8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) June 10, 2005

INSPIRE PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its charter)

Delaware	000-31135	04-3209022
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4222 Emperor Boulevard, Suite 200, Durham, North Carolina	27703-8466
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (919) 941-9777

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

At the Annual Meeting of Stockholders of Inspire Pharmaceuticals, Inc. (“Inspire”) held on June 10, 2005, the stockholders of Inspire approved the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “2005 Plan”). A description of the 2005 Plan is set forth below.

Introduction

The 2005 Plan will provide Inspire’s employees, non-employee directors, consultants and advisors with the opportunity to receive grants of nonqualified stock options, stock awards, and stock appreciation rights related to its stock. Employees may also receive grants of incentive stock options. Unless terminated earlier by the Board of Directors or extended with stockholder approval, the 2005 Plan will terminate on June 10, 2015. The purpose of the 2005 Plan is to give participants an ownership interest in Inspire and to create an incentive for them to contribute to its growth, thereby benefiting Inspire’s stockholders, and aligning the economic interests of the participants with those of Inspire’s stockholders.

Administration

The 2005 Plan will be administered by the Compensation Committee of the Board of Directors or its delegate. The Compensation Committee consists of at least two or more directors who are not employees. The Compensation Committee has the authority to determine the individuals to whom grants will be made under the 2005 Plan, to determine the type, size, and terms of any grants made, to determine when grants will be made and the duration of any applicable exercise or restriction period, and to deal with any other matters arising under the 2005 Plan. The Compensation Committee also has the power and authority to administer and interpret the 2005 Plan. The Compensation Committee’s determinations relating to the interpretation and operation of the 2005 Plan will be conclusive and binding. In no event may the Compensation Committee (i) amend a stock option to reduce the exercise price; (ii) substitute a stock option for another stock option with a lower exercise price; (iii) cancel a stock option and issue a new stock option with a lower exercise price to the same holder within six months following the date of the cancellation; or (iv) cancel an outstanding stock option with an exercise price below the stock’s fair market value for the purpose of granting a replacement equity award of a different type within six months following the date of the cancellation.

Shares Subject to the 2005 Plan

The 2005 Plan authorizes the issuance of 3,000,000 shares of common stock pursuant to any form of grant. Of such shares, a maximum of 250,000 shares may be issued under stock awards. The maximum number of shares that may be subject to grants made to any individual under the 2005 Plan during any calendar year is 300,000 shares. If any grant of shares under the 2005 Plan shall for any reason expire or otherwise terminate, in whole or part, without having been exercised in full, the stock not acquired shall revert to and again become available for issuance under the 2005 Plan.

If stock awards are designated as qualified performance based compensation, the maximum number of shares that may be granted to any individual pursuant to these stock awards for any performance period is 100,000 shares. See “Qualified Performance-Based Compensation” below.

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These limits will be adjusted by the Compensation Committee for stock splits, stock dividends, recapitalizations, merger or reorganization in which Inspire is the surviving corporation, a reclassification or change in the par value of Inspire’s stock, or other similar transactions affecting Inspire’s stock. Shares used to make grants may be issued directly by Inspire or purchased on the open market and then transferred to participants by Inspire.

Types of Grants Available Under the 2005 Plan

The following types of grants are available under the 2005 Plan:

• Incentive stock options;

• Nonqualified stock options;

• Stock appreciation rights; and

• Stock awards.

Stock Options

The 2005 Plan provides for the award of incentive stock options and nonqualified stock options, which provide the option holder with the right to purchase shares of common stock at a specified exercise price during a specified period of time.

Nonqualified stock options may be awarded to anyone eligible to participate in the 2005 Plan. Only Inspire employees or the employees of any subsidiaries are eligible to receive incentive stock options. Under the 2005 Plan, the exercise price of nonqualified and incentive stock options must be equal to or greater than the fair market value of a share of Inspire’s stock on the date of grant.

Only $100,000 of any incentive stock options (based on the fair market value of the stock on the date(s) of grant) may first become exercisable by an employee during any calendar year. In other words, the aggregate amount of all incentive stock options granted under all of Inspire’s plans that first become exercisable by an employee in any calendar year may not exceed $100,000. Any options that exceed this limit must be nonqualified stock options. In addition, if an employee who receives an incentive stock option owns more than 10% of the voting power of Inspire stock or the stock of a subsidiary, the exercise price must be at least equal to 110% of the fair market value of Inspire’s stock on the date of grant, and the option term may not be longer than five years.

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Option Terms.

Each grant under the 2005 Plan will be accompanied by a grant instrument. The grant instrument will describe the type and number of grants that the option holder has been awarded and the terms and restrictions applicable to the grant. The grant instrument for an option will describe when the option will become exercisable. Attached to this report is a form of Incentive Stock Option Grant Agreement, a form of Nonqualified Stock Option Grant Agreement and a form of Director’s Nonqualified Stock Option Gant Agreement.

Exercise of Options.

The exercise term of each option will be determined by the Compensation Committee and set forth in the applicable grant instrument. The term of an option may not exceed seven years; provided, however, if an option holder owns more than 10% of the voting power of Inspire’s stock or the stock of a subsidiary, an incentive stock option may not have a term that exceeds five years from the date of grant. The form of Director’s Nonqualified Stock Option Grant Agreement provides for an option term of seven years. The Compensation Committee may accelerate the exercisability of options awarded under the 2005 Plan at any time for any reason.

An option holder may pay the exercise price, as specified in the applicable grant instrument (i) in cash, (ii) through a broker by having a broker sell the stock simultaneously with the exercise of the option, or (iii) by such other method of payment as the Compensation Committee may approve.

Termination.

Unless the Compensation Committee determines otherwise or an option expires by its terms within a shorter period, if an option holder ceases to be employed by, or provide service to, Inspire for any reason other than death, disability or termination for misconduct, the option holder will have 90 days from the date of termination to exercise any vested options. If an option holder is terminated for misconduct, the option holder will have 30 days from the date of termination to exercise any vested options. Unless the Compensation Committee determines otherwise or an option expires by its terms within a shorter period, if an option holder ceases to be employed by, or provide services to, Inspire on account of (i) disability, or (ii) death (during the term of service or within 90 days thereafter for reasons other than termination for misconduct), the option holder will have one year from the termination date to exercise any vested options. If an option holder dies while employed by, or providing services to, Inspire, all of the unexercised outstanding options of the person shall become immediately exercisable. Unless the Compensation Committee determines otherwise, all options that have not become exercisable on the date on which an option holder ceases to be employed by, or provide service to, Inspire will terminate. To the extent a company sponsored plan, policy or agreement provides for a longer exercise period, that exercise period shall apply in lieu of the exercise periods summarized in this paragraph.

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The form of Director’s Nonqualified Stock Option Grant Agreement provides that the exercise period will end immediately upon each of the following actions by the grantee: (i) the date of the breach of any covenant or representation with Inspire, (ii) the date of illegal or improper conduct that injures or impairs the reputation of Inspire, involves the misappropriation of funds or the misuse of information acquired in connection with services for Inspire, or violates any other policy of Inspire, and (iii) termination of consulting or director relationship in violation of an agreement or of an involuntary nature as a result of illegal or improper conduct.

