<SUBMISSION>
<ACCESSION-NUMBER>0000912057-02-020804
<TYPE>DEF 14A
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20020625
<FILING-DATE>20020515
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS INC
<CIK>0000906709
<ASSIGNED-SIC>2834
<IRS-NUMBER>943134940
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>DEF 14A
<ACT>34
<FILE-NUMBER>000-24006
<FILM-NUMBER>02652948
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>150 INDUSTRIAL RD
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
<PHONE>6506313100
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>150 INDUSTRIAL ROAD
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS
<DATE-CHANGED>19940303
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>a2079869zdef14a.htm
<DESCRIPTION>DEF 14A
<TEXT>
<HTML>
<HEAD>
<TITLE>
</TITLE>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#02PAL1737_1">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<P ALIGN="CENTER"><FONT SIZE=2><B>SCHEDULE 14A INFORMATION  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Proxy Statement Pursuant to Section&nbsp;14(a) of<BR>
the Securities Exchange Act of 1934 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2>Filed by the Registrant /x/<BR></FONT>
</TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2>Filed by a Party other than the Registrant /&nbsp;/</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2><BR>
Check the appropriate box:</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="5%" VALIGN="TOP"><FONT SIZE=2>/&nbsp;/</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="91%" VALIGN="TOP"><FONT SIZE=2>Preliminary Proxy Statement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>/&nbsp;/</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="91%"><FONT SIZE=2><B>Confidential, for Use of the Commission Only (as permitted by Rule&nbsp;14a-6(e)(2))</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="5%" VALIGN="TOP"><FONT SIZE=2>/x/</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="91%" VALIGN="TOP"><FONT SIZE=2>Definitive Proxy Statement</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="5%" VALIGN="TOP"><FONT SIZE=2>/&nbsp;/</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="91%" VALIGN="TOP"><FONT SIZE=2>Definitive Additional Materials</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="5%" VALIGN="TOP"><FONT SIZE=2>/&nbsp;/</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="91%" VALIGN="TOP"><FONT SIZE=2>Soliciting Material under Rule&nbsp;14a-12</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER"><BR><FONT SIZE=3> INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=2>(Name of Registrant as Specified In Its Charter)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER"><BR><FONT SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR
NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=2>(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)<BR></FONT>
</TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>Payment of Filing Fee (Check the appropriate box) </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>/x/</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>No fee required.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>/&nbsp;/</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(1) and 0-11.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>1.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Title of each class of securities to which transaction applies:<BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>2.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Aggregate number of securities to which transaction applies:<BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>3.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule&nbsp;0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):<BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>4.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Proposed maximum aggregate value of transaction:<BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>5.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Total fee paid:<BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
/&nbsp;/</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Fee paid previously with preliminary materials.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
/&nbsp;/</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Check box if any part of the fee is offset as provided by Exchange Act Rule&nbsp;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.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><BR><FONT SIZE=2><B>6.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2><BR>
Amount Previously Paid:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>7.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form, Schedule or Registration Statement No.:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>8.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Filing Party:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR></FONT>
<HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><B>9.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Date Filed:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR></FONT>
<HR NOSHADE></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>
[INHALE LOGO] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B>INHALE THERAPEUTIC SYSTEMS, INC.<BR>  </B></FONT><FONT SIZE=2><B>150 Industrial Road<BR>
San Carlos, CA 94070  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=3><B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS<BR>  </B></FONT><FONT SIZE=2><B>TO BE HELD ON JUNE&nbsp;25, 2002  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">

<P><FONT SIZE=2><B>TO THE STOCKHOLDERS OF INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You are cordially invited to attend the annual meeting of stockholders of Inhale Therapeutic Systems,&nbsp;Inc., a Delaware corporation. The meeting will be
held on Tuesday, June&nbsp;25, 2002 at 10:00&nbsp;a.m. local time at our executive office located at 150 Industrial Road, San Carlos, California for the following purposes: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>1.</B></FONT></DT><DD><FONT SIZE=2>To elect two directors to hold office until the 2005 annual meeting of stockholders.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>2.</B></FONT></DT><DD><FONT SIZE=2>To approve our Employee Stock Purchase Plan, as amended and restated, to increase the aggregate number of shares of common stock
authorized for issuance under the plan by 500,000 shares.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>3.</B></FONT></DT><DD><FONT SIZE=2>To ratify the selection of Ernst&nbsp;&amp; Young LLP as our independent auditors for fiscal year ending December&nbsp;31, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>4.</B></FONT></DT><DD><FONT SIZE=2>To conduct any other business properly brought before the meeting. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
items of business are more fully described in the proxy statement accompanying this notice. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
record date for the annual meeting is April&nbsp;30, 2002. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>By
Order of the Board of Directors </FONT></P>

<P><FONT SIZE=2><B>
<IMG SRC="g733380.jpg" ALT="LOGO" WIDTH="288" HEIGHT="45">
  </B></FONT></P>

<P><FONT SIZE=2><BR>
Douglas H. Altschuler<BR></FONT> <FONT SIZE=2><I>Secretary</I></FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>San
Carlos, California<BR>
May&nbsp;15, 2002 </FONT></P>

<HR NOSHADE>

<P><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR YOUR CONVENIENCE. EVEN
IF YOU HAVE VOTED BY PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE
AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THAT RECORD HOLDER.</B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=4><B>INHALE THERAPEUTIC SYSTEMS, INC.<BR>  </B></FONT><FONT SIZE=2><B>150 Industrial Road<BR>
San Carlos, CA 94070  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=3><B>PROXY STATEMENT<BR>
FOR THE 2002 ANNUAL MEETING OF STOCKHOLDERS<BR>
TO BE HELD ON JUNE&nbsp;25, 2002  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=3><B> <A NAME="de1737_questions_and_answers_a__de102496"> </A>
<A NAME="toc_de1737_1"> </A>
<BR>    </B></FONT><FONT SIZE=2><B>QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>WHY AM I RECEIVING THESE MATERIALS?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sent you this proxy statement and the enclosed proxy card because the board of directors of Inhale Therapeutic Systems,&nbsp;Inc. is soliciting your proxy to
vote at its 2002 annual meeting of stockholders. You are invited to attend the annual meeting and we request that you vote on the proposals described in this proxy statement. However, you do not need
to attend the meeting to vote your shares. Instead, you may simply complete, date, sign and return the enclosed proxy card. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to mail this proxy statement and accompanying proxy card on or about May&nbsp;17, 2002 to all stockholders of record entitled to vote at the annual meeting. </FONT></P>

<P><FONT SIZE=2><B>WHO CAN VOTE AT THE ANNUAL MEETING?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only stockholders of record at the close of business on April&nbsp;30, 2002 will be entitled to vote at the annual meeting. On this record date, there were
55,199,484 shares of common stock outstanding and entitled to vote. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Stockholder of record: shares registered in your name  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If on April&nbsp;30, 2002, your shares were registered directly in your name with our transfer agent, Mellon Investor Services LLC, then you are a stockholder
of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card
to ensure your vote is counted. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Beneficial owner: shares registered in the name of a broker or bank  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If on April&nbsp;30, 2002, your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial
owner of shares held in "street name" and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for
purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the
annual meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent. </FONT></P>


<P><FONT SIZE=2><B>WHAT AM I VOTING ON?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are three matters scheduled for a vote: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>The
election of two directors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>An
increase in the number of shares of common stock authorized for issuance under our Employee Stock Purchase Plan, as amended and restated; and </FONT></DD></DL>
</UL>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>The
ratification of Ernst&nbsp;&amp; Young LLP as our independent auditors for fiscal year ending December&nbsp;31, 2002. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>HOW DO I VOTE?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the first matter, you may either vote "For" all the nominees to the board of directors or you may abstain from voting for any nominee you specify. For the
other two matters to be voted on, you may vote "For" or "Against" or abstain from voting. The procedures for voting are fairly simple: </FONT></P>

<UL>

<P><FONT SIZE=2><I> Stockholder of record: shares registered in your name  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a stockholder of record, you may vote in person at the annual meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend
the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
vote in person, come to the annual meeting and we will give you a ballot when you arrive.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
vote using the proxy card, simply complete, date and sign the enclosed proxy card and return it promptly in the envelope provided. If you return your
signed proxy card to us before the annual meeting, we will vote your shares as you direct. </FONT></DD></DL>

<P><FONT SIZE=2><I> Beneficial owner: shares registered in the name of broker or bank  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions
with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the annual meeting, you must
obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy
form. </FONT></P>

<P><FONT SIZE=2><B>HOW MANY VOTES DO I HAVE?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On each matter to be voted upon, you have one vote for each share of common stock you own as of April&nbsp;30, 2002. </FONT></P>

<P><FONT SIZE=2><B>WHAT IF I RETURN A PROXY CARD BUT DO NOT MAKE SPECIFIC CHOICES?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you return a signed and dated proxy card without marking any voting selections, your shares will be voted "For" the election of both nominees for director,
"For" the increase in the number of shares of common stock authorized for issuance under our Employee Stock Purchase Plan, as amended and restated, and "For" the ratification of Ernst&nbsp;&amp; Young
LLP as our independent auditors for fiscal year ending December&nbsp;31, 2002. If any other matter is properly presented at the meeting, your proxy (one of the individuals named on your proxy card)
will vote your shares using his best judgment. </FONT></P>

<P><FONT SIZE=2><B>WHO IS PAYING FOR THIS PROXY SOLICITATION?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in
person, by telephone, or by other means of communication. Our directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks
and other agents for the cost of forwarding proxy materials to beneficial owners. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<P><FONT SIZE=2><B>WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and
return </FONT><FONT SIZE=2><B>each</B></FONT><FONT SIZE=2> proxy card to ensure that all of your shares are voted. </FONT></P>

<P><FONT SIZE=2><B>CAN I CHANGE MY VOTE AFTER SUBMITTING MY PROXY?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes. You can revoke your proxy at any time before the final vote at the meeting. You may revoke your proxy in any one of three ways: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>You
may submit another properly completed proxy card with a later date.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>You
may send a written notice that you are revoking your proxy to our Secretary at 150 Industrial Road, San Carlos, California 94070.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>You
may attend the annual meeting and, if permitted to do so, vote in person. Simply attending the meeting will not, by itself, revoke your proxy. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>WHEN ARE STOCKHOLDER PROPOSALS DUE FOR NEXT YEAR'S ANNUAL MEETING?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be considered for inclusion in next year's proxy materials, your proposal must be submitted in writing by January&nbsp;17, 2003, to our Secretary at 150
Industrial Road, San Carlos, California 94070. If you wish to submit a proposal that is not to be included in next year's proxy materials, you must do so no earlier than the close of business on
March&nbsp;27, 2003 and no later than the close of business on April&nbsp;26, 2003. </FONT></P>

<P><FONT SIZE=2><B>HOW ARE VOTES COUNTED?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Votes will be counted by the inspector of election appointed for the meeting, who will separately count "For" and "Against" votes, abstentions and broker
non-votes ("broker non-vote" refers to a proposal for which a broker or bank holding shares in street name, i.e., as nominees for the beneficial owner, returns an executed
proxy or voting directions indicating that the broker or bank does not have discretionary authority to vote on a proposal). Abstentions will be counted towards the vote total for
each proposal, and will have the same effect as "Against" votes, except for Proposal 1. Broker non-votes have no effect and will not be counted towards the vote total for any proposal. </FONT></P>

<P><FONT SIZE=2><B>HOW MANY VOTES ARE NEEDED TO APPROVE EACH PROPOSAL?  </B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>For
Proposal 1, the election of directors, the two nominees receiving the most "For" votes (among votes properly cast in person or by proxy) will be elected.
Broker non-votes will have no effect.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
be approved, Proposal 2, the increase of the aggregate number of shares of common stock authorized for issuance under our Employee Stock Purchase Plan, as
amended and restated, must receive a "For" vote from the majority of shares present and entitled to vote either in person or by proxy. If you "Abstain" from voting, it will have the same effect as an
"Against" vote. Broker non-votes will have no effect.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
be approved, Proposal 3, the ratification of Ernst&nbsp;&amp; Young LLP as our independent auditors for fiscal year ending December&nbsp;31, 2002, must
receive a "For" vote from the majority of shares present and entitled to vote either in person or by proxy. If you "Abstain" from voting, it will have the same effect as an "Against" vote. Broker
non-votes will have no effect. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2><B>WHAT IS THE QUORUM REQUIREMENT?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by votes
at the meeting or by proxy. On the record date, there were 55,199,484 shares outstanding and entitled to vote. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your
shares will be counted towards the quorum only if you submit a valid proxy vote or vote at the meeting. Abstentions and broker non-votes will be counted towards the
quorum requirement. If there is no quorum, the chairman of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date. </FONT></P>

<P><FONT SIZE=2><B>HOW CAN I FIND OUT THE RESULTS OF THE VOTING AT THE ANNUAL MEETING?  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preliminary voting results will be announced at the annual meeting. Final voting results will be published in our quarterly report on Form&nbsp;10-Q
for the second quarter of 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<BR></FONT><FONT SIZE=2><B>PROPOSAL 1<BR>  <BR>    ELECTION OF DIRECTORS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and
each class has a three-year term. Vacancies on the board may be filled only by persons elected by a majority of the remaining directors. A director elected by the board to fill a vacancy
in a class shall serve for the remainder of the full term of that class, and until the director's successor is elected and qualified. This includes vacancies created by an increase in the number of
directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors presently has eight members. There are two directors in the class whose term of office expires in 2002: Ajit S. Gill and Melvin Perelman, Ph.D. Each of these
nominees for election to this class is currently a director who was previously elected by the stockholders. If elected at the annual meeting, each of these nominees would serve until the 2005 annual
meeting and until his successor is elected and has qualified, or until the director's death, resignation or removal. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a brief biography of each nominee and each director whose term will continue after the annual meeting. </FONT></P>

<P><FONT SIZE=2><B>NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2005 ANNUAL MEETING  </B></FONT></P>

