested
shares and any securities or other assets issued with respect to such shares
(other than regular cash dividends) shall be delivered in escrow to the
Corporation to be held until the Participant's interest in such shares (or other
securities or assets) vests. Alternatively, if the unvested shares are issued
directly to the Participant, the restrictive legend on the certificates for such
shares shall read substantially as follows:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND TO
(II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN
THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE
TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET
FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND
THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED
, 19 , A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE CORPORATION."

B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under this Article Four. For
purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Plan to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the donee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Plan and the Issuance
Agreement applicable to the gifted shares.

<PAGE> 58

ARTICLE FIVE

DIRECTOR FEE OPTION GRANT PROGRAM

I. OPTION GRANTS

Each non-employee Board member may, commencing with the 1999
calendar year, elect to apply all or any portion of the fee otherwise payable to
him or her in cash each year for his or her Board service to the acquisition of
a special option grant under this Director Fee Option Grant Program. Such
election must be filed with the Corporation's Chief Financial Officer prior to
last day of December in the calendar year immediately preceding the calendar
year for which the fee subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the fee subject of that
election would otherwise be payable. Until the Corporation establishes an annual
retainer fee for the non-employee Board members, the dollar amount of the fee
subject to the Board member's election each year shall be equal to the number of
regularly-scheduled Board meetings for that year multiplied by the per Board
meeting fee in effect for such year. Stockholder approval of the 1998
Restatement at the 1998 Annual Stockholders Meeting constitutes pre-approval of
each option subsequently granted pursuant to the express terms of this Director
Fee Option Grant Program and the subsequent exercise of that option in
accordance with its terms.

II. OPTION TERMS

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

A. EXERCISE PRICE.

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

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

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

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

X is the number of option shares,
<PAGE> 59

A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and

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

C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Board service in the
calendar year for which the annual retainer fee which is the subject of his or
her election under this Article Five would otherwise be payable. Each option
shall have a maximum term of ten (10) years measured from the option grant date.

D. EFFECT OF TERMINATION OF SERVICE. Should the optionee cease
Board service for any reason (other than death or permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code) while holding one or
more options under this Article Five, then each such option shall remain
exercisable, for any or all of the shares for which the option is exercisable at
the time of such cessation of Board service, until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
However, each option held by the optionee under this Article Five at the time of
his or her cessation of Board service shall immediately terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.

E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or permanent disability as defined in
Section 22(e)(3) of the Internal Revenue Code, then each option held by such
optionee under this Article Five shall immediately become exercisable for all
the shares of Common Stock at the time subject to that option, and the option
may, during the three (3)-year period following such cessation of Board service,
be exercised for any or all of those shares as fully-vested shares.

Should the optionee die while holding one or more options under
this Article Five, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the optionee's
cessation of Board service (less any shares subsequently purchased by optionee
prior to death), by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the optionee's cessation of Board
service.

III. CORPORATE TRANSACTION

A. For purposes of this Section III, a "Corporate Transaction"
shall be one or more of the following stockholder-approved transactions:

(i) a merger or consolidation in which the Corporation
is not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Corporation's
incorporation,

<PAGE> 60

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

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

IV. REMAINING TERMS

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

<PAGE> 61

ARTICLE SIX

MISCELLANEOUS

I. EFFECT OF TRANSACTIONS ON OUTSTANDING OPTIONS

A. Prior to the Effective Date of the Plan, the Company's
outstanding common stock was reclassified as Series B Common Stock and subjected
to a 3 for 4 reverse stock split. As part of the same transaction, one-third of
a share of newly authorized Series A Common Stock was distributed with respect
to each outstanding share of Series B Common Stock. Under the Company's 1988
Stock Option Plan and each of the options outstanding as of the record date for
such dividend ("Affected Option"), which options are incorporated under this
Plan, appropriate adjustment must be made to the outstanding options to reflect
such reverse stock split and stock dividend. Such appropriate adjustments were
as follows:

1. The aggregate number of shares of Common Stock
available under any Affected Option shall be unchanged by the reverse stock
split and stock dividend, but 75% of such total number shares of Common Stock
available under such options shall be Class B Common Stock and 25% of such total
number shall be Class A Common Stock.