Stock Appreciation Rights (SARs)

SARs give the recipient the right to receive the appreciation in the value of Inspire’s stock over a specified period of time. SARs which may be settled in shares of Inspire’s stock shall be counted in full against the number of shares available for award under the 2005 Plan, regardless of the number of shares of stock issued upon the exercise and settlement of the SAR. The Compensation Committee may grant SARs separately or in tandem with any option. Tandem SARs may be granted either at the time the option is granted or at any time while the option remains outstanding; however, with respect to incentive stock options, tandem SARs may be granted only at the time of grant. When an option is exercised, any SARs relating to the stock covered by such option will terminate. When a tandem SAR is exercised, the related option will terminate to the extent of an equal number of shares of Inspire’s stock.

Value.

When a SAR is exercised, the holder will receive an amount of stock equal to the amount by which the fair market value of the underlying stock on the date of exercise exceeds the base amount of the SAR. Unless the Compensation Committee determines otherwise, the base amount of each SAR will be equal to the per share exercise price of the related option, or, if there is no related option, the fair market value of a share of Inspire’s stock as of the date of grant of the SAR.

Terms.

SARs are exercisable and are subject to vesting and other restrictions as specified in the applicable grant instrument. A form of Stock Appreciation Right Grant Agreement is attached to this report. The Compensation Committee may accelerate the exercisability of all or any outstanding SARs at any time for any reason.

Termination.

Unless the Compensation Committee determines otherwise or a SAR expires by its terms within a shorter period, SARs will terminate on the same terms as discussed above with respect to options.

Certain Corporate Transactions.

The form of Director’s Nonqualified Stock Option Grant Agreement provides that in the event of a consolidation or merger of Inspire, the sale of substantially all of the assets, or a

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reorganization or liquidation, the grantee shall be entitled to receive upon exercise of the option, the same securities or property as the grantee would have been entitled to receive upon the occurrence of such event if he or she had been, immediately prior to such event, the owner of the number of shares of Inspire’s stock. In lieu of the foregoing, however, the Board of Directors may provide that the option shall expire as of the earlier of the end of the exercise period or the date specified in such notice which may not be less than 20 days after the date of such notice.

Stock Awards

Stock awards are grants of Inspire’s stock that are subject to restrictions or no restrictions, as set forth in the grant instrument. A form of Stock Award Grant Agreement is attached to this report. The Compensation Committee will determine whether stock awards will be granted, the type of award (including without limitation, stock grants and restricted stock units), the number of shares that will be awarded, any restrictions applicable to the stock awards and when and how the restrictions will lapse. Until the restrictions lapse, stock awards cannot be sold, assigned, transferred, pledged or otherwise disposed of. Unless the Compensation Committee determines otherwise, if employment or service terminates while stock awards are subject to restrictions, any shares whose restrictions have not yet lapsed will be forfeited and returned to Inspire.

Qualified Performance-Based Compensation.

The Compensation Committee may determine that stock awards will be granted as qualified performance-based compensation for tax purposes. The Internal Revenue Code limits a company’s ability to deduct compensation for each of its five highest paid executives in excess of $1 million per year. The Internal Revenue Code provides an exception to this limit if the compensation is designated as qualified performance-based compensation. If the Compensation Committee grants stock awards that are intended to be qualified performance-based compensation, Inspire must meet specified performance goals, designated by the Compensation Committee, in order for the qualified performance-based compensation to be payable.

The Compensation Committee will establish the performance goals for qualified performance-based compensation, the performance period during which the goals must be met, the threshold, target and maximum amounts that may be paid if the performance goals are met, and any other conditions deemed appropriate and consistent with the 2005 Plan and legal requirements. The Compensation Committee will establish the performance goals for qualified performance-based compensation in writing at the beginning of the performance period, or during a period that is no later than the earlier of either 90 days after the beginning of the performance period, or the date on which 25% of the performance period has been completed, or such other date that is permitted under the Internal Revenue Code.

The performance goals will be based on objective criteria such as stock price, earnings per share, net earnings, operating earnings, return on assets, stockholder return, return on equity, growth in assets, unit volume, sales, market share, or strategic business criteria based on meeting specific revenue goals, market penetration goals, geographic business expansion goals, cost targets, or goals relating to acquisitions or divestitures.

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The performance goal results will be announced for each performance period immediately following the announcement of the financial results for the performance period. If the performance goals for a performance period are not met, the grants subject to the performance goals will be forfeited.

Change in Control

If a change in control (as defined in the 2005 Plan) occurs, unless Inspire determines otherwise, (i) all outstanding options and SARs shall automatically accelerate and become fully exercisable, and (ii) the restrictions and conditions on all outstanding stock awards shall immediately lapse. In addition, if a change in control (as defined in the 2005 Plan) occurs and Inspire is not the surviving corporation or it survives only as a subsidiary of another corporation, each participant shall have 30 days to elect one of the following methods of treating outstanding awards: (i) all outstanding grants that are not exercised and all outstanding awards will be assumed by the surviving corporation or replaced with comparable grants or awards; or (ii) outstanding grants and awards will be surrendered in exchange for payment of cash or stock in an amount by which the fair market value of the underlying stock exceeds the exercise price of the award or the fair market value of the stock.

The form of Director’s Nonqualified Stock Option Grant Agreement provides that the option shall vest and become immediately exercisable if there is a change in control and the grantee will cease to serve as a director of Inspire as a result of such change in control. Under the form of Director’s Nonqualified Stock Option Grant Agreement, a change of control means: (i) a dissolution or liquidation of Inspire; (ii) a sale of substantially all of the assets; (iii) a merger or consolidation in which Inspire is not the surviving corporation and in which beneficial ownership of at least 50% of the combined voting power entitled to vote in the election of directors has changed; (iv) a reverse merger in which Inspire is the surviving corporation but the shares of the common stock outstanding immediately before the merger are converted into other property and in which beneficial ownership of securities representing at least 50% of the combined voting power entitled to vote in the election of directors has changed; or (v) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (or successor provisions) resulting in a change of the beneficial ownership of securities of Inspire representing at least 50% of the combined voting power entitled to vote in the election of directors.

Transferability

Generally, grants will not be transferable except upon death. Grants may only be exercised during the lifetime of the recipient and may not be transferred except by will, through the laws of descent and distribution or, in the case of grants other than incentive stock options, pursuant to a domestic relations order, if permitted by the Compensation Committee. However, the Compensation Committee may permit the transfer of nonqualified stock options to family members or a trust or other entity established for the benefit of family members.

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The form of Director’s Nonqualified Stock Option Grant Agreement provides that (i) the grantee may make a lifetime transfer of the option to various close relatives and a trust or foundation in which such relatives have at least a 50% beneficial or voting interest, as applicable, (ii) no consideration may be given for any transfer of the option by the grantee, and (iii) a transfer may only be made to the extent that it does not violate any rules and conditions imposed by the Board of Directors.

Amendment

The 2005 Plan may be amended by the Board of Directors at any time. However, the stockholders must approve any amendment for which stockholder approval is required under applicable provisions of the Internal Revenue Code or under applicable exchange requirements.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

Alan F. Holmer

On June 13, 2005, Inspire issued a press release, attached hereto and made a part hereof, announcing the election of Alan F. Holmer to Inspire’s Board of Directors on June 10, 2005. He will serve as a member of Inspire’s Corporate Governance and Compensation Committees.