<P><FONT SIZE=2><B>Ajit S. Gill  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Ajit S. Gill</I></FONT><FONT SIZE=2>, age 54, has served as our Chief Executive Officer since April&nbsp;2000, as President since
April&nbsp;1999, and as a director since April&nbsp;1998. Mr.&nbsp;Gill served as Co-Chief Executive Officer from August&nbsp;1998 to April&nbsp;2000. Mr.&nbsp;Gill served as
our Chief Operating Officer from October&nbsp;1996 to August&nbsp;1998 and Chief Financial Officer from January&nbsp;1993 to October&nbsp;1996. Before joining us, Mr.&nbsp;Gill was Vice
President and General Manager of Kodak's Interactive Systems division. Mr.&nbsp;Gill has served as Chief Financial Officer for TRW-Fujitsu, Director of Business Development for Visicorp,
and as President for three high technology start-up companies. He completed a B. Tech at the Indian Institute of Technology, an M.S. in Electrical Engineering from the University of
Nebraska, and holds an M.B.A. from the University of Western Ontario. Mr.&nbsp;Gill is also a director of PharmQuest Corporation, a private software company. </FONT></P>

<P><FONT SIZE=2><B>MELVIN PERELMAN, PH.D.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Melvin Perelman, Ph.D.</I></FONT><FONT SIZE=2>, age 71, has served as our director since January&nbsp;1996. Dr.&nbsp;Perelman spent
36&nbsp;years at Eli Lilly&nbsp;&amp; Company, most recently as Executive Vice-President and President of Lilly Research Laboratories, a position which he held from 1986 until his
retirement in 1993. Dr.&nbsp;Perelman served as President of Lilly International from 1976 until 1986. He was a member of the board of directors of Lilly from 1976 until 1993. Dr.&nbsp;Perelman
holds a B.S. in chemistry from Northwestern University and a Ph.D. in organic chemistry from Rice University. Dr.&nbsp;Perelman is a member of the board of directors of Immusol,&nbsp;Inc., a
biopharmaceutical company, and The Immune Response Corporation, a biotechnology company. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>THE BOARD OF DIRECTORS RECOMMENDS<BR>
A VOTE "FOR" EACH NAMED NOMINEE.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2><B>DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING  </B></FONT></P>

<UL>

<P><FONT SIZE=2><B> Robert B. Chess  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Robert B. Chess</I></FONT><FONT SIZE=2>, age 45, has served as Executive Chairman of our board since April&nbsp;1999, and as a director
since May&nbsp;1992. Mr.&nbsp;Chess served as Co-Chief Executive Officer from August&nbsp;1998 to April&nbsp;2000, as President from December&nbsp;1991 to August&nbsp;1998, and
as Chief Executive Officer from May&nbsp;1992 to September&nbsp;1998. From September&nbsp;1990 until October&nbsp;1991, he was an Associate Deputy Director in the White House Office of Policy
Development. In March&nbsp;1987, Mr.&nbsp;Chess co-founded Penederm Incorporated, a topical dermatological drug delivery company, and served as its President until
February&nbsp;1989. Prior to co-founding Penederm, Mr.&nbsp;Chess held management positions at Intel Corp., a semiconductor manufacturer, and Metaphor, a computer software company
(acquired by International Business Machines Corp.). Mr.&nbsp;Chess holds a B.S. in Engineering from the California Institute of Technology and an M.B.A. from the Harvard Business School.
Mr.&nbsp;Chess is a director of Pharsight Corp., a software company, Biotechnology Industry Organization, a trade organization serving and representing the emerging biotechnology industry and
ChemGenex,&nbsp;Inc., a cancer therapeutics company. </FONT></P>

<UL>

<P><FONT SIZE=2><B> James B. Glavin  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>James B. Glavin</I></FONT><FONT SIZE=2>, age 66, has served as our director since May&nbsp;1993. Mr.&nbsp;Glavin is Chairman of the
board of The Immune Response Corporation, a biotechnology company. He was President and Chief Executive Officer of The Immune Response Corporation from 1987 until September&nbsp;1994. From 1987 to
1990, Mr.&nbsp;Glavin served as Chairman of the board of Smith Laboratories,&nbsp;Inc., and served as President and Chief Executive Officer from 1985 to 1989. From 1985 to 1987, he was a partner
in CH Ventures, a venture capital firm. From 1983 to 1985, he served as Chairman of the board of Genetic Systems Corporation, a biotechnology firm, and as its President and Chief Executive Officer
from 1981 to 1983. Mr.&nbsp;Glavin holds a B.S. from Holy Cross College and an M.B.A. from Harvard Business School. Mr.&nbsp;Glavin is a director of The Meridian Funds, a mutual fund company, and
AVANIR Pharmaceuticals, a company engaged in research, development, commercialization, licensing and sales of innovative drug products and antibody generation services. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Roy A. Whitfield  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Roy A. Whitfield</I></FONT><FONT SIZE=2>, age 48, has served as our director since August&nbsp;2000. Mr.&nbsp;Whitfield is Chairman of
the board of Incyte Genomics,&nbsp;Inc., a genomic information company that he co-founded in 1991. From June&nbsp;1993 to November&nbsp;2001, Mr.&nbsp;Whitfield served as its Chief
Executive Officer. He also served as President of Incyte Genomics from June&nbsp;1991 until January&nbsp;1997 and as Treasurer from April&nbsp;1991 until October&nbsp;1995. From 1984 to 1989,
Mr.&nbsp;Whitfield held senior operating and business development positions with Technicon Instruments Corporation, a medical instrumentation company, and its predecessor company, Cooper
Biomedical,&nbsp;Inc., a biotechnology and medical diagnostics company. Prior to his work at Technicon, Mr.&nbsp;Whitfield spent seven years with the Boston Consulting Group's international
consulting practice. Mr.&nbsp;Whitfield received a B.S. in mathematics from Oxford University and an M.B.A. from Stanford University. Mr.&nbsp;Whitfield also serves as a director of the
Biotechnology
Industry Organization, a trade organization serving and representing the emerging biotechnology industry. </FONT></P>

<P><FONT SIZE=2><B>DIRECTORS CONTINUING IN OFFICE UNTIL THE 2004 ANNUAL MEETING  </B></FONT></P>

<UL>

<P><FONT SIZE=2><B> John S. Patton, Ph.D.  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>John S. Patton, Ph.D.</I></FONT><FONT SIZE=2>, age 55, our co-founder, has served as Chief Scientific Officer since
November&nbsp;2001 and as a director since July&nbsp;1990. Dr.&nbsp;Patton served as Vice President, Research from December&nbsp;1991 to November&nbsp;2001. He served as our President from
incorporation in July&nbsp;1990 to December&nbsp;1991. From 1985 to 1990, Dr.&nbsp;Patton was a Project Team Leader with Genentech,&nbsp;Inc., a biotechnology company, where he headed their
non-invasive drug delivery activities. Dr.&nbsp;Patton was on the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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faculty of the Marine Science and Microbiology Departments at the University of Georgia from 1979 through 1985, where he was granted tenure in 1984. Dr.&nbsp;Patton received a B.S. in Zoology and
Biochemistry from Pennsylvania State University, an M.S. from the University of Rhode Island, a Ph.D. in Biology from the University of California, San Diego and received post doctorate fellowships
from Harvard Medical School and the University of Lund, Sweden, both in biomedicine. Dr.&nbsp;Patton is also a director of David Pharmaceuticals,&nbsp;Inc., a biopharmaceutical company. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Irwin Lerner  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Irwin Lerner</I></FONT><FONT SIZE=2>, age 71, has served as our director since April&nbsp;1999. Mr.&nbsp;Lerner served as Chairman of
the board and the Executive Committee of Hoffmann-La Roche&nbsp;Inc., a pharmaceutical and health care company, from January&nbsp;1993 until his retirement in September&nbsp;1993,
and from 1980 through December&nbsp;1992, also served as its President and Chief Executive Officer. Since September&nbsp;1995, Mr.&nbsp;Lerner has served on the board of Medarex&nbsp;Inc., a
monoclonal antibodies products company, and became Chairman of the board in May&nbsp;1997. He served for 12&nbsp;years on the board of the Pharmaceutical Manufacturers' Association where he
chaired the Association's FDA Issues Committee. Mr.&nbsp;Lerner received a B.S. and an M.B.A. from Rutgers University. He is currently a Distinguished Executive-in-Residence
at Rutgers University Graduate School of Management. Mr.&nbsp;Lerner is also a director of Humana&nbsp;Inc., a health care company, Covance&nbsp;Inc., drug development services company, V.I.
Technologies,&nbsp;Inc., a blood products company, Medarex,&nbsp;Inc. and Reliant Pharmaceuticals LLC, a pharmaceutical company. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Christopher A. Kuebler  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Christopher A. Kuebler</I></FONT><FONT SIZE=2>, age 48, has served as our director since December&nbsp;2001. Mr.&nbsp;Kuebler is
Chairman of the board of Covance&nbsp;Inc., a drug development services company, and from November&nbsp;1994 to present, has served as its President and Chief Executive Officer. From
March&nbsp;1993 through November&nbsp;1994, he was the Corporate Vice President, European Operations for Abbott Laboratories&nbsp;Inc., a diversified health care company. From
January&nbsp;1986 until March&nbsp;1993, Mr.&nbsp;Kuebler served in various commercial positions for Abbott Laboratories' Pharmaceutical Division and was that Division's Vice President, Sales
and Marketing prior to taking the position of Vice President European Operations. Mr.&nbsp;Kuebler holds a B.S. in Biological Science from Florida State University. </FONT></P>


<P><FONT SIZE=2><B>BOARD COMMITTEES AND MEETINGS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2001, our board held seven meetings and acted by unanimous written consent five times. Our board has an audit
committee, a compensation committee and a nominating committee. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
audit committee meets with our independent auditors at least annually to review the results of the annual audit and discuss the financial statements; to recommend to our board the
independent auditors to be retained; and to receive and consider the auditors' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and
financial controls. Our audit committee is currently composed of three non-employee directors: Mr.&nbsp;Kuebler, Dr.&nbsp;Perelman and Mr.&nbsp;Whitfield (the board appointed
Mr.&nbsp;Whitfield on June&nbsp;1, 2001 and Mr.&nbsp;Kuebler on December&nbsp;13, 2001; Mr.&nbsp;Glavin resigned from the audit committee on December&nbsp;13, 2001). All members of the
audit committee are independent (as independence is defined in Rule&nbsp;4200(a)(14) of the NASD listing standards). Our audit committee met five times during the fiscal year ended
December&nbsp;31, 2001. Our board approved the audit committee charter on June&nbsp;6, 2000, and the charter was attached to last year's proxy statement as Appendix&nbsp;I. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
compensation committee makes recommendations to our board concerning salaries and incentive compensation, awards and stock options to employees and consultants under our stock option
plans and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

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otherwise determines compensation levels and performs such other functions regarding compensation as the board may delegate. Our compensation committee is currently composed of two
non-employee directors: Messrs.&nbsp;Glavin and Lerner. Our compensation committee met four times during the fiscal year ended December&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
nominating committee was formed in April&nbsp;2001 and is comprised of two non-employee directors: Messrs.&nbsp;Lerner and Whitfield. Our nominating committee
interviews, evaluates, nominates and
recommends individuals for membership on our board and committees thereof. No procedure has been established for the consideration of nominees recommended by stockholders. Our nominating committee met
once during the fiscal year ended December&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fiscal year ended December&nbsp;31, 2001, each board member attended 75% or more of the meetings of the board and of the committees on which he served, held during the
period for which he was a director or committee member, respectively. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

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<BR></FONT><FONT SIZE=2><B>PROPOSAL 2<BR>  <BR>    </B></FONT><FONT SIZE=2><B>APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED    <BR>  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;1994, our board adopted, and our stockholders subsequently approved, our Employee Stock Purchase Plan (the "Purchase Plan"). In
May&nbsp;2002, our board amended and restated the Purchase Plan, and, subject to stockholder approval, amended the Purchase Plan to increase the number of shares of common stock authorized for
issuance under the Purchase Plan from a total of 300,000 shares to a total of 800,000 shares. Our board adopted this amendment in order to ensure that we grant purchase rights at levels determined
appropriate by the board. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
the Purchase Plan's adoption, we have not made any offerings and our employees have not purchased any shares of common stock under the Purchase Plan. As of December&nbsp;31,
2001, 300,000 shares of common stock are available for future grant under the Purchase Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders
are requested in this Proposal 2 to approve the amendment and restatement to the Purchase Plan. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>THE BOARD OF DIRECTORS RECOMMENDS<BR>
A VOTE "FOR" PROPOSAL 2.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The essential features of the Purchase Plan, as amended and restated, are outlined below: </FONT></P>


<P><FONT SIZE=2><B>PURPOSE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purpose of the Purchase Plan is to provide a means by which our employees (and employees of any of our subsidiaries designated by the board to participate in
the Purchase Plan) may be given an opportunity to purchase our common stock through payroll deductions, to assist us in retaining the services of our employees, to secure and retain the services of
new employees, and to provide
incentives for such persons to exert maximum efforts for our success. All of our employees are eligible to participate in the Purchase Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
rights to purchase common stock granted under the Purchase Plan are intended to qualify as options issued under an "employee stock purchase plan" as that term is defined in
Section&nbsp;423(b) of the Internal Revenue Code of 1986, as amended (the "Code"). </FONT></P>

<P><FONT SIZE=2><B>ADMINISTRATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board administers the Purchase Plan and has the final power to construe and interpret both the Purchase Plan and the rights granted under it. The board has
the power, subject to the provisions of the Purchase Plan, to determine when and how rights to purchase common stock will be granted, the provisions of each offering of such rights (which need not be
identical), and whether employees of any of our subsidiaries will be eligible to participate in the Purchase Plan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
board has the power, which it has not yet exercised, to delegate administration of the Purchase Plan to a committee composed of not fewer than two members of the board. As used
herein with respect to the Purchase Plan, the "board" refers to any committee the board appoints and to the board. </FONT></P>