2. The option price per share for each share of stock
available under an Affected Option will remain unchanged, and the aggregate
option price for all shares available under the option will remain unchanged.

3. Any vesting schedule imposed under an Affected Option
will be applied separately to the total Class A and Class B Common Stock so that
on each vesting date the holder will vest in one Class A share for every three
shares of Class B Common Stock vesting on such date.

4. Option holders may separately exercise all or any
portion of the vested options of either Class of Common Stock.

B. As a result of a Conversion pursuant to the terms of the
Company's Certificate of Incorporation, all outstanding shares of Class A Common
Stock of the Corporation were converted into 1.33 shares of Class B Common Stock
(which became the only outstanding class of Common Stock of the Corporation).
Under this Plan, each outstanding option to purchase shares of Class A Common
Stock must be adjusted to reflect such conversion. Such adjustments are as
follows:

1. Each option to purchase a share of Class A Common
Stock (a "Converted Option") is automatically converted into an option to
purchase 1.33 shares of Common Stock.

<PAGE> 62

2. The aggregate option price per share for each Converted
Option will remain unchanged, but the price per share for each share of Common
Stock under a Converted Option will equal the purchase price payable for a share
of Class A Common Stock divided by 1.33.

3. Any remaining vesting schedule imposed under a
Converted Option will apply to the Common Stock available under such Option.

II. LOANS

A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Article Two Discretionary Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article Four
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or (ii)
permitting the Optionee or Participant to pay the option price or purchase price
for the purchased Common Stock in installments over a period of years. The terms
of any loan or installment method of payment (including the interest rate and
terms of repayment) will be upon such terms as the Plan Administrator specifies
in the applicable option or issuance agreement or otherwise deems appropriate
under the circumstances. Loans and installment payments may be granted with or
without security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with the acquisition of such shares.

B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.

III. TAX WITHHOLDING

A. The Company's obligation to deliver shares or cash upon the
exercise of stock options or stock appreciation rights granted under the
Discretionary Option Grant Program or upon direct issuance under the Stock
Issuance Program shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.

B. The Plan Administrator may, in its discretion and upon such
terms and conditions as it may deem appropriate provide any or all holders of
outstanding option grants under the Discretionary Option Grant Program with the
election to have the Company withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such options, a portion of such shares with an
aggregate Fair Market Value equal to the designated percentage (up to 100% as
specified by the optionee) of the Federal and State income taxes ("Taxes")

<PAGE> 63

incurred in connection with the acquisition of such shares. In lieu of such
direct withholding, one or more option holders may also be granted the right to
deliver shares of Common Stock to the Company in satisfaction of such Taxes. The
withheld or delivered shares shall be valued at the Fair Market Value on the
applicable determination date for such Taxes.

IV. AMENDMENT OF THE PLAN AND AWARDS

A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. No amendment or modification may adversely affect the rights and
obligations of an Optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any Participant with respect to
Common Stock issued under the Plan prior to such action, unless the Optionee or
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval if so determined by the Board or
pursuant to applicable laws or regulations.

B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program or the Automatic Option Grant
Program and (ii) shares of Common Stock may be issued under the Stock Issuance
Program, which are in both instances in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program, the Automatic Option Grant Program or the
Stock Issuance Program are held in escrow until stockholder approval is obtained
for a sufficient increase in the number of shares available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.