Christy L. Shaffer

At the Annual Meeting of the Board of Directors held on June 10, 2005, Christy L. Shaffer, Inspire’s Chief Executive Officer, was also elected to the office of President, commencing July 1, 2005, following the previously announced departure of Gregory J. Mossinghoff from such position on June 30th. She was elected to hold the offices of Chief Executive Officer and President until the 2006 annual meeting of directors and until her successor(s) are elected and qualified. Dr. Shaffer will not receive any additional compensation for service as President of Inspire.

Christy L. Shaffer, Ph.D., has served as Inspire’s Chief Executive Officer and as a director since January 1999 and previously served as President, as well as CEO, from January 1999 through June 2002. Dr. Shaffer joined Inspire in June 1995 as the first full-time employee, Director, Clinical Operations. She was promoted to Senior Director, Development in June 1996 and to Vice President, Development and Chief Operating Officer in January 1998. Dr. Shaffer has over 15 years of experience in drug development within the pharmaceutical industry. She previously served in a variety of positions in the clinical research division of Burroughs Wellcome Co. including International Project Leader for cardiopulmonary programs. She served as the Associate Director of pulmonary research in the department of pulmonary/critical care medicine at Burroughs Wellcome immediately prior to joining Inspire in June 1995. Dr. Shaffer coordinated several IND submissions and one NDA submission at Burroughs Wellcome. Dr. Shaffer received a Ph.D. in pharmacology from the University of Tennessee and completed two years of postdoctoral training in cardiovascular research in the Biochemistry Department at the Chicago Medical School before her one year postdoctoral appointment at University of North Carolina.

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As previously reported, on January 31, 2005, Inspire entered into amended and restated change in control agreements with various executive officers, including Dr. Shaffer. Dr. Shaffer’s agreement is effective as of March 29, 2004, the date of the prior change in control agreement. The agreement provides that upon Dr. Shaffer’s termination of employment following a change in control, unless such termination is for “cause,” because of death or disability or by Dr. Shaffer without “good reason,” within 24 months following such change in control, Dr. Shaffer will be entitled to a lump sum payment equal to a multiple of the sum of (i) the highest annual base salary received by Dr. Shaffer in any of the three most recently completed fiscal years prior to the change in control and (ii) the higher of the highest annual bonus received by Dr. Shaffer in any of the three most recently completed fiscal years preceding the date of Dr. Shaffer’s termination, the three most recent completed fiscal years preceding the change in control, or the maximum of the bonus opportunity range for Dr. Shaffer immediately prior to the date of termination. The multiple used to determine the amount of the lump sum payment is three for Dr. Shaffer.

Dr. Shaffer will also be entitled to a continuation of life, disability, accident and health insurance and other substantially similar benefits after termination of employment for three years. Following a change in control, Inspire shall provide Dr. Shaffer with outplacement services for a period of one year commencing on the date the outplacement services are first used, provided that such first use must occur during the three year benefits period outlined above for Dr. Shaffer.

In addition, following a change in control, during any period that Dr. Shaffer fails to perform her full-time duties as a result of incapacity due to physical or mental illness, Inspire will pay Dr. Shaffer’s full salary at the rate in effect at the commencement of any such period, together with all compensation and benefits under the terms of any compensation or benefit plan, program or arrangement maintained by Inspire during such period, until Dr. Shaffer’s employment is terminated for disability. If Dr. Shaffer’s employment is terminated for any reason following a change in control, Inspire will pay Dr. Shaffer’s full salary through the date of termination at the rate in effect immediately prior to the change in control or at the time the notice of termination is given, whichever is greater, together with all compensation and benefits to which Dr. Shaffer is entitled in respect of all periods preceding the date of termination under Inspire’s compensation and benefit plans, programs or arrangements. If Dr. Shaffer’s employment is terminated for any reason following a change in control, Inspire will pay Dr. Shaffer’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, Inspire’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the change in control or, if more favorable to Dr. Shaffer, as in effect immediately prior to the date of termination.

Upon a change in control, all unvested options held by Dr. Shaffer shall vest and become exercisable immediately prior to the change in control and will be exercisable for a period ending on the later of (i) the fifth anniversary of such change in control or (ii) the last date that such option would otherwise be exercisable under the terms of the option agreement or the plan pursuant to which such option was granted; provided, however, that in no event shall any option be exercisable after the expiration of the original term of the option. In addition to the vesting of options, upon a change in control, all unearned performance-based awards, if any, held by the

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officer, shall be deemed to have been earned to the maximum extent permitted for any performance period not then completed and all unvested stock awards shall immediately vest and the restrictions on all shares subject to restriction shall lapse. The agreements also provide that Dr. Shaffer is entitled to receive an additional gross-up payment in an amount such that after payment by the officer of all taxes, including income and excise taxes imposed on the gross-up payment, Dr. Shaffer retains an amount of the gross-up payment equal to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, together with any interest or penalties.

Under the agreement, “change in control” generally is defined as the determination by the Board of Directors, made by a majority vote, that a change in control has or is about to occur. Such a change shall not include, however, a restructuring, reorganization, merger or other change in capitalization in which the current owners maintain more than a 50% interest in the resultant entity. Regardless of the Board’s vote or whether or not the Board votes, a change in control will be deemed to have occurred if: (i) any person becomes the beneficial owner of more than 35% of the combined voting power of Inspire’s then outstanding securities; (ii) the stockholders approve: (A) a plan of complete liquidation; (B) an agreement for the sale or disposition of all or substantially all of Inspire’s assets; or (C) a merger, consolidation or reorganization of Inspire with or involving any other company meeting certain requirements. However, in no event shall a change in control be deemed to have occurred, with respect to Dr. Shaffer, if Dr. Shaffer is part of a purchasing group which consummates the change in control transaction.

As previously reported, on March 15, 2004, Dr. Shaffer was granted a 10-year option to purchase 35,000 shares of Inspire’s common stock. The option was granted pursuant to Inspire’s Amended and Restated 1995 Stock Plan, as amended. The shares underlying the options are exercisable at an exercise price of $12.80, which is equal to the fair market value on the date of the grant. The option is exercisable as to one-quarter (1/4) of the shares underlying the option at any time after March 15, 2005 and as to one-forty-eighth (1/48) of the shares each month for 36 months thereafter.

As previously reported, on September 28, 2004, Dr. Shaffer was granted a 10-year option to purchase 35,000 shares of Inspire’s common stock. The option was granted pursuant to Inspire’s Amended and Restated 1995 Stock Plan, as amended. The shares underlying the option are exercisable at an exercise price of $15.65, which is equal to the fair market value on the date of the grant. The option is exercisable as to one-quarter (1/4) of the shares underlying the option at any time after September 28, 2005 and as to one-forty-eighth (1/48) of the shares each month for 36 months thereafter.

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Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.