<P><FONT SIZE=2><B>STOCK SUBJECT TO PURCHASE PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to this proposal, an aggregate of 800,000 shares of common stock is reserved for issuance under the Purchase Plan. If rights granted under the Purchase
Plan expire, lapse or otherwise terminate without being exercised, the shares of common stock not purchased under such rights again become available for issuance under the Purchase Plan. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

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<P><FONT SIZE=2><B>OFFERINGS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Purchase Plan is implemented by offerings of rights to all eligible employees from time to time by the board. The maximum length for an offering under the
Purchase Plan is twenty-seven months. Currently, under the Purchase Plan, each offering is twenty-four months long and is divided into four shorter "purchase periods" approximately six
months long. </FONT></P>

<P><FONT SIZE=2><B>ELIGIBILITY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any person who is customarily employed at least twenty hours per week and five months per calendar year by us (or by any of our parent or subsidiary designated by
the board) on the first day of an offering is eligible to participate in that offering, provided that such employee has been continuously employed by us or the designated parent or subsidiary
corporation for at least six months preceding the first day of the offering. Officers who are "highly compensated" as defined in the Code may be eligible to participate in the Purchase Plan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
no employee is eligible to participate in the Purchase Plan if, immediately after the grant of purchase rights, the employee would own, directly or indirectly, stock possessing
5% or more of the total combined voting power or value of all classes of our stock or of any of our parent or subsidiary (including any stock which such employee may purchase under all outstanding
rights and options). In addition, no employee may purchase more than $25,000 worth of common stock (determined at the fair market value of the shares at the time such rights are granted) under all of
our employee stock purchase plans and any of our parent and subsidiary corporations in any calendar year. </FONT></P>


<P><FONT SIZE=2><B>PARTICIPATION IN THE PURCHASE PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Eligible employees enroll in the Purchase Plan by delivering to us, prior to the date selected by the board as the offering date for the offering, an agreement
authorizing payroll deductions of up to 15% of such employees' total compensation during the offering. </FONT></P>

<P><FONT SIZE=2><B>PURCHASE PRICE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price per share at which shares of common stock are sold in an offering under the Purchase Plan is the lower of (i)&nbsp;85% of the fair market
value of a share of common stock on first day of the offering or (ii)&nbsp;85% of the fair market value of a share of common stock on the applicable purchase dates. </FONT></P>

<P><FONT SIZE=2><B>PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price of the shares is accumulated by payroll deductions over the offering. At any time during the offering, a participant may reduce or terminate
his or her payroll deductions as the board provides in the offering. A participant may increase or decrease such payroll deductions after the beginning of the offering as the Board provides in the
offering. Further, in the case of an employee
who first becomes eligible to participate as of a date specified during the offering, such employee may make payroll deductions after the beginning of the offering. All payroll deductions made for a
participant are credited to his or her account under the Purchase Plan and deposited with our general funds. A participant may not make additional payments into such account. </FONT></P>

<P><FONT SIZE=2><B>PURCHASE OF STOCK  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon execution of an agreement to participate in the Purchase Plan by an employee, shares of common stock are automatically purchased on the employee's behalf
under the Purchase Plan. In connection with offerings made under the Purchase Plan, the board specifies a maximum number of shares of common stock an employee may be granted the right to purchase and
the maximum aggregate number </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2>
of shares of common stock that may be purchased pursuant to such offering by all participants. If the aggregate number of shares to be purchased upon exercise of rights granted in the offering would
exceed the maximum aggregate number of shares of common stock available, the board would make a pro rata allocation of available shares in a uniform and equitable manner. Unless the employee's
participation is discontinued, his or her right to purchase shares is exercised automatically at the end of the offering at the applicable price. See "Withdrawal" below. </FONT></P>


<P><FONT SIZE=2><B>WITHDRAWAL  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While each participant in the Purchase Plan is required to sign an agreement authorizing payroll deductions, the participant may withdraw from a given offering by
terminating his or her payroll deductions and by delivering to us a notice of withdrawal from the Purchase Plan. Such withdrawal may be elected at any time prior to the end of the applicable offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
any withdrawal from an offering by the employee, we will distribute to the employee his or her accumulated payroll deductions without interest, less any accumulated deductions
previously applied to the purchase of shares of common stock on the employee's behalf during such offering, and such employee's interest in the offering will be automatically terminated. The employee
is not entitled to again participate in that offering. However, an employee's withdrawal from an offering will not have any effect upon such employee's eligibility to participate in subsequent
offerings under the Purchase Plan. </FONT></P>

<P><FONT SIZE=2><B>TERMINATION OF EMPLOYMENT  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rights granted pursuant to any offering under the Purchase Plan terminate immediately upon cessation of an employee's employment for any reason, and we will
distribute to such employee all of his or her accumulated payroll deductions, without interest. </FONT></P>


<P><FONT SIZE=2><B>RESTRICTIONS ON TRANSFER  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rights granted under the Purchase Plan are not transferable, other than by will or the laws of descent and distribution or by a beneficiary designated by the
employee in the event of the employee's death, and may be exercised only by the person to whom such rights are granted. </FONT></P>

<P><FONT SIZE=2><B>ADJUSTMENT PROVISIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions not involving receipt of consideration by us, such as a merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of
consideration by us, may change the type(s), class(es) and number of shares of common stock subject to the Purchase Plan and to outstanding purchase rights. In that event, the Purchase Plan will be
appropriately adjusted in the type(s), class(es) and maximum number of shares subject to the Purchase Plan and the outstanding purchase rights granted under the Purchase Plan will be appropriately
adjusted in the type(s), class(es), number of shares and purchase limits of such purchase rights. </FONT></P>

<P><FONT SIZE=2><B>EFFECT OF CERTAIN CORPORATE TRANSACTIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of (i)&nbsp;the sale, lease, license or other disposition of all or substantially all of our assets, (ii)&nbsp;the sale or other disposition of
at least 90% of our outstanding securities, (iii)&nbsp;the merger, consolidation or similar transactions following which we are not the surviving corporation or (iv)&nbsp;the merger, consolidation
or similar transactions following which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger, consolidation or similar transactions are
converted or exchanged by virtue of the merger, consolidation or similar transaction into other property (collectively, "corporate transaction"), any surviving or acquiring corporation may continue </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

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<P><FONT SIZE=2>
or assume rights outstanding under the Purchase Plan or may substitute similar rights. If any surviving or acquiring corporation does not continue or assume such rights or substitute similar rights,
then the participants' accumulated payroll deductions will be used to purchase shares of common stock within
ten days prior to the corporate transaction under the ongoing offering and the participants' rights under the ongoing offering will terminate immediately after such purchase. </FONT></P>

<P><FONT SIZE=2><B>DURATION, AMENDMENT AND TERMINATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board may suspend or terminate the Purchase Plan at any time. Unless terminated earlier, the Purchase Plan will terminate at the time that all of the shares
of common stock reserved for issuance under the Purchase Plan, as increased and/or adjusted from time to time, have been issued under the terms of the Purchase Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
board may amend the Purchase Plan at any time. Any amendment of the Purchase Plan must be approved by the stockholders if the amendment is necessary for the Purchase Plan to satisfy
Section&nbsp;423 of the Code or other applicable laws and regulations </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rights
granted before amendment or termination of the Purchase Plan will not be altered or impaired by any amendment or termination of the Purchase Plan without consent of the employee
to whom such rights were granted. </FONT></P>


<P><FONT SIZE=2><B>FEDERAL INCOME TAX INFORMATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rights granted under the Purchase Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock
purchase plan which qualifies under provisions of Section&nbsp;423 of the Code. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
participant will be taxed on amounts withheld for the purchase of shares of common stock as if such amounts were actually received. Other than this, no income will be taxable to a
participant until disposition of the acquired shares, and the method of taxation will depend upon the holding period of the acquired shares. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the stock is disposed of more than two years after the beginning of the offering period and more than one year after the stock is transferred to the participant, then the lesser of
(i)&nbsp;the excess of the fair market value of the stock at the time of such disposition over the exercise price or (ii)&nbsp;the excess of the fair market value of the stock as of the beginning
of the offering period over the exercise price (determined as of the beginning of the offering period) will be treated as ordinary income. Any further gain or any loss will be taxed as a
long-term capital gain or loss. At present, long-term capital gain generally is subject to lower tax rates than ordinary income and short-term capital gain. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the stock is sold or disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the stock on the exercise date
over the exercise price will be treated as ordinary income at the time of such disposition. The balance of any gain will be treated as capital gain. Even if the stock is later disposed of for less
than its fair market value on the exercise date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price
and the fair market value of the stock on such exercise date. Any capital gain or loss will be short-term or long-term, depending on how long the stock has been held. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are no federal income tax consequences to us by reason of the grant or exercise of rights under the Purchase Plan. We are entitled to a deduction to the extent amounts are taxed as
ordinary income to a participant (subject to the requirement of reasonableness and the satisfaction of tax reporting obligations). </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_di1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>EQUITY COMPENSATION PLAN INFORMATION    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides certain information with respect to all of our equity compensation plans in effect as of December&nbsp;31, 2001. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di1737_equity_compensation_plan_information_1"> </A>
<A NAME="toc_di1737_2"> </A>
<BR></FONT><FONT SIZE=2><B>EQUITY COMPENSATION PLAN INFORMATION    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1><B>Plan Category<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted-average exercise price of outstanding options, warrants and rights (b)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="24%" ALIGN="CENTER"><FONT SIZE=1><B>Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) (c)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2><B>Equity compensation plans approved by security holders</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>4,752,537</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>16.7233</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>1,810,685</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(1)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2><B>Equity compensation plans not approved by security holders</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>9,133,845</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>25.1427</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>1,487,252</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(2)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2><B>Total</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>13,886,382</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>22.2612</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>2,997,937</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(2)</FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Includes
300,000 shares reserved under our Purchase Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Does
not include options to purchase 82,283 shares we assumed in connection with the acquisition of Bradford Particle Design&nbsp;Ltd. (with a weighted-average exercise
price of $7.35) and options to purchase 887,343 shares we assumed in connection with the acquisition of Shearwater Corporation (with a weighted-average exercise price of $0.0324). </FONT></DD></DL>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2000 Non-Officer Equity Incentive Plan, in effect as of December&nbsp;31, 2001, was adopted without the approval of our security
holders. The essential features of the 2000 Non-Officer Equity Incentive Plan are outlined below. </FONT></P>

<P><FONT SIZE=2><B>2000 NON-OFFICER EQUITY INCENTIVE PLAN  </B></FONT></P>

<P><FONT SIZE=2><B>GENERAL  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2000 Non-Officer Equity Incentive Plan (the "Non-Officer Plan") provides for the grant of nonstatutory stock options, stock bonuses
and restricted stock purchase awards. Nonstatutory stock options granted under the Non-Officer Plan are not intended to qualify as incentive stock options under the Code. To date, we have
granted only stock options under the Non-Officer Plan. An aggregate of 11,250,000 shares of common stock are reserved for issuance under the Non-Officer Plan. </FONT></P>

<P><FONT SIZE=2><B>PURPOSE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board adopted the Non-Officer Plan to provide a means by which our and our affiliates' employees and consultants who are not officers and
directors may be given an opportunity to purchase our stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to
provide incentives for such persons to exert maximum efforts for our success and our affiliates' success. </FONT></P>

<P><FONT SIZE=2><B>ADMINISTRATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board administers the Non-Officer Plan. Subject to the provisions of the Non-Officer Plan, the board has the power to construe and
interpret the Non-Officer Plan and to determine the persons to whom and the dates on which awards will be granted, the number of shares of common stock to be subject to each award, the
time or times during the term of each award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the award. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
board has the power, which it has not yet exercised, to delegate administration of the Non-Officer Plan to a committee composed of not fewer than one member of the board.
As used herein with respect to the Non-Officer Plan, the "board" refers to any committee the board appoints as well as to the board itself. </FONT></P>

<P><FONT SIZE=2><B>STOCK SUBJECT TO THE NON-OFFICER PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An aggregate of 11,250,000 shares of common stock is reserved for issuance under the Non-Officer Plan. If awards granted under the
Non-Officer Plan expire or otherwise terminate without being exercised, the shares of common stock not acquired pursuant to such awards again become available for issuance under the
Non-Officer Plan. If we reacquire unvested stock issued under the Non-Officer Plan, the reacquired stock will again become available for reissuance under the
Non-Officer Plan for awards. </FONT></P>

<P><FONT SIZE=2><B>ELIGIBILITY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our employees and consultants, and our affiliates' employees and consultants, who are neither officers nor directors, are eligible to receive awards under the
Non-Officer Plan. </FONT></P>

<P><FONT SIZE=2><B>TERMS OF AWARDS  </B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exercise Price; Payment.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The exercise price of options and purchase price of restricted stock purchase awards are determined
by the board. Stock bonuses may be awarded in consideration for past services actually rendered to us or any of our affiliates. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
exercise price of options granted under the Non-Officer Plan must be paid either (i)&nbsp;in cash at the time the option is exercised, or (ii)&nbsp;or at the
discretion of the board at the time of the grant by delivery to us of our common stock, pursuant to a deferred payment arrangement or in any other form of legal consideration acceptable to the board.
The purchase price of restricted stock purchase awards granted under the Non-Officer Plan must be paid (i)&nbsp;in cash at the time of purchase, (ii)&nbsp;at the discretion of the
board, according to a deferred payment arrangement or (iii)&nbsp;in any other form of legal consideration acceptable to the board. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vesting.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Awards granted by the board under the Non-Officer Plan may become exercisable or released from our
repurchase option in cumulative increments as determined by the board. The board has the power to accelerate the time at which an award may vest or be exercised. In addition, options granted under the
Non-Officer Plan may include an early exercise provision to permit exercise prior to vesting, but the unvested portion may be subject to our repurchase option or to any other restriction
determined by the board as appropriate. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Term.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The term of options granted under the Non-Officer Plan shall be determined by the board in its sole
discretion. Options granted under the Non-Officer Plan generally terminate three months after termination of the holder's continuous service with us unless (i)&nbsp;such termination is
due to the holder's permanent and total disability, in which case the Non-Officer Plan provides that the option may be exercised (to the extent the option was exercisable at the time of
the termination of service) at any time within 12&nbsp;months of such termination or the expiration of the term of the option as set forth in the option agreement; (ii)&nbsp;the holder dies before
the holder's service has terminated or within a certain time period following termination of service, in which case the Non-Officer Plan provides that the option may be exercised in full
within 18&nbsp;months following death; or (iii)&nbsp;the option by its terms specifically provides otherwise. A holder may designate a beneficiary who may exercise the option following the
holder's death. Individual option grants by their terms may provide for exercise within a longer period of time following termination of service. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
option term generally is extended in the event that exercise of the option within these periods is prohibited. A holder's option agreement may provide that if the exercise of the
option following the termination of the holder's service would result in liability under the Securities Act of 1933, as amended </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<P><FONT SIZE=2>
(the "1933 Act"), then the option shall terminate on the expiration of three months after the termination of the holder's service during which the exercise of the option would not be in violation of
such registration requirements. </FONT></P>