C. Effective as of March 31, 1999, the Board amended and restated
the Plan to increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Plan from 8,088,457 shares to 9,073,457 shares.
This amendment is subject to stockholder approval at the 1999 Annual Meeting.
Until such stockholder approval is obtained, any options granted on the basis of
the amendment shall not become exercisable in whole or in part, and those
options shall terminate without ever becoming exercisable for the option shares.
All option grants and direct stock issuances made prior to the amendment shall
remain outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the amendment
shall be deemed to modify or in any way affect those outstanding options or
issuances. The Plan Administrator may make option grants and direct stock
issuances under the Plan at any time before the date fixed herein for the
termination of the Plan.

V. EFFECTIVE DATE AND TERM OF PLAN

A. This Plan, as successor to the Company's Predecessor Plans,
became effective as of the Effective Date, and no further option grants shall be
made under the Option

<PAGE> 64

Plan nor shall any further shares be issued under the Stock Plan from and after
such Effective Date.

B. Each outstanding option and share issuance under the
Predecessor Plans immediately prior to the Effective Date of this Plan are
hereby incorporated into this Plan and shall accordingly be treated as an
outstanding option or share issuance under this Plan. Each such option or share
issuance shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and except as otherwise expressly
provided in this Plan, no provision of this Plan shall affect or otherwise
modify the rights or obligations of the holders of such options or shares with
respect to their acquisition of shares of Common Stock, or otherwise modify the
rights or obligations of the holders of such options or shares.

C. The sale and remittance procedure authorized for the exercise
of outstanding options under this Plan shall be available for all options
granted under this Plan on or after the Effective Date and for all Non-Statutory
Options outstanding under the Option Plan and incorporated into this Plan. The
Plan Administrator may also allow such procedure to be utilized in connection
with one or more disqualifying dispositions of Incentive Option shares effected
after the Effective Date, whether such Incentive Options were granted under this
Plan or the Option Plan.

D. The Plan shall terminate upon the earlier of (i) November 16,
2002, or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the options granted under the Discretionary Option Grant Program or
the issuance of shares (whether vested or unvested) under the Stock Issuance
Program. If the date of termination is determined under clause (i) above, then
all option grants and unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the instruments evidencing such grants or issuances.

<PAGE> 65

VI. USE OF PROCEEDS

Cash proceeds received by the Company from the sale of shares
under the Plan shall be used for general corporate purposes.

VII. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any option
under the Discretionary Option Grant Program, the issuance of any shares under
the Stock Issuance Program, and the issuance of Common Stock upon the exercise
or surrender of the option grants made hereunder shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it, and
the Common Stock issued pursuant to it.

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

VIII. NO EMPLOYMENT/SERVICE RIGHTS

Neither the action of the Corporation in establishing the Plan,
nor any action taken by the Plan Administrator hereunder, nor any provision of
the Plan shall be construed so as to grant any individual the right to remain in
the employ or service of the Corporation (or any parent or subsidiary
corporation) for any period of specific duration, and the Corporation (or any
parent or subsidiary corporation retaining the services of such individual) may
terminate such individual's employment or service at any time and for any
reason, with or without cause.

IX. MISCELLANEOUS PROVISIONS

The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.

<PAGE> 66

LIGAND PHARMACEUTICALS INCORPORATED

1992 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED THROUGH MAY 20, 1999

I. PURPOSE

The Ligand Pharmaceuticals Incorporated 1992 Employee Stock
Purchase Plan (the "Plan") is intended to provide eligible employees of the
Company and one or more of its Corporate Affiliates with the opportunity to
acquire a proprietary interest in the Company through the periodic application
of their payroll deductions to the purchase of shares of the Company's common
stock.

II. DEFINITIONS

For purposes of plan administration, the following terms shall
have the meanings indicated:

Base Salary means the regular basic earnings paid to a
Participant by one or more Participating Companies before deduction for any
pre-tax contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Company or any Corporate Affiliate. There shall be excluded
from the calculation of Base Salary (i) all overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments and
(ii) all contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Company or one or more
Corporate Affiliates under any employee benefit or welfare plan now or hereafter
established.

Board means the Company's Board of Directors.