No.	Description
10.1	Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 21, 2005)
10.2	Form of Incentive Stock Option Grant Agreement
10.3	Form of Nonqualified Stock Option Grant Agreement
10.4	Form of Director’s Nonqualified Stock Option Grant Agreement
10.5	Form of Stock Appreciation Right Grant Agreement
10.6	Form of Stock Award Grant Agreement
99.1	Press Release, dated June 13, 2005

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Inspire Pharmaceuticals, Inc.
By:	/s/ Christy L. Shaffer
	Christy L. Shaffer,
	Chief Executive Officer

Dated: June 16, 2005

EXHIBIT INDEX

No.	Description
10.1	Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 21, 2005)
10.2	Form of Incentive Stock Option Grant Agreement
10.3	Form of Nonqualified Stock Option Grant Agreement
10.4	Form of Director’s Nonqualified Stock Option Grant Agreement
10.5	Form of Stock Appreciation Right Grant Agreement
10.6	Form of Stock Award Grant Agreement
99.1	Press Release, dated June 13, 2005

EX-10.2

EXHIBIT 10.2

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

INCENTIVE STOCK OPTION

Inspire Pharmaceuticals, Inc. (the “Company”) has granted you an Incentive Stock Option (the “Option”) under the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive Stock Option Grant Agreement provided to you (the “Agreement”). The following provides a summary of the key terms of the grant; however, you should read the entire Agreement, along with the terms of the Plan, to fully understand the grant.

SUMMARY OF INCENTIVE STOCK OPTION GRANT

Grantee:	________________________________________________
Date of Grant:	________________________________________________
Vesting Schedule:	________________________________________________
Exercise Price Per Share:	________________________________________________
Total Number of Options Granted:	________________________________________________
Term/Expiration Date:	________________________________________________

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

INCENTIVE STOCK OPTION GRANT AGREEMENT

This INCENTIVE STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of                      (the “Date of Grant”), is delivered by Inspire Pharmaceuticals, Inc. (the “Company”) to                      (the “Grantee”).

RECITALS

A. The Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”) provides for the grant of options to purchase shares of common stock of the Company. The Company has decided to make a stock option grant as an inducement for the Grantee to promote the best interests of the Company and its stockholders. A copy of the Plan is attached.

B. The Plan is administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”).

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

1. Grant of Option. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to the Grantee an Incentive Stock Option (the “Option”) to purchase              shares of common stock of the Company (“Shares”) at an exercise price of $             per Share. The Option shall become exercisable according to Paragraph 2 below.

2. Exercisability of Option. The Option shall become exercisable in the manner provided below, if the Grantee is employed by, or providing service to, the Employer (as defined in the Plan) on the applicable dates. For this purpose, the term “Shares” refers to the number of shares underling that portion of the Option that vests in the manner described under Vest Type and Full Vest Date. The term “Vest Type” describes how the Option covering those shares will vest before the Full Vest Date. For example, if Vest Type is “monthly”, that Option will vest with respect to those shares on a pro rata basis on each monthly anniversary of the Date of Grant. The term “Full Vest Date” is the date on which that portion of the Option covering all of the corresponding shares set forth in the “Shares” column will be fully vested.

Shares Vest Type Full Vest Date

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The exercisability of the Option is cumulative, but shall not exceed one hundred percent (100%) of the Shares subject to the Option. If the foregoing schedule would produce fractional Shares, the number of Shares for which the Option becomes exercisable shall be rounded down to the nearest whole Share.

3. Term of Option.

(a) The Option shall have a term of [                    ] years from the Date of Grant and shall terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.

(b) Unless a later termination date is provided for in a Company-sponsored plan, policy or arrangement, or any agreement to which the Company is a party (as provided in Section 5(f)(v) of the Plan), the Option shall automatically terminate upon the happening of the first of the following events:

(i) The expiration of the ninety (90) day period after the Grantee ceases to be employed by, or provide service to, the Employer, if the termination is for any reason other than Disability (as defined in the Plan), death or Misconduct (as defined in the Plan).

(ii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer on account of the Grantee’s Disability.

(iii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer, if the Grantee dies (x) while employed by, or providing service to, the Employer or (y) within ninety (90) days after the Grantee ceases to be so employed or provide such services on account of a termination described in subparagraph (i) above.

(iv) The expiration of the thirty (30) day period after the date on which the Grantee ceases to be employed by, or provide service to, the Employer on account of a termination by the Employer for Misconduct. In addition, notwithstanding the prior provisions of this Paragraph 3, if the Company determines that the Grantee has engaged in conduct that constitutes Misconduct at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantee’s termination of employment or service, the Option shall terminate as of the thirtieth (30^th) day after the date on which such Misconduct first occurred.

Notwithstanding the foregoing, in no event may the Option be exercised after the date that is immediately before the [                    ] anniversary of the Date of Grant. Any portion of the Option that is not exercisable at the time the Grantee ceases to be employed by, or provide service to, the Employer shall immediately terminate.

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4. Exercise Procedures.

(a) Subject to the provisions of Paragraphs 2 and 3 above, the Grantee may exercise part or all of the exercisable Option by giving the Company written notice of intent to exercise in the manner provided in this Agreement, specifying the number of Shares as to which the Option is to be exercised. At such time as the Board shall determine, the Grantee shall pay the exercise price (i) in cash, (ii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iii) by such other method as the Company may approve. The Company may impose from time to time such limitations as it deems appropriate on the use of Shares of the Company to exercise the Option.

(b) The obligation of the Company to deliver Shares upon exercise of the Option shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Company, including such actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations. The Company may require that the Grantee (or other person exercising the Option after the Grantee’s death) represent that the Grantee is purchasing Shares for the Grantee’s own account and not with a view to or for sale in connection with any distribution of the Shares, or such other representation as the Company deems appropriate.

(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, the Grantee may elect to satisfy any tax withholding obligation of the Employer with respect to the Option by having Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.

5. Designation as Incentive Stock Option.

(a) This Option is designated an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). If the aggregate fair market value of the stock on the date of the grant with respect to which incentive stock options are exercisable for the first time by the Grantee during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, exceeds one hundred thousand dollars ($100,000), then the Option, as to the excess, shall be treated as a nonqualified stock option that does not meet the requirements of Section 422. If and to the extent that the Option fails to qualify as an incentive stock option under the Code, the Option shall remain outstanding according to its terms as a nonqualified stock option.

(b) The Grantee understands that favorable incentive stock option tax treatment is available only if the Option is exercised while the Grantee is an employee of the Company or a parent or subsidiary of the Company or within a period of time specified in the Code after the Grantee ceases to be an employee. The Grantee understands that the Grantee is responsible for the income tax consequences of the Option, and, among other tax consequences, the Grantee understands that he or she may be subject to the alternative minimum tax under the Code in the year in which the Option is exercised. The Grantee will consult with his or her tax adviser regarding the tax consequences of the Option.

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(c) The Grantee agrees that the Grantee shall immediately notify the Company in writing if the Grantee sells or otherwise disposes of any Shares acquired upon the exercise of the Option and such sale or other disposition occurs on or before the later of (i) two (2) years after the Date of Grant or (ii) one (1) year after the exercise of the Option. The Grantee also agrees to provide the Company with any information requested by the Company with respect to such sale or other disposition.

6. Change in Control. The provisions of the Plan applicable to a Change in Control (as defined in the Plan) shall apply to the Option.

7. Restrictions on Exercise. Except as the Company may otherwise permit pursuant to the Plan, only the Grantee may exercise the Option during the Grantee’s lifetime and, after the Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of the Grantee, or by the person who acquires the right to exercise the Option by will or by the laws of descent and distribution, to the extent that the Option is exercisable pursuant to this Agreement.