<P><FONT SIZE=2><B>RESTRICTIONS ON TRANSFER  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options may be transferable to the extent provided in the option agreement. If the option does not provide for transferability, then the option shall not be
transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the holder only by the holder. The holder may designate a third party to
exercise the option in the event of the death of the holder. Stock awards may be transferable only upon such terms and conditions as set forth in the stock award agreement, so long as such stock
awarded remain subject to the agreement. </FONT></P>

<P><FONT SIZE=2><B>ADJUSTMENT PROVISIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions not involving receipt of consideration by us, such as a merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transactions not involving the receipt of
consideration by us, may change the type(s), class(es) and number of shares of common stock subject to the Non-Officer Plan and outstanding awards. In that event, the
Non-Officer Plan will be appropriately adjusted as to the type(s), class(es) and the maximum number of shares of common stock subject to the Non-Officer Plan, and outstanding
awards will be adjusted as to the type(s), class(es), number of shares and price per share of common stock subject to such awards. </FONT></P>

<P><FONT SIZE=2><B>EFFECT OF CERTAIN CORPORATE TRANSACTIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of (i)&nbsp;the sale, lease or other disposition of all or substantially all of our assets, (ii)&nbsp;a merger or consolidation in which we are
not the surviving corporation or (iii)&nbsp;a reverse merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property (collectively, "corporate transaction"), then any surviving or acquiring corporation shall assume awards outstanding under the Non-Officer Plan or
shall substitute similar awards. If any surviving or acquiring corporation does not assume such awards or to substitute similar awards, then with respect to awards held by holders whose service with
us or an affiliate of ours has not terminated as of the effective date of the corporate transaction, the vesting of such awards (and, if applicable, the time during which such awards may be exercised)
will be accelerated in full and the awards will terminate if not exercised (if applicable) at or prior to such effective date. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Non-Officer Plan also provides that, in the event of an acquisition by any person, entity or group within the meaning of Section&nbsp;13(d) or 14(d) of the Securities
and Exchange Act of 1934, as amended (the "1934 Act"), of the beneficial ownership (within the meaning of Rule&nbsp;13d-3 promulgated under the 1934 Act) of our securities representing
at least fifty percent of the combined voting power entitled to vote in the election of directors and provided that such acquisition is not as a result of, and does not constitute, a corporate
transaction, then with respect to stock awards held by holder whose service with us has not terminated, the vesting of such awards (and, if applicable, the time during which such stock awards may be
exercised) shall be accelerated in full. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acceleration of an award in the event of an acquisition, corporate transaction or a change in control event may be viewed as an anti-takeover provision, which may have
the effect of discouraging a proposal to acquire or otherwise obtain our control. </FONT></P>

<P><FONT SIZE=2><B>DURATION, AMENDMENT AND TERMINATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board may suspend or terminate the Non-Officer Plan without stockholder approval or ratification at any time or from time to time. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

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<BR>

<P><FONT SIZE=2><B>FEDERAL INCOME TAX INFORMATION  </B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonstatutory Stock Options, Restricted Stock Purchase Awards and Stock Bonuses.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Nonstatutory stock options, restricted stock
purchase awards and stock bonuses granted under the Non-Officer Plan generally have the following federal income tax consequences. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are no tax consequences to the holder or us by reason of the grant. Upon acquisition of the stock, the holder normally will recognize taxable ordinary income equal to the excess,
if any, of the stock's fair market value on the acquisition date over the purchase price. However, to the extent the stock is subject to certain types of vesting restrictions, the taxable event will
be delayed until the vesting restrictions lapse unless the participant elects to be taxed on receipt of the stock. With respect to employees, we are generally required to withhold from regular wages
or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness and the satisfaction of a tax reporting obligation, we will generally be
entitled to a business expense deduction equal to the taxable ordinary income recognized by the holder. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
disposition of the stock, the holder will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for
more than one year. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di1737_proposal_3_ratification__di102461"> </A>
<A NAME="toc_di1737_3"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 3<BR>  <BR>    RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board has selected Ernst&nbsp;&amp; Young LLP as our independent auditors for the fiscal year ending December&nbsp;31, 2002, and has further directed that
management submit the selection of independent auditors for ratification by the stockholders at the annual meeting. Ernst&nbsp;&amp; Young LLP has audited our financial statements since our inception in
1990. Representatives of Ernst&nbsp;&amp; Young LLP are expected to be present at the annual meeting. They will have an opportunity to make a statement if they so desire and will be available to respond
to appropriate questions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
our bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst&nbsp;&amp; Young LLP as our independent auditors. However, our board is
submitting the selection of Ernst&nbsp;&amp; Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the audit committee
and the board will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee and the board in their discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such a change would be in our best interests and our stockholders' best interests. </FONT></P>


<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AUDIT FEES.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2001, the aggregate fees billed by Ernst&nbsp;&amp; Young LLP for
the audit of our financial statements for such fiscal year and for the review of our interim financial statements was $231,000. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2001, there
were no fees billed by Ernst&nbsp;&amp; Young LLP for information technology consulting. </FONT></P>


<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ALL OTHER FEES.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During fiscal year ended December&nbsp;31, 2001, the aggregate fees billed by Ernst&nbsp;&amp; Young LLP for
professional services other than audit and information technology consulting fees was $868,000. Of the $868,000, $684,000 was related to services associated with fees for pension audits, business
acquisitions, accounting consultations and Securities and Exchange Commission ("SEC") registration statements and $184,000 was related to tax services. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
audit committee has determined the rendering of the information technology consulting fees and all other non-audit services by Ernst&nbsp;&amp; Young LLP is compatible with
maintaining the auditor's independence. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>THE BOARD OF DIRECTORS RECOMMENDS<BR>
A VOTE "FOR" PROPOSAL 3.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_dk1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding the ownership of our common stock as of April&nbsp;30, 2002 (except as otherwise indicated in
footnotes) by: (i)&nbsp;each director and nominee for director; (ii)&nbsp;each of the executive officers named in the Summary Compensation Table; (iii)&nbsp;all our executive officers and
directors as a group; and (iv)&nbsp;all those known by us to be beneficial owners of more than five percent of our common stock. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Beneficial Owner(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=1><B>Beneficial Ownership(1)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Percent of Total(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>OppenheimerFunds, Inc.(3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,000,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Delaware Management Holdings, Inc.(4)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,445,319</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>8.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Massachusetts Financial Services Company (5)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,229,950</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Robert B. Chess(6)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>838,514</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Ajit S. Gill(7)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>756,799</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>John S. Patton, Ph.D.(8)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>709,715</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Brigid A. Makes(9)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>95,251</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Melvin Perelman, Ph.D.(10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>80,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>James B. Glavin(10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>74,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Stephen L. Hurst(11)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>74,466</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Irwin Lerner(10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Roy A. Whitfield(10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>36,666</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Christopher A. Kuebler(10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Douglas H. Altschuler</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>All executive officers and directors as a group (11 persons)(12)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,721,010</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Denotes
ownership percentage less than 1%
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>This
table is based upon information supplied by executive officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject to the community property laws where applicable, we believe that each of the stockholders named in the table has sole voting and
investment power with respect to the shares shown as beneficially owned.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Applicable
percentages are based on 55,199,484 shares of common stock outstanding as of April&nbsp;30, 2002, adjusted as required by rules promulgated
by the SEC.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Based
solely on a Schedule&nbsp;13G/A filed with the SEC on February&nbsp;8, 2002 by OppenheimerFunds&nbsp;Inc., a registered investment adviser.
OppenheimerFunds&nbsp;Inc. is the parent holding company of Oppenheimer Global Growth&nbsp;&amp; Income Fund, an investment company registered under section&nbsp;8 of the Investment Company Act of
1940. OppenheimerFunds&nbsp;Inc. has sole voting and dispositive power over none of the shares and shared dispositive power over 6,000,000 of the shares. Oppenheimer Global Growth&nbsp;&amp; Income
Fund has sole voting power over 6,000,000 of the shares and shared dispositive power over 6,000,000 of the shares. OppenheimerFunds&nbsp;Inc., Oppenheimer Global Growth&nbsp;&amp; Income Fund and
their principal shareholders disclaim any beneficial interest in the shares. OppenheimerFunds,&nbsp;Inc. is located at 498 Seventh Avenue, New York, New York 10018.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Based
solely on a Schedule&nbsp;13G filed with the SEC on February&nbsp;7, 2002 and on information obtained from Delaware Management
Holdings,&nbsp;Inc. on March&nbsp;14, 2002. Delaware Management Holdings,&nbsp;Inc. has sole voting power over 4,425,732 of the shares and has sole dispositive power over 4,433,019 of the shares
and shared dispositive power over 12,300 of the shares. Delaware </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

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<A NAME="page_dk1737_1_19"> </A>
<UL>

<P><FONT SIZE=2>Management
Holdings,&nbsp;Inc. expressly disclaims beneficial ownership of such shares. Delaware Management Holdings,&nbsp;Inc. is located at 2005 Market Street, Philadelphia, Pennsylvania 19103. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Based
solely on a Schedule&nbsp;13G filed with the SEC on February&nbsp;12, 2002 and on information obtained from Massachusetts Financial Services
Company, a registered investment advisor, on March&nbsp;14, 2002. Massachusetts Financial Services Company has sole voting power over 2,757,530 of the shares and has sole dispositive power over
3,229,950 of the shares. Massachusetts Financial Services Company expressly disclaims beneficial ownership of such shares. Massachusetts Financial Services Company is located at 500 Boylston Street,
Boston, Massachusetts 02116.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Includes
504,968 shares issuable upon exercise of options exercisable within 60&nbsp;days of April&nbsp;30, 2002. Also includes 2,126 shares issued
pursuant to our 401(k) Retirement Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Includes
26,100 shares held by Ajit S. Gill&nbsp;&amp; Ann C. Gill, Trustees, under an agreement dated October&nbsp;14, 1998 FBO Ajit S. Gill&nbsp;&amp;
Ann C. Gill ("Gill Trust"). Mr.&nbsp;Gill and his wife, Ann C. Gill, are sole trustees of the Gill Trust. Mr.&nbsp;Gill and his wife, each acting alone, have the power to vote and dispose of such
shares. Also includes 666,653 shares issuable upon exercise of options exercisable within 60&nbsp;days of April&nbsp;30, 2002. Also includes 2,090 shares issued pursuant to our 401(k) Retirement
Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Includes
510,954 shares held by John S. Patton&nbsp;&amp; Jamie S. Patton, Trustees, under the July&nbsp;2, 1997 Patton Revocable Trust ("Patton Trust").
Dr.&nbsp;Patton and his wife, Jamie S. Patton, are sole trustees of the Patton Trust. Dr.&nbsp;Patton and his wife, each acting alone, have the power to vote and dispose of such shares. Includes
6,342 shares held by three children of Dr.&nbsp;Patton as to which shares Dr.&nbsp;Patton disclaims beneficial ownership. Also includes 191,664 shares issuable upon exercise of options exercisable
within 60&nbsp;days of April&nbsp;30, 2002. Also includes 755 shares issued pursuant to our 401(k) Retirement Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD><FONT SIZE=2>Includes
89,665 shares issuable upon exercise of options exercisable within 60&nbsp;days of April&nbsp;30, 2002. Also includes 586 shares issued
pursuant to our 401(k) Retirement Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD><FONT SIZE=2>All
shares issuable upon exercise of options exercisable within 60&nbsp;days of April&nbsp;30, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD><FONT SIZE=2>Includes
61,500 shares issuable upon exercise of options exercisable within 60&nbsp;days of March&nbsp;31, 2002. Also includes 466 shares issued
pursuant to our 401(k) Retirement Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD><FONT SIZE=2>Includes
26,100 shares held by the Gill Trust, as described in footnote 7. Includes 510,954 shares held by the Patton Trust and an aggregate of 6,342
shares held by Dr.&nbsp;Patton's children, as described in footnote 8. Also includes an aggregate of 1,760,715 shares issuable upon exercise of outstanding options exercisable within 60&nbsp;days
of April&nbsp;30, 2002 (see footnotes 6 through 11). Also includes an aggregate of 6,023 shares issued pursuant to our 401(k) Retirement Plan (see footnotes 6, 7, 8, 9 and 11). </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