Code means the Internal Revenue Code of 1986, as amended from
time to time.

Common Stock means shares of the Company's common stock.

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

Corporate Affiliate means any company which is a parent or
subsidiary corporation of the Company (as determined in accordance with Code
Section 424), including any parent or subsidiary corporation which becomes such
after the Effective Date.

Effective Date meaning November 17, 1992, the start date of the
initial offering period under the Plan. However, for any Corporate Affiliate
which becomes a Participating Company in the Plan after such start date, a
subsequent Effective Date shall be designated with respect to participation by
its Eligible Employees.

<PAGE> 67

Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year, in the rendition of personal services to the
Company or any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.

Entry Date means the date an Eligible Employee first joins the
offering period in effect under the Plan. The earliest Entry Date under the Plan
shall be the Effective Date.

Participant means any Eligible Employee of a Participating
Company who is actively participating in the Plan.

Participating Company means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board.

Quarterly Entry Date means the first business day of January, the
first business day of April, the first business day of July and the first
business day of October during each offering period in effect under the Plan.
The earliest Quarterly Entry Date for an individual who is not otherwise
eligible to join the Plan on the Effective Date shall be January 1, 1993.

Quarterly Period of Participation means each quarterly period for
which the Participant actually participates in an offering period in effect
under the Plan. Except as otherwise designated by the Plan Administrator, each
quarterly period shall begin on the first business day of each calendar quarter
and shall end on the last business day of such quarter.

Quarterly Purchase Date means the last business day of March,
June, September and December each year on which shares of Common Stock are
automatically purchased for Participants under the Plan.

Service means the period during which an individual remains in
the employ of the Company or any Corporate Affiliate, whether or not in Eligible
Employee status, and shall be measured from such individual's most recent date
of hire by the Company or such Corporate Affiliate.

III. ADMINISTRATION

The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two or more non-employee Board members appointed
from time to time by the Board. The Plan Administrator shall have full authority
to administer the Plan, including authority to interpret and construe any
provision of the Plan. Decisions of the Plan Administrator shall be final and
binding on all parties who have an interest in the Plan.

IV. OFFERING PERIODS

A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated in
accordance with Article X.

2.
<PAGE> 68

B. The initial offering period began on November 17, 1992, and
ended on the last business day in December 1993. Subsequent offering periods
shall be coincidental with the calendar year and shall accordingly commence on
the first business day in January each year.

D. The Participant shall be granted a separate purchase right for
each offering period in which he/she participates. The purchase right shall be
granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised in
successive installments on each Quarterly Purchase Date within the offering
period.

E. The acquisition of Common Stock through participation in the
Plan for any offering period shall neither limit nor require the acquisition of
Common Stock by the Participant in any subsequent offering period.

V. ELIGIBILITY AND PARTICIPATION

A. Each Eligible Employee of a Participating Company shall be
eligible to participate in the Plan in accordance with the following provisions:

- An Eligible Employee with at least five (5) months of
Service on the start date of the offering period may enter that offering
period on such start date, provided such individual enrolls in the
offering period on or before such date in accordance with Section V.B
below. That start date shall then become such individual's Entry Date
for the offering period, and on that date such individual shall be
granted his/her purchase right for the offering period. Should such
Eligible Employee not enter the offering period on the start date, then
he/she may not subsequently join that particular offering period on any
later date.

- An individual who is not an Eligible Employee with at
least five (5) months of Service on the start date of the offering
period may subsequently enter that offering period on the first
Quarterly Entry Date on which he/she is an Eligible Employee with at
least five (5) months of Service, provided he/she enrolls in the
offering period on or before such date in accordance with Section V.B
below. That Quarterly Entry Date shall then become such individual's
Entry Date for the offering period, and on that date such individual
shall be granted his/her purchase right for the offering period. Should
such Eligible Employee not enter the offering period on the first
Quarterly Entry Date on which he/she is first eligible to join the
offering period, then he/she may not subsequently join that particular
offering period on any later date.