8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Option are subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other requirements of applicable law. The Committee shall have the authority to interpret and construe the Option pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

9. No Employment or Other Rights. The grant of the Option shall not confer upon the Grantee any right to be retained by or in the employ or service of the Employer and shall not interfere in any way with the right of the Employer to terminate the Grantee’s employment or service at any time. The right of the Employer to terminate at will the Grantee’s employment or service at any time for any reason is specifically reserved.

10. No Shareholder Rights. Neither the Grantee, nor any person entitled to exercise the Grantee’s rights in the event of the Grantee’s death, shall have any of the rights and privileges of a shareholder with respect to the Shares subject to the Option, until certificates for Shares have been issued upon the exercise of the Option.

11. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of the Grantee under this Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of the Grantee, by will or by the laws of descent and distribution. In the event of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any right hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the Option by notice to the Grantee, and the Option and all rights hereunder shall thereupon become

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null and void. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the Company without the Grantee’s consent.

12. Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

13. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Compensation Committee at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina, 27703-8466, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Employer, or to such other address as the Grantee may designate to the Employer in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above, deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Agreement, and the Grantee has executed this Agreement, effective as of the Date of Grant.

INSPIRE PHARMACEUTICALS, INC.

By:

Name:

Title:

I hereby accept the Option described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Committee shall be final and binding.

Grantee: 

Date:

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EX-10.3

EXHIBIT 10.3

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

NONQUALIFIED STOCK OPTION

Inspire Pharmaceuticals, Inc. (the “Company”) has granted to you a Nonqualified Stock Option (the “Option”) under the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Nonqualified Stock Option Grant Agreement provided to you (the “Agreement”). The following provides a summary of the key terms of the grant; however, you should read the entire Agreement, along with the terms of the Plan, to fully understand the grant.

SUMMARY OF NONQUALIFIED OPTION GRANT

Grantee:	________________________________________________
Date of Grant:	________________________________________________
Vesting Schedule:	________________________________________________
Exercise Price Per Share:	________________________________________________
Total Number of Options Granted:	________________________________________________
Term/Expiration Date:	________________________________________________

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

NONQUALIFIED STOCK OPTION GRANT AGREEMENT

This NONQUALIFIED STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of                          (the “Date of Grant”), is delivered by Inspire Pharmaceuticals, Inc. (the “Company”) to                          (the “Grantee”).

RECITALS

A. The Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”) provides for the grant of options to purchase shares of common stock of the Company. The Company has decided to make a stock option grant as an inducement for the Grantee to promote the best interests of the Company and its stockholders. A copy of the Plan is attached.

B. The Plan is administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”).

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

1. Grant of Option. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to the Grantee a Nonqualified Stock Option (the “Option”) to purchase              shares of common stock of the Company (“Shares”) at an exercise price of $             per Share. The Option shall become exercisable according to Paragraph 2 below.

2. Exercisability of Option. The Option shall become exercisable in the manner provided below, if the Grantee is employed by, or providing service to, the Employer (as defined in the Plan) on the applicable date. For this purpose, the term “Shares” refers to the number of shares underling that portion of the Option that vests in the manner described under Vest Type and Full Vest Date. The term “Vest Type” describes how the Option covering those shares will vest before the Full Vest Date. For example, if Vest Type is “monthly”, that Option will vest with respect to those shares on a pro rata basis on each monthly anniversary of the Date of Grant. The term “Full Vest Date” is the date on which that portion of the Option covering all of the corresponding shares set forth in the “Shares” column will be fully vested.

Shares Vest Type Full Vest Date

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The exercisability of the Option is cumulative, but shall not exceed one hundred percent (100%) of the Shares subject to the Option. If the foregoing schedule would produce fractional Shares, the number of Shares for which the Option becomes exercisable shall be rounded down to the nearest whole Share.

3. Term of Option.

(a) The Option shall have a term of [                    ] years from the Date of Grant and shall terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.

(b) Unless a later termination date is provided for in a Company-sponsored plan, policy or arrangement, or any agreement to which the Company is a party (as provided in Section 5(f)(v) of the Plan), the Option shall automatically terminate upon the happening of the first of the following events:

(i) The expiration of the ninety (90) day period after the Grantee ceases to be employed by, or provide service to, the Employer, if the termination is for any reason other than Disability (as defined in the Plan), death or Misconduct (as defined in the Plan).

(ii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer on account of the Grantee’s Disability.

(iii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer, if the Grantee dies (x) while employed by, or providing service to, the Employer or (y) within ninety (90) days after the Grantee ceases to be so employed or provide such services on account of a termination described in subparagraph (i) above.

(iv) The expiration of the thirty (30) day period after the date on which the Grantee ceases to be employed by, or provide service to, the Employer on account of a termination by the Employer for Misconduct. In addition, notwithstanding the prior provisions of this Paragraph 3, if the Company determines that the Grantee has engaged in conduct that constitutes Misconduct at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantee’s termination of employment or service, the Option shall terminate as of the thirtieth (30^th) day after the date on which such Misconduct first occurred.

Notwithstanding the foregoing, in no event may the Option be exercised after the date that is immediately before the [                    ] anniversary of the Date of Grant. Any portion of the Option that is not exercisable at the time the Grantee ceases to be employed by, or provide service to, the Employer shall immediately terminate.

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4. Exercise Procedures.

(a) Subject to the provisions of Paragraphs 2 and 3 above, the Grantee may exercise part or all of the exercisable Option by giving the Company written notice of intent to exercise in the manner provided in this Agreement, specifying the number of Shares as to which the Option is to be exercised. At such time as the Board shall determine, the Grantee shall pay the exercise price (i) in cash, (ii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board or (iii) by such other method as the Company may approve. The Company may impose from time to time such limitations as it deems appropriate on the use of Shares of the Company to exercise the Option.

(b) The obligation of the Company to deliver Shares upon exercise of the Option shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Company, including such actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations. The Company may require that the Grantee (or other person exercising the Option after the Grantee’s death) represent that the Grantee is purchasing Shares for the Grantee’s own account and not with a view to or for sale in connection with any distribution of the Shares, or such other representation as the Company deems appropriate.

(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, the Grantee may elect to satisfy any tax withholding obligation of the Employer with respect to the Option by having Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.

5. Change in Control. The provisions of the Plan applicable to a Change in Control (as defined in the Plan) shall apply to the Option.

6. Restrictions on Exercise. Except as the Company may otherwise permit pursuant to the Plan, only the Grantee may exercise the Option during the Grantee’s lifetime and, after the Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of the Grantee, or by the person who acquires the right to exercise the Option by will or by the laws of descent and distribution, to the extent that the Option is exercisable pursuant to this Agreement.

7. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Option are subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other requirements of applicable law. The Committee shall have the authority to interpret and construe the Option pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

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8. No Employment or Other Rights. The grant of the Option shall not confer upon the Grantee any right to be retained by or in the employ or service of the Employer and shall not interfere in any way with the right of the Employer to terminate the Grantee’s employment or service at any time. The right of the Employer to terminate at will the Grantee’s employment or service at any time for any reason is specifically reserved.