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<P><FONT SIZE=2><B>SECTION&nbsp;16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the 1934 Act requires directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity
securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than 10% stockholders
are required by the SEC to furnish us with copies of all Section&nbsp;16(a) forms that they file. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended
December&nbsp;31, 2001, all Section&nbsp;16(a) filing requirements applicable to our officers, directors and principal stockholders were complied with, except that: (i)&nbsp;one Form&nbsp;4
statement of change of beneficial ownership covering the exercise of options to purchase an aggregate of 11,334 shares of common stock was not filed by Mr.&nbsp;Hurst; a Form&nbsp;4 covering the
sale of these shares was filed timely and an amended Form&nbsp;4 covering the exercise of the options was filed; (ii)&nbsp;one Form&nbsp;4 statement of change of beneficial ownership covering
the exercise of options to purchase an aggregate of and sale of 16,865 shares of common stock was not filed by Mr.&nbsp;Hurst; a Form&nbsp;5 covering the sale of these shares was filed on
February&nbsp;14, 2002 and an amended Form&nbsp;5 covering the exercise of the options was filed; and (iii)&nbsp;one Form&nbsp;4 statement of change of beneficial ownership covering the
exercise of an option to purchase an aggregate of 116,956 shares of the common stock was filed late by Dr.&nbsp;Patton. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_dk1737_2"> </A>
<BR></FONT><FONT SIZE=2><B>EXECUTIVE COMPENSATION    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>COMPENSATION OF DIRECTORS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our non-employee director receives an annual retainer of $15,000. In the fiscal year ended December&nbsp;31, 2001, the total cash
compensation paid to non-employee directors for service as directors was $60,000. The members of the board are also eligible for reimbursement for their expenses incurred in connection
with attendance at board meetings in accordance with our policy. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
their election and reelection, to the extent available under our 1994 Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors' Plan"), each
member of our board who is not an employee is automatically granted under our Non-Employee Directors' Plan without the board's or the stockholders' further action, an option to purchase
30,000 shares of our common stock for each three-year term to which he is elected. The non-employee directors who began with a one or a two-year term when we first
instituted the staggered board or who are appointed to the board mid-term were granted 10,000 and 20,000 shares of common stock, respectively. Vesting is annually over the period of the
term being served (in the event a non-employee director resigns during the year, our practice has been to vest the options monthly based on such director's actual service). Only
non-employee directors are eligible to receive options under the Non-Employee Directors' Plan. Options granted under the Non-Employee Directors' Plan are intended
not to qualify as incentive stock options under the Code. The exercise price of options granted under the Non-Employee Directors' Plan is 100% of the fair market value of the common stock
subject to the option on the date of the option grant. Option grants under the Non-Employee Directors' Plan are non-discretionary. The term of options granted under the
Non-Employee Directors' Plan is ten years. In the event of a merger with or into another corporation or a consolidation in which we are the surviving corporation, with the outstanding
shares of our common stock immediately preceding the merger being converted by virtue of the merger into other property, or any other capital reorganization in which 50% of our shares entitled to vote
are exchanged, the vesting of each option will accelerate in full and the option will terminate if not exercised prior to the consummation of the transaction. To the extent shares have been
unavailable under the Non-Employee Directors' Plan, our practice has been to make grants in the amounts to which such directors would otherwise be entitled under our 2000 Equity Incentive
Plan. Non-employee directors are also eligible for discretionary grants of options under our 2000 Equity Incentive Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
to purchase an aggregate of 480,200 shares of common stock have been granted to current non-employee directors under the Non-Employee Directors' Plan and
the 2000 Equity Incentive Plan as of March&nbsp;31, 2002, of which options to purchase 150,600 shares have been exercised. Options to purchase an aggregate of 3,857,292 shares of common stock have
been granted to directors who are our employees as of March&nbsp;31, 2002, of which options to purchase 1,468,245 shares have been exercised as of March&nbsp;31, 2002. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;15, 2000, Mr.&nbsp;Gabrielson, a former director, exercised options to purchase 3,333 shares of our common stock pursuant to a grant he received on June&nbsp;6,
2000. On April&nbsp;1, 1999, Mr.&nbsp;Lerner entered into a consulting agreement with us. Please see "Certain Relationships and Related Transactions" for further detail on this arrangement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

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<A NAME="page_dk1737_1_22"> </A>

<P><FONT SIZE=2><B>COMPENSATION OF EXECUTIVE OFFICERS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows for the fiscal years ended December&nbsp;31, 2001, 2000 and 1999, respectively, compensation awarded or paid to, or earned by, our
Chief Executive Officer and other executive officers at December&nbsp;31, 2001 (the "Named Executive Officers"(1)). </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dk1737_summary_compensation_table"> </A>
<A NAME="toc_dk1737_3"> </A>
<BR></FONT><FONT SIZE=2><B>SUMMARY COMPENSATION TABLE    <BR>  </B></FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="23%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Annual Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Long-Term Compensation Awards</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="23%" ALIGN="LEFT"><FONT SIZE=1><B>Name and Principal Position<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Salary ($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Bonus ($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER"><FONT SIZE=1><B>Other Annual<BR>
Compensation ($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER"><FONT SIZE=1><B>Securities<BR>
Underlying<BR>
Options/SARs (#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>All Other<BR>
Compensation ($)(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>Ajit S. Gill<BR>
Chief Executive Officer,<BR>
President and Director</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>422,100<BR>
387,788<BR>
248,013</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>201,135<BR>
746,546<BR>
113,249</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>(3)<BR></FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>370,000<BR>
350,000<BR>
100,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,066<BR>
6,066<BR>
6,452</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>Robert B. Chess(4)<BR>
Executive Chairman</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>254,138<BR>
251,250<BR>
248,013</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>121,270<BR>
668,945<BR>
113,249</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>(3)<BR></FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>222,000<BR>
326,666<BR>
100,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,520<BR>
5,520<BR>
6,005</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>John S. Patton<BR>
Founder, Chief Scientific<BR>
Officer and Director</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>222,833<BR>
209,271<BR>
190,774</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>90,125<BR>
92,369<BR>
76,518</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>14,000<BR>
19,600<BR>
28,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,906<BR>
1,659<BR>
6,117</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>Brigid A. Makes(5)<BR>
Vice President, Finance &amp;<BR>
Administration, Chief Financial<BR>
Officer and Assistant Secretary</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>219,313<BR>
205,750<BR>
87,739</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>68,911<BR>
70,636<BR>
30,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>24,000<BR>
950<BR>
11,707</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(6)<BR>(6)<BR>(6)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>49,800<BR>
19,600<BR>
140,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,730<BR>
5,730<BR>
175</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>Douglas H. Altschuler(7)<BR>
Vice President, General<BR>
Counsel and Secretary</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>61,894<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>25,000<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>100,000<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>158<BR>
&#151;<BR>
&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="23%"><FONT SIZE=2>Stephen L. Hurst<BR>
Vice President, Human<BR>
Resources</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2001<BR>
2000<BR>
1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>129,050<BR>
171,863<BR>
179,316</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>54,234<BR>
96,044<BR>
57,605</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>7,000<BR>
79,600<BR>
21,602</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,498<BR>
3,427<BR>
1,186</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>The
Named Executive Officers include all of our executive officers.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Amounts
include perquisites consisting of one or more of the following: (i)&nbsp;life insurance premiums paid by us; (ii)&nbsp;reimbursement for computer equipment used for
company business; (iii)&nbsp;entertainment gifts associated with company business; and (iv)&nbsp;matching payments under our 401(k) plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Includes
a stock bonus of 20,000 fully vested shares of common stock granted to each of Messrs.&nbsp;Gill and Chess pursuant to the 2000 Equity Incentive Plan on April&nbsp;19,
2000, each grant had a fair market value of $550,000 on the date of grant.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Mr.&nbsp;Chess
resigned as Co-Chief Executive Officer on April&nbsp;19, 2000. For the fiscal year ended December&nbsp;31, 2000, Mr.&nbsp;Chess received
compensation for his services as Co-Chief Executive Officer in the amount of $67,645, reflecting payment for his services as Co-Chief Executive Officer through April&nbsp;19,
2000. He continues to serve as Executive Chairman of the board and received a base salary of $183,605 in 2000.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Ms.&nbsp;Makes
became an executive officer on June&nbsp;28, 1999. Her annualized base salary in 1999 was $200,250.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Includes
payments made to Ms.&nbsp;Makes in 2001, 2000 and 1999 for the reimbursement of expenses in connection with Ms.&nbsp;Makes's relocation.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Mr.&nbsp;Altschuler
became an executive officer on November&nbsp;19, 2001. His annualized base salary in 2001 was $307,500. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_dm1737_1_23"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1737_stock_option_grants_and_exercises"> </A>
<A NAME="toc_dm1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>STOCK OPTION GRANTS AND EXERCISES    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We grant options to our executive officers under our 2000 Equity Incentive Plan. As of March&nbsp;31, 2002, (i)&nbsp;options to purchase a total of 9,777,050
shares had been granted under the 2000 Equity Incentive Plan and options to purchase 1,436,114 shares remained available for grant thereunder; (ii)&nbsp;options to purchase a total of 385,400 shares
had been granted under the Non-Employee Directors' Plan and options to purchase 14,600 shares remained available for grant thereunder; and (iii)&nbsp;options to purchase a total of
11,220,046 shares had been granted under the Non-Officer Plan and options to purchase 2,373,298 shares remained available for grant thereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following tables show for the fiscal year ended December&nbsp;31, 2001 certain information regarding options granted to, exercised by, and held at year-end by the Named
Executive Officers: </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1737_option/sar_grants_in_last_fiscal_year"> </A>
<A NAME="toc_dm1737_2"> </A>
<BR></FONT><FONT SIZE=2><B>OPTION/SAR GRANTS IN LAST FISCAL YEAR    <BR>  </B></FONT></P>

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<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Individual Grants</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Number of Securities Underlying Options/SARs Granted&nbsp;(#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>% of Total Options/SARs Granted to Employees in Fiscal Year(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Exercise Or Base Price ($/Sh)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Expiration Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="CENTER"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>5% ($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>10% ($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Ajit S. Gill</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>370,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(3)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>6.93</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27.8750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2/21/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,486,262</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>16,437,461</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Robert B. Chess</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>222,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(4)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27.8750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2/21/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,891,757</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,862,477</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>John S. Patton</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>14,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(5)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.26</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27.8750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2/21/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>245,426</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>621,958</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Brigid A. Makes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>49,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(6)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.93</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27.8750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2/21/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>873,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,212,393</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Douglas H. Altschuler</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(7)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.87</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12.4000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9/18/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>779,829</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,976,241</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Stephen L. Hurst</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(8)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27.8750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2/21/11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>122,713</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>310,979</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Based
on an aggregate of 5,335,451 options granted to employees in 2001, including the Named Executive Officers.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>The
potential realizable value is based on the term of the option at the time of grant (ten years). Assumed stock price appreciation of 5% and 10% is used pursuant to rules
promulgated by the SEC. The potential realizable value is calculated by assuming that the market price on the date of grant appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of its term at the appreciated price.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Options
for 70,000 shares vest monthly over one year commencing in May&nbsp;2005. Options for 300,000 shares vest monthly over five years commencing in February&nbsp;2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Options
for 42,000 shares vest monthly over one year commencing in November&nbsp;2005. Options for 180,000 shares vest monthly over five years commencing in February&nbsp;2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Options
for 14,000 shares vest monthly over one year commencing in April&nbsp;2005.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Options
for 9,800 shares vest monthly over one year commencing in June&nbsp;2005. Options for 40,000 shares vest monthly over five years commencing in February&nbsp;2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Options
for 70,000 shares vest 1/5th on September&nbsp;18, 2002 and monthly over four years thereafter. Options for 30,000 shares vest 1/5th on September&nbsp;18, 2002 and monthly
over four years thereafter.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Options
for 7,000 shares vest monthly over one year commencing in March&nbsp;2005. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
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<A NAME="page_dm1737_1_24"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1737_aggregated_option/sar_exercise__agg03063"> </A>
<A NAME="toc_dm1737_3"> </A>
<BR></FONT><FONT SIZE=2><B>AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,<BR>  AND FY-END OPTION/SAR VALUES    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Number of Securities Underlying Unexercised Options/SARs at<BR>
FY-End&nbsp;(#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Value of Unexercised<BR>
In-the-Money Options/SARs at FY-End&nbsp;($)(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Shares Acquired on Exercise&nbsp;(#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Value Realized ($)(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Ajit S. Gill</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>560,570</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>622,030</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,712,275</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>532,331</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Robert B. Chess</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>411,901</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>488,346</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,363,662</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>691,623</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>John S. Patton</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>116,956</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,525,632</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>168,798</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>137,402</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,601,350</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>483,893</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Brigid A. Makes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>89,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>71,665</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>132,735</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>295,745</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>318,505</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Douglas H. Altschuler</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>615,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Stephen L. Hurst</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>28,199</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>542,508</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>41,182</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>118,523</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>226,251</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>257,358</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Based
on the fair market value of our common stock on the exercise date, minus the exercise price, multiplied by the number of shares exercised.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Based
on the fair market value of our common stock as of December&nbsp;31, 2001 ($18.55 per share), minus the exercise price, multiplied by the number of shares underlying the
options. </FONT></DD></DL>

<P><FONT SIZE=2><B>EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;1995, the board amended the provisions of existing option grant forms under our 2000 Equity Incentive Plan to provide that upon a change in
control, the vesting of all outstanding options held by executive officers would be accelerated by two years. This acceleration also applies to all subsequent grants made to executive officers.
Options also accelerate and vest in full upon a change in control, asset sale, merger, consolidation or reverse merger, as described in our 2000 Equity Incentive Plan, in the event the acquiring
company does not assume the options or does not substitute similar
options. The options will also accelerate and vest in full upon a securities acquisition, as described in our 2000 Equity Incentive Plan. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="do1737_report_of_the_compensation_com__rep03606"> </A>
<A NAME="toc_do1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION<SUP>1</SUP>    <BR>  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has delegated to the Compensation Committee the authority to establish and administer the Company's compensation programs. The Compensation
Committee is comprised of two non-employee Directors: Messrs.&nbsp;Lerner and Glavin. The Compensation Committee is responsible for: (i)&nbsp;determining the most effective total
executive compensation strategy, based upon the business needs of the Company and consistent with stockholders' interests; (ii)&nbsp;administering the Company's executive compensation plans,
programs and policies; (iii)&nbsp;monitoring corporate performance and its relationship to compensation of executive officers; and (iv)&nbsp;making appropriate recommendations concerning matters
of executive compensation. </FONT></P>