B. To participate for a particular offering period, the Eligible
Employee must complete the enrollment forms prescribed by the Plan Administrator
(including the purchase agreement and payroll deduction authorization) and file
such forms with the Plan Administrator on or before his/her scheduled Entry
Date.

C. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Base Salary paid to the Participant during each
Quarterly Period of Participation within the

3.
<PAGE> 69

offering period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect for the remainder of the offering period,
except to the extent such rate is changed in accordance with the following
guidelines:

- The Participant may, at any time during the Quarterly Period of
Participation, reduce his/her rate of payroll deduction. Such
reduction shall become effective as soon as possible after filing
of the requisite reduction form with the Plan Administrator (or
its designate), but the Participant may not effect more than one
such reduction during the same Quarterly Period of Participation.

- The Participant may, prior to the commencement of any new
Quarterly Period of Participation within the offering period,
increase or decrease the rate of his/her payroll deduction by
filing the appropriate form with the Plan Administrator (or its
designate). The new rate (which may not exceed the ten percent
(10%) maximum) shall become effective as of the first date of the
first Quarterly Period of Participation following the filing of
such form.

- Payroll deductions will automatically cease upon the
termination of the Participant's purchase right in accordance
with the applicable provisions of Section VII below.

VI. STOCK SUBJECT TO PLAN

A. The Common Stock purchasable by Participants under the Plan
shall, solely in the discretion of the Plan Administrator, be made available
from either authorized but unissued shares of Common Stock or from shares of
Common Stock reacquired by the Company, including shares of Common Stock
purchased on the open market. The total number of shares which may be issued
under the Plan shall not exceed 355,000 shares of Common Stock (provided that,
for this purpose, each issuance of Class A Common Stock occurring prior to
November 24, 1994 shall be treated as if it were an issuance of 1.33 shares of
Common Stock).

Such share reserve includes the 95,000-share increase approved by
the Board effective as of March 31, 999, subject to approval by the stockholders
at the 1999 Annual Meeting. The number of shares of Common Stock issuable under
the Plan shall be adjusted from time to time in accordance with Section VI.B
hereof.

B. In the event any change is made to the Company's outstanding
Common Stock by reason of any stock dividend, stock split, combination of shares
or other change affecting such outstanding Common Stock as a class without
receipt of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during any one offering period and (iii) the class and number of
shares and the price per share in effect under each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.

4.
<PAGE> 70

VII. PURCHASE RIGHTS

An Employee who participates in the Plan for a particular
offering period shall have the right to purchase shares of Common Stock, in a
series of successive quarterly installments during such offering period, upon
the terms and conditions set forth below and shall execute a purchase agreement
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may deem advisable.

Purchase Price. Common Stock shall be issuable at the end of each
Quarterly Period of Participation at a purchase price equal to eighty-five
percent (85%) of the lower of (i) the fair market value per share on the
Participant's Entry Date into the offering period or (ii) the fair market value
per share on the Quarterly Purchase Date on which such Quarterly Period of
Participation ends. However, for each Participant whose Entry Date is other than
the start date of the offering period in effect under the Plan, the clause (i)
amount shall in no event be less than the fair market value of the Common Stock
on the start date of such offering period.

Valuation. For purposes of determining the fair market value per
share of Common Stock on any relevant date the fair market value shall be the
closing selling price on that date, as officially quoted on the Nasdaq National
Market. If there is no quoted selling price for such date, then the closing
selling price on the next preceding day for which there does exist such a
quotation shall be determinative of fair market value.

Number of Purchasable Shares. The number of shares purchasable
per Participant for each Quarterly Period of Participation shall be the number
of whole shares obtained by dividing the amount collected from the Participant
through payroll deductions during such Quarterly Period of Participation by the
purchase price in effect for the Quarterly Purchase Date on which such Quarterly
Period of Participation ends. However, no Participant may, during any one
offering period, purchase more than 1,330 shares of Common Stock, subject to
periodic adjustment under Section VI.B.

Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other 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 any of its Corporate Affiliates.

Payment. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin on the first pay day coincident with or immediately
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from a Participant may be
commingled with the general assets of the Company and may be used for general
corporate purposes.

5.
<PAGE> 71

Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the last five
(5) business days of the Quarterly Period of Participation, terminate
his/her outstanding purchase right under the Plan by filing the
prescribed notification form with the Plan Administrator (or its
designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and any
payroll deductions collected for the Quarterly Period of Participation
in which such termination occurs shall, at the Participant's election,
be immediately refunded or held for the purchase of shares on the next
Quarterly Purchase Date. If no such election is made, then such funds
shall be refunded as soon as possible after the close of such Quarterly
Period of Participation.

(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which such terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of a
new purchase agreement and payroll deduction authorization) during the
applicable enrollment period for the new offering.

(iii) If the Participant ceases to remain an Eligible
Employee while his/her purchase right remains outstanding, then such
individual (or the personal representative of the estate of a deceased
Participant) shall have the following election, exercisable up until the
end of the Quarterly Period of Participation in which the Participant
ceases Eligible Employee status:

- to withdraw all of the Participant's payroll
deductions for such Quarterly Period of Participation, or

- to have such funds held for the purchase of
shares on the Quarterly Purchase Date immediately following such
cessation of Eligible Employee status.

If no such election is made, then such funds
shall be refunded as soon as possible after the close of such Quarterly Period
of Participation. In no event, however, may any payroll deductions be made on
the Participant's behalf following his/her cessation of Eligible Employee
status.

Stock Purchase. Shares of Common Stock shall automatically be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions above) on each Quarterly Purchase Date. The purchase
shall be effected by applying each Participant's payroll deductions for the
Quarterly Period of Participation ending on such Quarterly Purchase Date
(together with any carryover deductions from the preceding Quarterly Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of purchasable shares set forth above) at the
purchase price in effect for such Quarterly

6.
<PAGE> 72

Period of Participation. Any payroll deductions not applied to such purchase
because they are not sufficient to purchase a whole share shall be held for the
purchase of Common Stock in the next Quarterly Period of Participation. However,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable by the Participant
for that offering period shall be promptly refunded to the Participant.

Proration of Purchase Rights. Should the total number of shares
of Common Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded to such Participant.

Rights as Stockholder. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.

A Participant shall be entitled to receive, as soon as
practicable after each Quarterly Purchase Date, a stock certificate for the
number of shares purchased on the Participant's behalf. Such certificate may,
upon the Participant's request, be issued in the names of the Participant and
his/her spouse as community property or as joint tenants with right of
survivorship.

Assignability. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.

Change in Ownership. Should the Company or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
outstanding capital stock of the Company by means of:

(i) a sale, merger or other reorganization in which the
Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which the
Company is incorporated), or

(ii) a reverse merger in which the Company is the
surviving corporation but in which more than 50% of the Company's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to the reverse merger,

then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such sale,
merger, reorganization or reverse merger by applying the payroll deductions of
each Participant for the Quarterly Period of Participation in which such
transaction occurs to the purchase of whole shares of Common Stock

7.
<PAGE> 73

at eighty-five percent (85%) of the lower of (i) the fair market value of the
Common Stock on the Participant's Entry Date into the offering period in which
such transaction occurs or (ii) the fair market value of the Common Stock
immediately prior to the consummation of such transaction. However, the
applicable share limitations of Articles VII and VIII shall continue to apply to
any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other than the start
date of such offering period, be less than the fair market value of the Common
Stock on such start date.

The Company shall use its best efforts to provide at least ten
(10)-days advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (I) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(II) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 worth of stock of the Company or any Corporate Affiliate (determined on
the basis of the fair market value of such stock on the date or dates such
rights are granted to the Participant) for each calendar year such rights are at
any time outstanding.