9. No Shareholder Rights. Neither the Grantee, nor any person entitled to exercise the Grantee’s rights in the event of the Grantee’s death, shall have any of the rights and privileges of a shareholder with respect to the Shares subject to the Option, until certificates for Shares have been issued upon the exercise of the Option.

10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of the Grantee under this Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of the Grantee, by will or by the laws of descent and distribution. In the event of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any right hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the Option by notice to the Grantee, and the Option and all rights hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the Company without the Grantee’s consent.

11. Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

12. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Compensation Committee at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina, 27703-8466, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Employer, or to such other address as the Grantee may designate to the Employer in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above, deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Agreement, and the Grantee has executed this Agreement, effective as of the Date of Grant.

INSPIRE PHARMACEUTICALS, INC.

By:

Name:

Title:

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I hereby accept the Option described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Committee shall be final and binding.

Grantee: 

Date:

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EX-10.4

EXHIBIT 10.4

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

DIRECTOR’S NONQUALIFIED STOCK OPTION

Inspire Pharmaceuticals, Inc. (the “Company”) has granted to you a Nonqualified Stock Option (the “Option”) under the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”). The terms of the Option are set forth in the Director’s Nonqualified Stock Option Grant Agreement provided to you (the “Agreement”). The following provides a summary of the key terms of the Option; however, you should read the entire Agreement, along with the terms of the Plan, to fully understand the Option.

SUMMARY OF DIRECTOR’S NONQUALIFIED STOCK OPTION

Grantee:	________________________________________________
Date of Grant:	________________________________________________
Vesting Schedule:	________________________________________________
Exercise Price Per Share:	________________________________________________
Total Number of Options Granted:	________________________________________________
Term/Expiration Date:	________________________________________________

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

DIRECTOR’S NONQUALIFIED STOCK OPTION GRANT AGREEMENT

This DIRECTOR’S NONQUALIFIED STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of                          (the “Date of Grant”), is delivered by Inspire Pharmaceuticals, Inc. (the “Company”) to                          (the “Grantee”).

RECITALS

A. The Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”) provides for the grant of options to purchase shares of common stock of the Company to non-employee members of the Board of Directors of the Company (the “Board”). The Company has decided to make a stock option grant as an inducement for the Grantee to promote the best interests of the Company and its stockholders. A copy of the Plan is attached.

B. The Board administers stock option grants to Board members under the Plan.

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

1. Grant of Option. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to the Grantee a Nonqualified Stock Option (an “Option”) to purchase              shares of common stock of the Company (“Shares”) at an exercise price of $           per Share. The Option shall become exercisable according to Paragraph 2 below. This Option has been granted to the Grantee because the Grantee [ALTERNATIVE 1: was elected as a member of the Board as of the Date of Grant] [ALTERNATIVE 2: continued to serve as a previously elected member of the Board as of the Date of Grant] [ALTERNATIVE 3: was a member of the Audit Committee on the Date of Grant] [ALTERNATIVE 4: was a member of the Compensation Committee on the Date of Grant] [ALTERNATIVE 5: was a member of the Corporate Governance Committee on the Date of Grant] [ALTERNATIVE 6 was the Chairman of the Board on the Date of Grant] [ALTERNATIVE 7: was the Vice-Chairman of the Board on the Date of Grant]( referred to below as the “Board Position”).

2. Exercisability of Option. The Option shall become exercisable in the manner provided below, if the Grantee is serving in the Board Position on the applicable date. For this purpose, the term “Shares” refers to the number of shares underlying that portion of the Option that vests in the manner described under Vest Type and Full Vest Date. The term “Vest Type” describes how the Option covering those shares will vest before the Full Vest Date. For example, if Vest Type is “monthly”, that Option will vest with respect to those shares on a pro rata basis on each monthly anniversary of the Date of Grant. The term “Full Vest Date” is the date on which that portion of the Option covering all of the corresponding shares set forth in the “Shares” column will be fully vested.

Shares Vest Type Full Vest Date

- 1 -

The exercisability of the Option is cumulative, but shall not exceed one hundred percent (100%) of the Shares subject to the Option. If the foregoing schedule would produce fractional Shares, the number of Shares for which the Option becomes exercisable shall be rounded down to the nearest whole Share. Notwithstanding the foregoing, the Option shall cease to vest if and when the Grantee ceases to serve in the Board Position (unless the Board otherwise determines that circumstances warrant continuation of vesting).

3. Term of Option.

(a) The Option shall have a term of seven (7) years from the Date of Grant (the “Exercise Period”) and shall terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.

(b) If the Grantee ceases to serve in the Board Position after any portion of the Option becomes exercisable but before the end of the Exercise Period, the Exercise Period shall be shortened as follows:

(i) The Exercise Period shall end immediately upon the date of the Grantee’s breach of any agreement, covenant or representation by and between the Grantee and the Company, including, but not limited to, any promise or warrant made as consideration for this Agreement or the terms of any severance agreement;

(ii) The Exercise Period shall end immediately upon the date of the Grantee’s illegal or improper conduct that injures or impairs the reputation, goodwill, or business of the Company, involves the misappropriation of funds of the Company, or the misuse of data, information or documents acquired in connection with the Grantee’s service as a director, consultant, employee or any other capacity to the Company, or violates any other directive or policy promulgated by the Company; and

(iii) The Exercise Period shall end immediately upon the effective date of the (x) termination of the Grantee’s consulting or director relationship with the Company in violation of an agreement to remain in service with the Company; (y) involuntary termination of the Grantee’s consulting or director relationship with the Company for reasons which may include, without limitation, any illegal or improper conduct that injures or impairs the reputation, goodwill, or business of the Company, involves the misappropriation of funds of the Company, or the misuse of data, information or

- 2 -

documents acquired in connection with service for the Company, or violates any other directive or policy promulgated by the Company; or (z) voluntary termination of his or her consulting or director relationship with the Company in anticipation of involuntary termination.

(c) Notwithstanding the foregoing, in no event may the Option be exercised after the date that is immediately before the seventh (7^th) anniversary of the Date of Grant. Any portion of the Option that is not exercisable at the time the Grantee ceases to serve as a member of the Board shall immediately terminate.

4. Exercise Procedures.

(a) Subject to the provisions of Paragraphs 2 and 3 above, the Grantee may exercise part or all of the exercisable Option by giving the Company written notice of intent to exercise in the manner provided in this Agreement, specifying the number of Shares as to which the Option is to be exercised. At such time as the Board shall determine, the Grantee shall pay the exercise price (i) in cash, (ii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iii) by such other method as the Company may approve. The Company may impose from time to time such limitations as it deems appropriate on the use of Shares of the Company to exercise the Option.

(b) The obligation of the Company to deliver Shares upon exercise of the Option shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Company, including such actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations. The Company may require that the Grantee (or other person exercising the Option after the Grantee’s death) represent that the Grantee is purchasing Shares for the Grantee’s own account and not with a view to or for sale in connection with any distribution of the Shares, or such other representation as the Company deems appropriate.

(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to withhold amounts required to be withheld for any taxes, if applicable. Subject to Board approval, the Grantee may elect to satisfy any tax withholding obligation of the Company with respect to the Option by having Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.