<P><FONT SIZE=2><B>COMPENSATION PHILOSOPHY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary goals of the compensation program are to align compensation with the attainment of key business objectives and to enable the Company to attract,
retain and reward capable executives who can contribute to the continued success of the Company. Equity participation and a strong alignment to stockholders' interests are key elements of the
Company's compensation philosophy. Four key goals form the basis for compensation decisions for all employees of the Company: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>To
attract and retain the most highly qualified management and employee team;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>To
emphasize sustained performance by aligning rewards with stockholder interests, especially through the use of equity participation programs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>To
pay competitively compared to similar drug delivery and biopharmaceutical companies and to provide appropriate reward opportunities for achieving high levels of performance compared
to similar organizations in the marketplace; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>To
motivate executives and employees to achieve the Company's annual and long-term business goals and encourage behavior toward the fulfillment of those objectives. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
meet these goals, the Compensation Committee has adopted a mix among the compensation elements of salary, stock options and bonuses. </FONT></P>

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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><SUP>1</SUP></FONT></DT><DD><FONT SIZE=2>The
material in this report is not "soliciting material," is not deemed "filed with the SEC and is not to be incorporated by reference in any of our filings under the 1933
Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

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<P><FONT SIZE=2><B>BASE SALARY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee recognizes the importance of maintaining compensation practices and levels of compensation competitive with drug delivery and
biopharmaceutical companies in comparable stages of development. Base salary represents the fixed component of the executive compensation program. The Company's philosophy regarding base salaries is
conservative, maintaining salaries approximately at the competitive industry median. Base salary levels are established on an annual review of marketplace competitiveness with similar pharmaceutical
and drug delivery companies and on the basis of individual performance. Periodic increases in base salary are the result of individual contributions evaluated against established performance
objectives, relative success toward achieving the Company's annual and long-term business goals, length of service with the Company and an annual salary survey of comparable companies in
Inhale's industry. Base salaries for executives were increased for fiscal 2001 to a level consistent with the industry median. In 2001, the Company continued the variable compensation program
implemented in 1996 for all employees, including all executive officers, which provides that a portion of total compensation is variable based on certain qualitative and quantitative criteria for both
the Company and each employee. </FONT></P>

<P><FONT SIZE=2><B>STOCK OPTIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The option plans offered by the Company have been established to provide all executive officers of the Company with an opportunity to share, along with the
stockholders of the Company, in the long-term performance of the Company. The Compensation Committee strongly believes that a goal of the
compensation program should be to provide key employees who have significant responsibility for the management, growth and future success of the Company with an opportunity to increase their ownership
of the Company and potentially gain financially from Company stock price increases. The interests of stockholders, executives and employees should thereby be closely aligned. Executives and employees
are eligible to receive stock options generally not more often than once a year, giving them the right to purchase shares of Common Stock of the Company in the future at a price equal to fair market
value at the date of grant. All grants must be exercised according to the provisions of the Company's stock option plans. All outstanding options expire ten years from the date of grant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
the base salaries for executive officers of the Company are in the mid-range for comparable companies, the Company has used stock options as a primary incentive to attract
and retain its executive officers. Option amounts are based on salary grade within the Company and overall Company and individual performance. After considering the criteria relating to awarding stock
options, the Compensation Committee determined that all executive officers, including the Chief Executive Officer, would receive option grants in fiscal 2001. The options granted to executive officers
in fiscal 2001 include options which vest monthly over five years commencing upon the date of grant, as well as providing "evergreen" options, which typically vest over a twelve month period
commencing four years after the date of grant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m)
of the Code limits the Company to a deduction for federal income tax purposes of no more than $1.0&nbsp;million of compensation paid to certain Named Executive
Officers in a taxable year. Compensation above $1.0&nbsp;million may be deducted if it is "performance-based compensation" within the meaning of the Code. The Compensation Committee believes that at
the present time it is unlikely that the compensation paid to any Named Executive Officer in a taxable year, which is subject to the deduction limit, will exceed $1.0&nbsp;million. However, the
Compensation Committee has determined that stock awards granted under the Equity Incentive Plan with an exercise price at least equal to the fair market value of the Company's Common Stock on the date
of grant shall be treated as "performance-based compensation." </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

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<BR>

<P><FONT SIZE=2><B>BONUSES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bonus awards are another component of the compensation program. Bonuses, if any, are linked to the achievement of specified corporate goals, which is determined
at the discretion of the Board of Directors upon the recommendation of the Compensation Committee. Corporate performance goals on which 2001 bonuses were based were: our acquisitions of Shearwater
Corporation and Bradford Particle Design and the integration of these wholly-owned subsidiaries and acquired technologies into the Company's business operations; the successful attainment of
anticipated milestones generating payments under current partnered projects; progress in further establishing the necessary infrastructure to support commercialization at anticipated levels; signing
of new collaborative partners and converting existing collaborative partners with feasibility agreements to long-term development agreements; advancing our delivery system technology by
improving the performance and efficiency of the inhalation device, powder processing and powder filling; and advancing the commercial readiness of our manufacturing facilities. In January&nbsp;2002,
the Compensation Committee reviewed the Company's 2001 corporate
performance goals and determined that these goals had been substantially achieved. Based on such achievement, the Compensation Committee awarded bonuses for 2001 for all executive officers. </FONT></P>


<P><FONT SIZE=2><B>CEO COMPENSATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee determines compensation for the Chief Executive Officer by analyzing the same factors and criteria upon which other executive officers'
compensation is based. In its July&nbsp;2001 and January&nbsp;2002 meetings, the Compensation Committee awarded Mr.&nbsp;Gill a bonus of approximately 50% of base salary earned over the prior
six months based on their determination that the corporate performance goals established for the Company in 2001 had been substantially achieved. In May&nbsp;2001, the Compensation Committee agreed
to recommend to the Board that Mr.&nbsp;Gill receive an increase in salary and stock option grants for these same reasons. Under the Company's executive compensation program, the total compensation
mix for senior executives emphasizes longer-term rewards in the form of stock options. In 2001, Mr.&nbsp;Gill received option grants to purchase 370,000 shares of the Company's Common
Stock at the fair market value of the Common Stock on the date of grant, of which 70,000 were evergreen grants. </FONT></P>

<P><FONT SIZE=2><B>SUMMARY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee believes that the compensation of executives by the Company is appropriate and competitive with the compensation programs provided by
other drug delivery and biopharmaceutical companies with which the Company competes for executives and employees. The Compensation Committee believes its compensation strategy, principles and
practices result in a compensation program tied to stockholder returns and linked to the achievement of annual and longer-term financial and operational results of the Company on behalf of
the Company's stockholders. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>COMPENSATION
COMMITTEE </FONT></P>

<P><FONT SIZE=2>James
B. Glavin<BR>
Irwin Lerner </FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2><B>COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the members of our compensation committee of the board is currently, or has been, at any time since our formation, an officer or employee. On
April&nbsp;1, 1999, Mr.&nbsp;Lerner, a member of the compensation committee, entered into a consulting agreement with us. Please see "Certain Relationships and Related Transactions" for further
description of this arrangement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

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NAME="dq1737_report_of_the_audit_com__dq102304"> </A>
<A NAME="toc_dq1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS</B></FONT><FONT SIZE=2><SUP>2</SUP>    <BR></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
audit committee is currently comprised of three non-employee directors, Mr.&nbsp;Kuebler, Dr.&nbsp;Perelman and Mr.&nbsp;Whitfield (the board appointed
Mr.&nbsp;Whitfield on June&nbsp;1, 2001 and Mr.&nbsp;Kuebler on December&nbsp;13, 2001; Mr.&nbsp;Glavin resigned from the audit committee on December&nbsp;13, 2001). Under currently
applicable rules, all members of the audit committee are independent. Our board has adopted a written charter for the audit committee, which was included as an appendix to last year's proxy statement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
audit committee held five meetings during 2001. The meetings were designed to facilitate and encourage private communication between the audit committee and our independent public
auditors, Ernst&nbsp;&amp; Young LLP. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
these meetings, the audit committee reviewed and discussed the audited financial statements with management and Ernst&nbsp;&amp; Young LLP. The audit committee believes that
management maintains an effective system of internal controls that results in fairly presented financial statements. Based on these discussions, the audit committee recommended to our board that the
audited financial statements be included in our Annual Report on Form&nbsp;10-K. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
audit committee determined that the provision of the non-audit services by Ernst&nbsp;&amp; Young LLP during 2001 was compatible with maintaining the principal auditors'
independence. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
discussions with Ernst&nbsp;&amp; Young LLP also included the matters required by Statement on Auditing Standards No.&nbsp;61. The audit committee received written disclosures and
the letter from Ernst&nbsp;&amp; Young LLP regarding its independence as required by Independence Standards Board Standard No.&nbsp;1. This information was discussed with Ernst&nbsp;&amp; Young LLP. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>AUDIT
COMMITTEE </FONT></P>

<P><FONT SIZE=2>Christopher
A. Kuebler<BR>
Melvin Perelman<BR>
Roy A. Whitfield </FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><SUP>2</SUP></FONT></DT><DD><FONT SIZE=2>The
material in this report is not "soliciting material," is not deemed "filed with the SEC and is not to be incorporated by reference in any of our filings under the 1933
Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_ds1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>PERFORMANCE MEASUREMENT COMPARISON<SUP>3</SUP>    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following graph shows the total stockholder return of an investment of $100 in cash on December&nbsp;31, 1996 for (i)&nbsp;our common stock,
(ii)&nbsp;the RDG Total Return Index for the Nasdaq Stock Market (U.S. companies) and (iii)&nbsp;the RDG Total Return Index for the Nasdaq Pharmaceutical Stocks for the period commencing on
December&nbsp;31, 1996, and ending on December&nbsp;31, 2001(1). All values assume reinvestment of the full amount of all dividends and are calculated as of December&nbsp;31 of each year. </FONT></P>

<P><FONT SIZE=2><B>COMPARISON OF CUMULATIVE TOTAL RETURN FROM DECEMBER&nbsp;31, 1996 AND ENDING ON DECEMBER&nbsp;31, 2001(2)  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ds1737_comparison_of_5_year_cumulativ__com05938"> </A>
<A NAME="toc_ds1737_2"> </A></FONT> <FONT SIZE=2><B>Comparison of 5&nbsp;Year Cumulative Total Return*<BR>  Among Inhale Therapeutic Systems,&nbsp;Inc., The Nasdaq Stock Market (U.S.)<BR>  Index and The Nasdaq Pharmaceutical Index    <BR>
</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <FONT SIZE=2><B>
<IMG SRC="g513914.jpg" ALT="GRAPH" WIDTH="700" HEIGHT="358">
  </B></FONT></P>

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>$100
invested on 12/31/96 in stock or index including reinvestment of dividends. Fiscal year ending December&nbsp;31.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>The
RDG Total Return Index for the Nasdaq Stock Market and for the Nasdaq Pharmaceutical Stocks are calculated by the Research Data Group,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Assumes
that $100.00 was invested on December&nbsp;31, 1996 in our common stock at the closing sales price of $7.563 per share, as adjusted for the stock split on August&nbsp;22,
2000, and at the closing sales price for each index on that date and that all dividends were reinvested. We have not declared cash dividends on our common stock. Stockholder returns over the indicated
period should not be considered indicative of future stockholder returns. </FONT></DD></DL>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><SUP>3</SUP></FONT></DT><DD><FONT SIZE=2>This
Section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any of our filings under the 1933 Act or the
1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_ds1737_3"> </A>
<BR></FONT><FONT SIZE=2><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bylaws provide that we will indemnify our directors and may indemnify our officers, employees and other agents to the fullest extent permitted by Delaware
law. We are also empowered under our bylaws to enter into indemnification contracts with our directors and officers and to purchase insurance on behalf of any person whom we are required or permitted
to indemnify. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, our Amended and Restated Certificate of Incorporation, as amended, provides that the liability of directors for monetary damages shall be eliminated to the fullest extent
permissible under Delaware law. Pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to us and our stockholders.
However, this provision does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to liability for (i)&nbsp;breach of the directors' duty of loyalty to us or our stockholders, (ii)&nbsp;acts or omissions,
(iii)&nbsp;violation of Section&nbsp;174 of the Delaware General Corporation Law, or (iv)&nbsp;any transaction from which the director derived an improper personal benefit. The provision also
does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April&nbsp;1, 1999, Mr.&nbsp;Lerner entered into a consulting agreement with us. Pursuant to the agreement, Mr.&nbsp;Lerner may perform consulting services relating to product
marketing and general business issues of
at least four half days per year as well as telephone discussions as needed in consideration for his standard consulting fee. In 2001, Mr.&nbsp;Lerner received no consulting fees for services
performed for us. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

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<A NAME="toc_ds1737_4"> </A>
<BR></FONT><FONT SIZE=2><B>HOUSEHOLDING OF PROXY MATERIALS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports
with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as "householding,"
potentially means extra convenience for stockholders and cost savings for companies. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
year, a number of brokers with account holders who are our stockholders will be "householding" our proxy materials. A single proxy statement will be delivered to multiple
stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be "householding"
communications to your address, "householding" will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in "householding" and
would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to our Secretary at 150 Industrial Road, San Carlos, California 94070 or
contact our Secretary at (650)&nbsp;631-3100. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request "householding" of their
communications should contact their broker. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

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<P><FONT SIZE=2><B>OTHER MATTERS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board knows of no other matters that will be presented for consideration at the annual meeting. If any other matters are properly brought before the meeting,
it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>By
Order of the Board of Directors </FONT></P>

<P><FONT SIZE=2><B>
<IMG SRC="g733380.jpg" ALT="LOGO" WIDTH="288" HEIGHT="45">
  </B></FONT></P>

<P><FONT SIZE=2><BR>
Douglas H. Altschuler<BR>
Secretary </FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>May&nbsp;15,
2002 </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>A copy of our Annual Report to the SEC on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2001 is available without charge upon written
request to: Secretary, Inhale Therapeutic Systems,&nbsp;Inc., 150 Industrial Road, San Carlos, California 94070.</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