B. For purposes of applying such accrual limitations the right to
acquire Common Stock pursuant to each purchase right outstanding under the Plan
shall accrue as follows:

(i) The right to admire (Common Stock under each such
purchase right shall accrue in a series of successive quarterly
installments as and when the purchase right first becomes exercisable
for each quarterly installment on the last business day of each
Quarterly Period of Participation for which the right remains
outstanding.

(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
$25,000 worth of Common Stock (determined on the basis of the fair
market value on the date or dates of grant) pursuant to one or more
purchase rights held by the Participant during such calendar year.

(iii) If by reason of such accrual limitations any
purchase right of a Participant does not accrue for a particular
Quarterly Period of Participation? then the payroll deductions which the
Participant made during that Quarterly Period of Participation with
respect to such purchase right shall be promptly refunded.

8.
<PAGE> 74

C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.

IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS

The Plan is designed to qualify as an employee stock purchase
plan under Code Section 423. Accordingly, the Participant will not recognize any
taxable income at the time one or more shares of Common Stock are purchased on
his/her behalf on any Quarterly Purchase Date under the Plan.

X. AMENDMENT AND TERMINATION

A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Quarterly Period of Participation. However, the Board
may not, without the approval of the Company's stockholders:

(i) increase the number of shares issuable under the Plan
or the maximum number of shares which may be purchased per Participant
during any one offering period under the Plan, except that the Plan
Administrator shall have the authority, exercisable without such
stockholder approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to Section
VI.B;

(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or

(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.

B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Quarterly Period of
Participation. Should the Company elect to exercise such right, then the Plan
shall terminate in its entirety. No further purchase rights shall thereafter be
granted or exercised, and no further payroll deductions shall thereafter be
collected, under the Plan.

C. In April, 1998 the Board amended the Plan to increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Plan from 206,500 shares to 260,000 shares. This amendment to the Plan
was approved by the stockholders at the 1998 Annual Meeting on May 21, 1998.

XI. GENERAL PROVISIONS

A. The Plan shall terminate upon the earlier of (i) December 31,
2002 or (ii) the date on which all shares available for issuance under the Plan
shall have been sold pursuant to purchase rights exercised under the Plan.

9.
<PAGE> 75

B. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.

C. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.

10.
<PAGE> 76

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

LIGAND PHARMACEUTICALS INCORPORATED

The undersigned hereby appoints David E. Robinson and William L. Respess,
as proxies, jointly and severally, with full power of substitution to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of Ligand Pharmaceuticals Incorporated to be held on Thursday,
May 20, 1999, or at any postponements or adjournments thereof, as specified
below, and to vote in their discretion on such other business as may properly
come before the Meeting and any adjournments thereof.

(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)

- - --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*

<PAGE> 77
Please mark
your votes as
indicated in [X]
this example

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.

<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST FOR AGAINST ABSTAIN
ITEM 1. - ELECTION OF DIRECTORS ITEM 2. - APPROVAL OF AN AMENDMENT TO [ ] [ ] [ ]
STOCK OPTION/STOCK ISSUANCE
Nominees: [ ] [ ] PLAN
Henry F. Blissenbach Carl C. Peck FOR AGAINST ABSTAIN
Alexander D. Cross David E. Robinson ITEM 3. - APPROVAL OF AN AMENDMENT TO [ ] [ ] [ ]
John Groom Michael A. Rocca EMPLOYEE STOCK PURCHASE PLAN
Irving S. Johnson
FOR AGAINST ABSTAIN
WITHHELD FOR: (Write that nominee's name in the ITEM 4. - APPOINTMENT OF INDEPENDENT [ ] [ ] [ ]
space provided below): AUDITORS

___________________________________

</TABLE>

Signature(s) ___________________________________________________ Date _________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. Please give full title as such, and, if signing for a
corporation, give your title. When shares are in the names of more than one
person, each should sign.
- - --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*