(d) It shall be a condition of exercise hereunder that:

(i) The Company may, in its discretion, require that in the opinion of counsel for the Company the proposed purchase of Shares shall be exempt from registration under the Securities Act of 1933, as amended;

(ii) The Grantee shall have made such undertakings and agreements with the Company as the Company may reasonably require, and that such other steps, if any, as counsel for the Company shall deem necessary to comply with any law, rule or regulation applicable to the issue of such shares by the Company shall have been taken by the Company or the Grantee, or both;

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(iii) The certificates representing the Shares purchased under the Option may contain such legends as counsel for the Company shall deem necessary to comply with the applicable law, rule or regulation;

(iv) The Grantee shall execute and deliver to the Company a counterpart of any applicable stockholders agreement, investor rights agreement or similar agreement among the Company and some or all of its stockholders, and any amendment thereto or restatement or replacement thereof, pursuant to which the Grantee shall be subject to all provisions therein applicable to holders of Shares; and

(v) The Grantee shall, if the Company so requests, provide payment of all state and federal taxes imposed upon the exercise of the Option and the issue of the shares covered hereby.

5. Change in Control. Notwithstanding anything herein (or in the Plan) to the contrary, the Option shall vest and become immediately exercisable if: (a) there is a Change in Control (as defined below); and (b) the Grantee will cease to serve as a director of the Company as a result of such Change in Control. For purposes of this Paragraph 5, a “Change in Control” shall mean: (i) a dissolution or liquidation of the Company; (ii) a sale of all or substantially all of the assets of the Company; (iii) a merger or consolidation in which the Company is not the surviving corporation and in which beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors has changed; (iv) a reverse merger in which the Company is the surviving corporation but the shares of the common stock of the Company outstanding immediately before the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, and in which beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors has changed; or (v) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or subsidiary of the Company or other entity controlled by the Company) resulting in a change of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors.

6. Restrictions on Exercise. Except as the Board may otherwise permit pursuant to the Plan or as provided in Paragraph 10 below, only the Grantee may exercise the Option during the Grantee’s lifetime and, after the Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of the Grantee, or by the person who acquires the right to exercise the Option by will or by the laws of descent and distribution, to the extent that the Option is exercisable pursuant to this Agreement.

7. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Option are subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Board in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights

- 4 -

and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company, and (iv) other requirements of applicable law. The Board shall have the authority to interpret and construe the Option pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

8. No Rights to Continued Directorship. The grant of the Option shall not confer upon the Grantee any right to continue to serve as a member of the Board, in any office of the Board, or any committee of the Board.

9. No Shareholder Rights. Neither the Grantee, nor any person entitled to exercise the Grantee’s rights in the event of the Grantee’s death, shall have any of the rights and privileges of a shareholder with respect to the Shares subject to the Option, until certificates for Shares have been issued upon the exercise of the Option.

10. Assignment and Transfers.

(a) Except as the Board may otherwise permit pursuant to the Plan or as provided in Paragraph 10(b) below, the rights and interests of the Grantee under this Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of the Grantee, by will or by the laws of descent and distribution. The Board shall have the right to require evidence to its satisfaction of the rights of any person or persons seeking to exercise the Option hereunder, e.g., an authenticated copy of the Grantee’s will. In the event of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any right hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the Option by notice to the Grantee, and the Option and all rights hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the Company without the Grantee’s consent.

(b) The Grantee may make a lifetime transfer of the Option only to the Grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent (50%) of the voting interest.

(c) No consideration may be given for any transfer of the Option by the Grantee.

(d) In no event shall the Option be exercisable by any person to a greater extent than the Option could have been exercised by the Grantee immediately prior to his death or the effective date of his resignation from the Board due to Disability, as defined in Section 22(e)(3) of the Internal Revenue Code (as applicable).

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(e) Transfers may be made only to the extent that they do not violate any rules and conditions imposed by the Board.

(f) Any transferee described above shall be treated as the Grantee for purposes of all other provisions of this Agreement and the terms of the Plan.

11. Certain Capital Changes. In the event that the Board, in its discretion, determines that any stock dividend, split-up, combination or reclassification of shares, recapitalization or other similar capital change affects the Shares such that adjustment is required in order to preserve the benefits or potential benefits of the Option, the maximum aggregate number and kind of shares or securities of the Company subject to the Option, and the Exercise Price of the Option, shall be appropriately adjusted by the Board (whose determination shall be conclusive) so that the proportionate number of Shares or other securities subject to the Option and the proportionate interest of the Grantee shall be maintained as before the occurrence of such event.

12. Certain Corporate Transactions. Notwithstanding anything in the Plan to the contrary, in the event of a consolidation or merger of the Company with another corporation, or the sale or exchange of all or substantially all of the assets of the Company, or a reorganization or liquidation of the Company, the Grantee shall be entitled to receive upon exercise and payment in accordance with the terms of the Option, the same shares, securities or property as he or she would have been entitled to receive upon the occurrence of such event if he or she had been, immediately prior to such event, the owner of the number of Shares. In lieu of the foregoing, however, the Board may upon written notice to the Grantee provide that, unless theretofore exercised, the Option shall expire as of the earlier of the end of the Exercise Period or the date specified in such notice which may not be less than twenty (20) days after the date of such notice.

13. Amendment. This Agreement may be amended only by a written agreement executed by the Company and the Grantee.

14. Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

15. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Compensation Committee at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina, 27703-8466, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Company, or to such other address as the Grantee may designate to the Company in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above, deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

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IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Agreement, and the Grantee has executed this Agreement, effective as of the Date of Grant.

INSPIRE PHARMACEUTICALS, INC.

By:

Name: 

Title:

I hereby accept the Option described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Board shall be final and binding.

Grantee: 

Date:

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EX-10.5

EXHIBIT 10.5

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

STOCK APPRECIATION RIGHT

Inspire Pharmaceuticals, Inc. (the “Company”) has granted to you a Stock Appreciation Right (the “SAR”) under the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Stock Appreciation Right Grant Agreement provided to you (the “Agreement”). The following provides a summary of the key terms of the grant; however, you should read the entire Agreement, along with the terms of the Plan, to fully understand the grant.

SUMMARY OF STOCK APPRECIATION RIGHT GRANT

Grantee:	________________________________________________
Date of Grant:	________________________________________________
Vesting Schedule:	________________________________________________
Exercise Price Per Share:	________________________________________________
Total Number of Shares Underlying SAR:	________________________________________________
Term/Expiration Date:	________________________________________________

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

STOCK APPRECIATION RIGHT GRANT AGREEMENT

This STOCK APPRECIATION RIGHT GRANT AGREEMENT (the “Agreement”), dated as of                          (the “Date of Grant”), is delivered by Inspire Pharmaceuticals, Inc. (the “Company”) to                          (the “Grantee”).

RECITALS

A. The Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”) provides for the grant of stock appreciation rights based upon the shares of common stock of the Company. The Company has decided to make a stock appreciation right grant as an inducement for the Grantee to promote the best interests of the Company and its shareholders. A copy of the Plan is attached.