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<A NAME="toc_du1737_1"> </A>
<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS<BR>  EMPLOYEE STOCK PURCHASE PLAN    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du1737_adopted_by_the_board_of_direct__ado03947"> </A>
<A NAME="toc_du1737_2"> </A>
<BR></FONT><FONT SIZE=2><B>ADOPTED BY THE BOARD OF DIRECTORS FEBRUARY&nbsp;10, 1994<BR>  APPROVED BY STOCKHOLDERS FEBRUARY&nbsp;18, 1994<BR>  AMENDED AND RESTATED MAY 10, 2002    <BR>  </B></FONT></P>


<P><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>PURPOSE.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The purpose of the Plan is to provide a means by which Employees of the Company and certain designated Related
Corporations may be given an opportunity to purchase shares of the Common Stock of the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company, by means of the Plan, seeks to retain the services of such Employees, to secure and retain the services of
new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Related Corporations. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company intends that the Purchase Rights be considered options issued under an Employee Stock Purchase Plan. </FONT></P>

<P><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>DEFINITIONS.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Board"</I></B></FONT><FONT SIZE=2> means the Board of Directors of the Company. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Code"</I></B></FONT><FONT SIZE=2> means the Internal Revenue Code of 1986, as
amended</FONT><FONT SIZE=2><I>.</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Committee"</I></B></FONT><FONT SIZE=2> means a committee appointed by the Board in accordance with
Section&nbsp;3(c) of the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Common Stock"</I></B></FONT><FONT SIZE=2> means the common stock of the Company. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Company"</I></B></FONT><FONT SIZE=2> means Inhale Therapeutic Systems, a Delaware corporation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>"Contributions"</I></B></FONT><FONT SIZE=2> means the payroll deductions, and other additional payments specifically provided
for in the Offering, that a Participant contributes to fund the exercise of a Purchase Right. A Participant may make additional payments into his or her account, if specifically provided for in the
Offering, and then only if the Participant has not already had the maximum permitted amount through payroll deductions withheld during the Offering. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Corporate Transaction"</I></B></FONT><FONT SIZE=2> means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(ii)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iii)</B></FONT><FONT SIZE=2>&nbsp;a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iv)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other
property, whether in the form of securities, cash or otherwise. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Director"</I></B></FONT><FONT SIZE=2> means a member of the Board. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-1</FONT></P>

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<A NAME="page_du1737_1_2"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Eligible Employee"</I></B></FONT><FONT SIZE=2> means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering, provided that such Employee also meets the requirements for eligibility to participate set forth in the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(j)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Employee"</I></B></FONT><FONT SIZE=2> means any person, including Officers and Directors, who is
employed for purposes of Section&nbsp;423(b)(4) of the Code by the Company or a Related Corporation. Neither service as a Director nor payment of a director's fee shall be sufficient to make an
individual an Employee of the Company or a Related Corporation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(k)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Employee Stock Purchase Plan"</I></B></FONT><FONT SIZE=2> means a plan that grants Purchase Rights
intended to be options issued under an "employee stock purchase plan," as that term is defined in Section&nbsp;423(b) of the Code. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(l)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Exchange Act"</I></B></FONT><FONT SIZE=2> means the Securities Exchange Act of 1934, as amended. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(m)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Fair Market Value"</I></B></FONT><FONT SIZE=2> means the value of a security, as determined in good
faith by the Board. If the security is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of the security, unless
otherwise determined by the Board, shall be the closing sales price (rounded up where necessary to the nearest whole cent) for such security (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume of trading in the relevant security of the Company) on the Trading Day prior to the relevant determination date, as
reported in </FONT><FONT SIZE=2><I>The Wall Street Journal</I></FONT><FONT SIZE=2> or such other source as the Board deems reliable. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(n)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Offering"</I></B></FONT><FONT SIZE=2> means the grant of Purchase Rights to purchase shares of
Common Stock under the Plan to Eligible Employees. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(o)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Offering Date"</I></B></FONT><FONT SIZE=2> means a date selected by the Board for an Offering to
commence. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(p)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B>"</B></FONT><FONT SIZE=2><B><I>Officer</I></B></FONT><FONT SIZE=2><B>"</B></FONT><FONT SIZE=2> means a person
who is an officer of the Company within the meaning of Section&nbsp;16 of the Exchange Act and the rules and regulations promulgated thereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(q)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Participant"</I></B></FONT><FONT SIZE=2> means an Eligible Employee who holds an outstanding
Purchase Right granted pursuant to the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(r)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Plan"</I></B></FONT><FONT SIZE=2> means this Inhale Therapeutic Systems Employee Stock Purchase
Plan, as amended and restated May 10, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(s)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Purchase Date"</I></B></FONT><FONT SIZE=2> means one or more dates during an Offering established by
the Board on which Purchase Rights shall be exercised and as of which purchases of shares of Common Stock shall be carried out in accordance with such Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(t)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Purchase Period"</I></B></FONT><FONT SIZE=2> means a period of time specified within an Offering
beginning on the Offering Date or on the next day following a Purchase Date within an Offering and ending on a Purchase Date. An Offering may consist of one or more Purchase Periods. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(u)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Purchase Right"</I></B></FONT><FONT SIZE=2> means an option to purchase shares of Common Stock
granted pursuant to the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(v)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Related Corporation"</I></B></FONT><FONT SIZE=2> means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(w)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>"Securities Act"</I></B></FONT><FONT SIZE=2> means the Securities Act of 1933, as amended. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(x)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;</FONT><FONT SIZE=2><B>"</B></FONT><FONT SIZE=2><B><I>Trading Day</I></B></FONT><FONT SIZE=2><B>"</B></FONT><FONT SIZE=2> means any
day the exchange(s) or market(s) on which shares of Common Stock are listed, whether it be any established stock exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or otherwise, is open
for trading. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-2</FONT></P>

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<P><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>ADMINISTRATION.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in
Section&nbsp;3(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the
administration of the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board (or the Committee) shall have the power, subject to, and within the limitations of, the express provisions of
the Plan: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To determine when and how Purchase Rights to purchase shares of Common Stock shall be granted and the provisions of each
Offering of such Purchase Rights (which need not be identical). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(ii)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;To designate from time to time which Related Corporations of the Company shall be eligible to participate in the Plan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iii)</B></FONT><FONT SIZE=2>&nbsp;To construe and interpret the Plan and Purchase Rights, and to establish, amend and revoke rules and regulations for
the administration of the Plan. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iv)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;To amend the Plan as provided in Section&nbsp;15. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(v)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best
interests of the Company and its Related Corporations and to carry out the intent that the Plan be treated as an Employee Stock Purchase Plan. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board may delegate administration of the Plan to a Committee of the Board composed of two (2)&nbsp;or more members
of the Board. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject,
however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the
Board the administration of the Plan. If administration is delegated to a Committee, references
to the Board in this Plan and in the Offering document shall thereafter be deemed to be to the Board or the Committee, as the case may be. </FONT></P>

<P><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>SHARES OF COMMON STOCK SUBJECT TO THE PLAN.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the provisions of Section&nbsp;14 relating to adjustments upon changes in securities, the shares of Common Stock that may be sold pursuant to
Purchase Rights shall not exceed in the aggregate eight hundred thousand (800,000) shares of Common Stock. If any Purchase Right granted under the Plan shall for any reason terminate without having
been exercised, the shares of Common Stock not purchased under such Purchase Right shall again become available for issuance under the Plan. </FONT></P>

<P><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>GRANT OF PURCHASE RIGHTS; OFFERING.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board may from time to time grant or provide for the grant of Purchase Rights to purchase shares of Common Stock
under the Plan to Eligible Employees in an Offering (consisting of one or more Purchase Periods) on an Offering Date or Offering Dates selected by the Board. Each Offering shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate, which shall comply with the requirement of Section&nbsp;423(b)(5) of the Code that all Employees granted Purchase Rights
shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate
Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-3</FONT></P>

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<P><FONT SIZE=2>
effective, which period shall not exceed twenty-seven (27)&nbsp;months beginning with the Offering Date, and the substance of the provisions contained in Sections 6 through 9, inclusive. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;If a Participant has more than one Purchase Right outstanding under the Plan, unless he or she otherwise indicates in
agreements or notices delivered hereunder: (i)&nbsp;each agreement or notice delivered by that Participant shall be deemed to apply to all of his or her Purchase Rights under the Plan, and
(ii)&nbsp;a Purchase Right with a lower exercise price (or an earlier-granted Purchase Right, if different Purchase Rights have identical exercise prices) shall be exercised to the fullest possible
extent before a Purchase Right with a higher exercise price (or a later-granted Purchase Right if different Purchase Rights have identical exercise prices) shall be exercised. </FONT></P>

<P><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>ELIGIBILITY.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Purchase Rights may be granted only to Employees of the Company or, as the Board may designate as provided in
Section&nbsp;3(b), to Employees of a Related Corporation. Except as provided in Section&nbsp;6(b), an Employee shall not be eligible to be granted Purchase Rights under the Plan unless, on the
Offering Date, such Employee has been in the employ of the Company or the Related Corporation, as the case may be, for such continuous period preceding such Offering Date as the Board may require, but
in no event shall the required period of continuous employment be greater than two (2)&nbsp;years. In addition, the Board may provide that no Employee shall be eligible to be granted Purchase Rights
under the Plan unless, on the Offering Date, such Employee's customary employment with the Company or the Related Corporation is more than twenty (20)&nbsp;hours per week and more than five
(5)&nbsp;months per calendar year. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board may provide that each person who, during the course of an Offering, first becomes an Eligible Employee shall,
on a date or dates specified in the Offering which coincides with the day on which such person becomes an Eligible Employee or which occurs thereafter, receive a Purchase Right under that Offering,
which Purchase Right shall thereafter be deemed to be a part of that Offering. Such Purchase Right shall have the same characteristics as any Purchase Rights originally granted under that Offering, as
described herein, except that: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;the date on which such Purchase Right is granted shall be the "Offering Date" of such Purchase Right for all purposes,
including determination of the exercise price of such Purchase Right; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(ii)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;the period of the Offering with respect to such Purchase Right shall begin on its Offering Date and end coincident with
the end of such Offering; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iii)</B></FONT><FONT SIZE=2>&nbsp;the Board may provide that if such person first becomes an Eligible Employee within a specified period of time before
the end of the Offering, he or she shall not receive any Purchase Right under that Offering. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;No Employee shall be eligible for the grant of any Purchase Rights under the Plan if, immediately after any such Purchase
Rights are granted, such Employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Related Corporation. For
purposes of this Section&nbsp;6(c), the rules of Section&nbsp;424(d) of the Code shall apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under
all outstanding Purchase Rights and options shall be treated as stock owned by such Employee. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;As specified by Section&nbsp;423(b)(8) of the Code, an Eligible Employee may be granted Purchase Rights under the Plan
only if such Purchase Rights, together with any other rights granted under all Employee
Stock Purchase Plans of the Company and any Related Corporations, do not permit such Eligible Employee's rights to purchase stock of the Company or any Related Corporation to accrue at a rate which
exceeds twenty five thousand dollars ($25,000) of Fair Market Value of such stock (determined at the time such rights are granted, and which, with respect to the Plan, shall be determined as of their
respective Offering Dates) for each calendar year in which such rights are outstanding at any time. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-4</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Officers of the Company and any designated Related Corporation, if they are otherwise Eligible Employees, shall be
eligible to participate in Offerings under the Plan. Notwithstanding the foregoing, the Board may provide in an Offering that Employees who are highly compensated Employees within the meaning of
Section&nbsp;423(b)(4)(D) of the Code shall not be eligible to participate. </FONT></P>

<P><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>PURCHASE RIGHTS; PURCHASE PRICE.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, shall be granted a Purchase
Right to purchase up to that number of shares of Common Stock purchasable either with a percentage or with a maximum dollar amount, as designated by the Board, but in either case not exceeding fifteen
percent (15%), of such Employee's Earnings (as defined by the Board in each Offering) during the period that begins on the Offering Date (or such later date as the Board determines for a particular
Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board shall establish one (1)&nbsp;or more Purchase Dates during an Offering as of which Purchase Rights granted
pursuant to that Offering shall be exercised and purchases of shares of Common Stock shall be carried out in accordance with such Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In connection with each Offering made under the Plan, the Board may specify a maximum number of shares of Common Stock
that may be purchased by any Participant on any Purchase Date during such Offering. In connection with each Offering made under the Plan, the Board may specify a maximum aggregate number of shares of
Common Stock that may be purchased by all Participants pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate number of shares of Common Stock that may be purchased by all Participants on any given Purchase Date under the Offering. If the aggregate purchase of shares of Common Stock issuable
upon exercise of Purchase Rights granted under the Offering would exceed any such maximum aggregate number, then, in the absence of any Board action otherwise, a pro rata allocation of the shares of
Common Stock available shall be made in as nearly a uniform manner as shall be practicable and equitable. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The purchase price of shares of Common Stock acquired pursuant to Purchase Rights shall be not less than the lesser of: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock on the
Offering Date; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(ii)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock on the
applicable Purchase Date. </FONT></P>

</UL>

<P><FONT SIZE=2><B>8.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>PARTICIPATION; WITHDRAWAL; TERMINATION.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;A Participant may elect to authorize payroll deductions pursuant to an Offering under the Plan by completing and
delivering to the Company, within the time specified in the Offering, an enrollment form (in such form as the Company may provide). Each such enrollment form shall authorize an amount of Contributions
expressed as a percentage of the submitting Participant's Earnings (as defined in each Offering) during the Offering (not to exceed the maximum percentage specified by the Board). Each Participant's
Contributions shall be credited to a bookkeeping account for such Participant under the Plan and shall be deposited with the general funds of the Company except where applicable law requires that
Contributions be deposited with a third party. To the extent provided in the Offering, a Participant may begin such Contributions after the beginning of the Offering. To the extent provided in the
Offering, a Participant may thereafter reduce (including to zero) or increase his or her Contributions. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-5</FONT></P>

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;During an Offering, a Participant may cease making Contributions and withdraw from the Offering by delivering to the
Company a notice of withdrawal in such form as the Company may provide. Such withdrawal may be elected at any time prior to the end of the Offering, except as provided otherwise in the Offering. Upon
such withdrawal from the Offering by a Participant, the Company shall distribute to such Participant all of his or her accumulated Contributions (reduced to the extent, if any, such deductions have
been used to acquire shares of Common Stock for the Participant) under the Offering, and such Participant's Purchase Right in that Offering shall thereupon terminate. A Participant's withdrawal from
an Offering shall have no effect upon such Participant's eligibility to participate in any other Offerings under the Plan, but such Participant shall be required to deliver a new enrollment form in
order to participate in subsequent Offerings. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Purchase Rights granted pursuant to any Offering under the Plan shall terminate immediately upon a Participant ceasing to
be an Employee for any reason or for no reason (subject to any post-employment participation period required by law) or other lack of eligibility. The Company shall distribute to such
terminated or otherwise ineligible Employee all of his or her accumulated Contributions (reduced to the extent, if any, such deductions have been used to acquire shares of Common Stock for the
terminated or otherwise ineligible Employee) under the Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Purchase Rights shall not be transferable by a Participant otherwise than by will or the laws of descent and
distribution, or by a beneficiary designation as provided in Section&nbsp;13 and, during a Participant's lifetime, shall be exercisable only by such Participant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Unless otherwise specified in an Offering, the Company shall have no obligation to pay interest on Contributions. </FONT></P>

<P><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>EXERCISE.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;On each Purchase Date during an Offering, each Participant's accumulated Contributions shall be applied to the purchase
of shares of Common Stock up to the maximum number of shares of Common Stock permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional shares shall be issued upon the exercise of Purchase Rights unless specifically provided for in the Offering. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;If any amount of accumulated Contributions remains in a Participant's account after the purchase of shares of Common
Stock and such remaining amount is less than the amount required to purchase one share of Common Stock on the final Purchase Date of an Offering, then such remaining amount shall be held in such
Participant's account for the purchase of shares of Common Stock under the next Offering under the Plan, unless such Participant withdraws from such next Offering, as provided in Section&nbsp;8(b),
or is not eligible to participate in such Offering, as provided in Section&nbsp;6, in which case such amount shall be distributed to such Participant after the final Purchase Date, without interest.
If the amount of Contributions remaining in a Participant's account after the purchase of shares of Common Stock is at least equal to the amount required to purchase one (1)&nbsp;whole share of
Common Stock on the final Purchase Date of the Offering, then such remaining amount shall be distributed in full to such Participant at the end of the Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;No Purchase Rights may be exercised to any extent unless the shares of Common Stock to be issued upon such exercise under
the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable federal, state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date during any Offering hereunder the shares of Common Stock are not so registered or the Plan is not in such compliance, no Purchase Rights or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the shares of Common Stock are subject to such an effective registration statement and the Plan is in
such compliance, except that the Purchase Date shall not be delayed more than twelve (12)&nbsp;months and the Purchase Date shall in no event be more than twenty-seven (27)&nbsp;months from the
Offering Date. If, on the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-6</FONT></P>

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<P><FONT SIZE=2>
Purchase Date under any Offering hereunder, as delayed to the maximum extent permissible, the shares of Common Stock are not registered and the Plan is not in such compliance, no Purchase Rights or
any Offering shall be exercised and all Contributions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire shares of Common Stock) shall be
distributed to the Participants. </FONT></P>

<P><FONT SIZE=2><B>10.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>COVENANTS OF THE COMPANY.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as
may be required to issue and sell shares of Common Stock upon exercise of the Purchase Rights. If, after commercially reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of shares of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell shares of Common Stock upon exercise of such Purchase Rights unless and until such authority is obtained. </FONT></P>

<P><FONT SIZE=2><B>11.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>USE OF PROCEEDS FROM SHARES OF COMMON STOCK.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the sale of shares of Common Stock pursuant to Purchase Rights shall constitute general funds of the Company. </FONT></P>

<P><FONT SIZE=2><B>12.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>RIGHTS AS A STOCKHOLDER.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Common Stock subject to Purchase Rights
unless and until the Participant's shares of Common Stock acquired upon exercise of Purchase Rights are recorded in the books of the Company (or its transfer agent). </FONT></P>

<P><FONT SIZE=2><B>13.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>DESIGNATION OF BENEFICIARY.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;A Participant may file&nbsp;a written designation of a beneficiary who is to receive any shares of Common Stock and/or
cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to the end of an Offering but prior to delivery to the Participant of such shares of
Common Stock or cash. In addition, a Participant may file&nbsp;a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event of such
Participant's death during an Offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Participant may change such designation of beneficiary at any time by written notice to the Company. In the event of
the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares of Common
Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its
sole discretion, may deliver such shares of Common Stock and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate. </FONT></P>

<P><FONT SIZE=2><B>14.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;If any change is made in the shares of Common Stock, subject to the Plan, or subject to any Purchase Right, without the
receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan shall be
appropriately adjusted in the type(s), class(es) and maximum number of shares of Common Stock subject </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-7</FONT></P>

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<A NAME="page_dw1737_1_8"> </A>

<P><FONT SIZE=2>
to the Plan pursuant to Section&nbsp;4(a), and the outstanding Purchase Rights shall be appropriately adjusted in the type(s), class(es), number of shares and purchase limits of such outstanding
Purchase Rights. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated
as a "transaction not involving the receipt of consideration by the Company.") </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In the event of a Corporate Transaction, then: (i)&nbsp;any surviving or acquiring corporation may continue or assume
Purchase Rights outstanding under the Plan or may substitute similar rights (including a right to acquire the same consideration paid to stockholders in the Corporate Transaction) for those
outstanding under the Plan, or (ii)&nbsp;if any surviving or acquiring corporation does not continue or assume such Purchase Rights or does not substitute similar rights for Purchase Rights
outstanding under the Plan, then, the Participants' accumulated Contributions shall be used to purchase shares of Common Stock within ten (10)&nbsp;business days prior to the Corporate Transaction
under the ongoing Offering, and the Participants' Purchase Rights under the ongoing Offering shall terminate immediately after such purchase. </FONT></P>

<P><FONT SIZE=2><B>15.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>AMENDMENT OF THE PLAN.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section&nbsp;14
relating to adjustments upon changes in securities and except as to amendments solely to benefit the administration of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the Company or any Related Corporation, no amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section&nbsp;423 of the Code or other applicable laws or regulations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to
provide Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans and/or to
bring the Plan and/or Purchase Rights into compliance therewith. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The rights and obligations under any Purchase Rights granted before amendment of the Plan shall not be impaired by any
amendment of the Plan except: (i)&nbsp;with the consent of the person to whom such Purchase Rights were granted, or (ii)&nbsp;as necessary to comply with any laws or governmental regulations
(including, without limitation, the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans). </FONT></P>

<P><FONT SIZE=2><B>16.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>TERMINATION OR SUSPENSION OF THE PLAN.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Board in its discretion may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall
terminate at the time that all of the shares of Common Stock reserved for issuance under the Plan, as increased and/or adjusted from time to time, have been issued under the terms of the Plan. No
Purchase Rights may be granted under the Plan while the Plan is suspended or after it is terminated. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Any benefits, privileges, entitlements and obligations under any Purchase Rights while the Plan is in effect shall not be
impaired by suspension or termination of the Plan except (i)&nbsp;as expressly provided in the Plan or with the consent of the person to whom such Purchase Rights were granted, (ii)&nbsp;as
necessary to comply with any laws, regulations, or listing requirements, or (iii)&nbsp;as necessary to ensure that the Plan and/or Purchase Rights comply with the requirements of Section&nbsp;423
of the Code. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-8</FONT></P>

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<P><FONT SIZE=2><B>17.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>EFFECTIVE DATE OF PLAN.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan shall become effective as determined by the Board, but no Purchase Rights shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12)&nbsp;months before or after the date the Plan is adopted by the Board. </FONT></P>

<P><FONT SIZE=2><B>18.&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B>MISCELLANEOUS PROVISIONS.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Plan and Offering do not constitute an employment contract. Nothing in the Plan or in the Offering shall in any way
alter the at will nature of a Participant's employment or be deemed to create
in any way whatsoever any obligation on the part of any Participant to continue in the employ of the Company or a Related Corporation, or on the part of the Company or a Related Corporation to
continue the employment of a Participant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The provisions of the Plan shall be governed by the laws of the State of California without resort to that state's
conflicts of laws rules. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-9</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>Inhale Therapeutic Systems, Inc.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>Proxy Solicited by The Board Of Directors<BR>
For the Annual Meeting of Stockholders<BR>
To Be Held on June 25, 2002  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Ajit&nbsp;S. Gill and Douglas&nbsp;H. Altschuler and each of them, as attorneys-in-fact and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Inhale Therapeutic Systems, Inc., which the undersigned may be entitled to vote at the Annual Meeting of Stockholders of Inhale
Therapeutic Systems, Inc. to be held at 150 Industrial Road, San Carlos, California, on Tuesday, June&nbsp;25, 2002 at 10:00&nbsp;a.m., local time, (and at any and all postponements, continuations
and adjournments thereof), with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions,
with discretionary authority as to any and all other matters that may properly come before the meeting. </FONT></P>


<P><FONT SIZE=2><B>UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED IN FAVOR OF ALL NOMINEES LISTED IN PROPOSAL&nbsp;1 AND IN FAVOR OF PROPOSALS&nbsp;2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;^ FOLD AND DETACH HERE ^ </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=1>Please mark your votes as indicated in this example</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" VALIGN="CENTER"><FONT SIZE=5><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
</TR>
</TABLE>
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<BR>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="RIGHT"><FONT SIZE=1><B>FOR</B></FONT><FONT SIZE=1> all nominees listed (except<BR>
as marked to the contrary below):</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1><B>WITHHOLD AUTHORITY</B></FONT><FONT SIZE=1><BR>
to vote for all nominees listed:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER" VALIGN="BOTTOM"><FONT SIZE=1>FOR</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER" VALIGN="BOTTOM"><FONT SIZE=1>AGAINST</FONT></TD>
<TD WIDTH="1%" VALIGN="BOTTOM"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER" VALIGN="BOTTOM"><FONT SIZE=1>ABSTAIN</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=1><B>PROPOSAL&nbsp;1.</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1>To elect two Directors to hold office until the 2005 Annual Meeting of Stockholders.</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=1><B>PROPOSAL&nbsp;2.</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1>To&nbsp;approve&nbsp;the amendment and restatement of the Employee Stock Purchase Plan to increase the number of common stock authorized for issuance under the Employee Stock Purchase Plan, as amended and restated, by
500,000 shares from 300,000 shares to a total of 800,000 shares.</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=7><BR><FONT SIZE=1>THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING NOMINEES FOR DIRECTOR:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD COLSPAN=9 VALIGN="BOTTOM"><FONT SIZE=1><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=7 VALIGN="TOP"><FONT SIZE=1><BR>
Nominees: (1) Ajit&nbsp;S.&nbsp;Gill and (2) Melvin&nbsp;Perelman,&nbsp;Ph.D.</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" VALIGN="TOP"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" ALIGN="CENTER"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1><BR>
FOR</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><BR>
AGAINST</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><BR>
ABSTAIN</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=7><FONT SIZE=1><B>To withhold authority to vote for any individual nominee, write such nominee's name below.</B></FONT><FONT SIZE=1><BR>
<BR>
<BR></FONT>
<HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=1><B>PROPOSAL 3.</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1>To ratify the selection of Ernst &amp; Young LLP as independent auditors of Inhale Therapeutic Systems, Inc. for its fiscal year ending December&nbsp;31, 2002.</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=4>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=4><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD COLSPAN=9><FONT SIZE=1><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.</FONT></TD>
</TR>
</TABLE>
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<BR>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2><B>PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.</B></FONT></TD>
</TR>
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<TR VALIGN="BOTTOM">
<TD WIDTH="13%"><FONT SIZE=2>Signature(s)</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>Dated</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>, 2002</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="55%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><HR NOSHADE></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=2>PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.</FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;^
FOLD AND DETACH HERE ^ </FONT></P>

<HR NOSHADE>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<BR>
<P><br><A NAME="02PAL1737_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_de1737_1">QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_de1737_2">PROPOSAL 1 ELECTION OF DIRECTORS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dg1737_1">PROPOSAL 2 APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_di1737_1">EQUITY COMPENSATION PLAN INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di1737_2">EQUITY COMPENSATION PLAN INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di1737_3">PROPOSAL 3 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dk1737_1">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dk1737_2">EXECUTIVE COMPENSATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dk1737_3">SUMMARY COMPENSATION TABLE</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dm1737_1">STOCK OPTION GRANTS AND EXERCISES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dm1737_2">OPTION/SAR GRANTS IN LAST FISCAL YEAR</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dm1737_3">AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR VALUES</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_do1737_1">REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION<SUP>1</SUP></A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dq1737_1">REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS <SUP>2</SUP></A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ds1737_1">PERFORMANCE MEASUREMENT COMPARISON<SUP>3</SUP></A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ds1737_2">Comparison of 5 Year Cumulative Total Return* Among Inhale Therapeutic Systems, Inc., The Nasdaq Stock Market (U.S.) Index and The Nasdaq Pharmaceutical Index</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ds1737_3">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ds1737_4">HOUSEHOLDING OF PROXY MATERIALS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_du1737_1">INHALE THERAPEUTIC SYSTEMS EMPLOYEE STOCK PURCHASE PLAN</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du1737_2">ADOPTED BY THE BOARD OF DIRECTORS FEBRUARY 10, 1994 APPROVED BY STOCKHOLDERS FEBRUARY 18, 1994 AMENDED AND RESTATED MAY 10, 2002</A></FONT><BR>

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