B. The Plan is administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”).

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

1. Grant of SAR. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to the Grantee a Stock Appreciation Right (the “SAR”) that relates to the stock appreciation, if any, for [                    ] shares of common stock of the Company (the “Shares”). The stock appreciation for the SAR is the amount by which the Fair Market Value (as defined in the Plan) of the underlying Shares on the date of exercise of this SAR exceeds the base amount of the SAR. The base amount of the SAR under this Agreement equals [$            ] per Share. The SAR shall become exercisable according to Paragraph 2 below. Any appreciation upon the exercise of the SAR shall be payable to the Grantee in Shares.

2. Exercisability of SAR. The SAR shall become exercisable on the following dates, if the Grantee is employed by, or providing service to, the Employer (as defined in the Plan) on the applicable date. For this purpose, the term “Shares” refers to the number of shares underlying that portion of the SAR that vests in the manner described under Vest Type and Full Vest Date. The term “Vest Type” describes how those shares will vest before the Full Vest Date. For example, if Vest Type is “monthly”, those shares will vest on a pro rata basis on each monthly anniversary of the Date of Grant. The term “Full Vest Date” is the date on which all of the shares underlying the SAR set forth in the corresponding “Shares” column will be fully vested.

Shares Vest Type Full Vest Date

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The exercisability of the SAR is cumulative, but shall not exceed one hundred percent (100%) of the Shares subject to the SAR. If the foregoing schedule would produce fractional Shares, the number of Shares for which the SAR becomes exercisable shall be rounded down to the nearest whole Share.

3. Term of SAR.

(a) The SAR shall have a term of [            ] years from the Date of Grant and shall terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.

(b) Unless a later termination date is provided for in a Company-sponsored plan, policy or arrangement, or any agreement to which the Company is a party (as provided in Section 5(f)(v) of the Plan), the SAR shall automatically terminate upon the happening of the first of the following events:

(i) The expiration of the ninety (90) day period after the Grantee ceases to be employed by, or provide service to, the Employer, if the termination is for any reason other than Disability (as defined in the Plan), death or Misconduct (as defined in the Plan).

(ii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer on account of the Grantee’s Disability.

(iii) The expiration of the one (1) year period after the Grantee ceases to be employed by, or provide service to, the Employer, if the Grantee dies (x) while employed by, or providing service to, the Employer or (y) within ninety (90) days after the Grantee ceases to be so employed or provide such services on account of a termination described in subparagraph (i) above.

(iv) The expiration of the thirty (30) day period after the date on which the Grantee ceases to be employed by, or provide service to, the Employer on account of a termination by the Employer for Misconduct. In addition, notwithstanding the prior provisions of this Paragraph 3, if the Company determines that the Grantee has engaged in conduct that constitutes Misconduct at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantee’s termination of employment or service, the SAR shall terminate as of the thirtieth (30^th) day after the date on which such Misconduct first occurred.

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Notwithstanding the foregoing, in no event may the SAR be exercised after the date that is immediately before the [                    ] anniversary of the Date of Grant. Any portion of the SAR that is not exercisable at the time the Grantee ceases to be employed by, or provide service to, the Employer shall immediately terminate.

4. Exercise Procedures.

(a) Subject to the provisions of Paragraphs 2 and 3 above, the Grantee may exercise part or all of the exercisable SAR by giving the Company written notice of intent to exercise in the manner provided in this Agreement, specifying the number of Shares as to which the SAR is to be exercised.

(b) The Company’s delivery of Shares upon exercise of the SAR shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Company, including such actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations. The Company may require that the Grantee (or other person exercising the SAR after the Grantee’s death) represent that the Grantee is receiving the Shares for the Grantee’s own account and not with a view to or for sale in connection with any distribution of the Shares, or such other representation as the Company deems appropriate.

(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company to withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, the Grantee may elect to satisfy any tax withholding obligation of the Employer with respect to the SAR by having Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.

5. Change in Control. The provisions of the Plan applicable to a Change in Control (as defined in the Plan) shall apply to the SAR.

6. Restrictions on Exercise. Except as the Company may otherwise permit pursuant to the Plan, only the Grantee may exercise the SAR during the Grantee’s lifetime and, after the Grantee’s death, the SAR shall be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of the Grantee, or by the person who acquires the right to exercise the SAR by will or by the laws of descent and distribution, to the extent that the SAR is exercisable pursuant to this Agreement.

7. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the SAR are subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other requirements of applicable law. The Committee shall have the authority to interpret and construe the SAR pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

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8. No Employment or Other Rights. The grant of the SAR shall not confer upon the Grantee any right to be retained by or in the employ or service of the Employer and shall not interfere in any way with the right of the Employer to terminate the Grantee’s employment or service at any time. The right of the Employer to terminate at will the Grantee’s employment or service at any time for any reason is specifically reserved.

9. No Shareholder Rights. Neither the Grantee, nor any person entitled to exercise the Grantee’s rights in the event of the Grantee’s death, shall have any of the rights and privileges of a shareholder with respect to the Shares subject to the SAR.

10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of the Grantee under this Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of the Grantee, by will or by the laws of descent and distribution. In the event of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the SAR or any right hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the SAR by notice to the Grantee, and the SAR and all rights hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the Company without the Grantee’s consent.

11. Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

12. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Compensation Committee at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina, 27703-8466, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Employer, or to such other address as the Grantee may designate to the Employer in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

- 4 -

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Agreement, and the Grantee has executed this Agreement, effective as of the Date of Grant.

INSPIRE PHARMACEUTICALS, INC.

By:

Name: 

Title:

I hereby accept the SAR described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Committee shall be final and binding.

Grantee: 

Date:

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EX-10.6

EXHIBIT 10.6

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

STOCK AWARD

Inspire Pharmaceuticals, Inc. (the “Company”) has granted to you a Stock Award (the “Award”) under the Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Stock Award Grant Agreement provided to you (the “Agreement”). The following provides a summary of the key terms of the grant; however, you should read the entire Agreement, along with the terms of the Plan, to fully understand the grant.

SUMMARY OF STOCK AWARD GRANT

Grantee:	________________________________________________
Date of Grant:	________________________________________________
Vesting Schedule:	________________________________________________
Purchase Price Per Share:	________________________________________________
Total Number of Shares Granted:	________________________________________________

INSPIRE PHARMACEUTICALS, INC.

2005 EQUITY COMPENSATION PLAN

STOCK AWARD GRANT AGREEMENT

This STOCK AWARD GRANT AGREEMENT (the “Agreement”), dated as of                      (the “Date of Grant”), is delivered by Inspire Pharmaceuticals, Inc. (the “Company”), to                          (the “Grantee”).

RECITALS

A. The Inspire Pharmaceuticals, Inc. 2005 Equity Compensation Plan (the “Plan”) provides for the grant of restricted stock in accordance with the terms and conditions of the Plan. The Company has decided to make a restricted stock grant as an inducement for the Grantee to promote the best interests of the Company and its stockholders. A copy of the Plan is attached.

B. The Plan is administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”).

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

1. Restricted Stock Grant. Subject to the terms and conditions set forth in this Agreement and the Plan, the Company hereby grants to the Grantee [            ] shares of common stock of the Company, subject to the restrictions set forth below and in the Plan (“Restricted Stock”). Shares of Restricted Stock may not be transferred by the Grantee or subjected to any security interest until the shares have become vested pursuant to this Agreement and the Plan.

2. Vesting and Nonassignability of Restricted Stock.

The shares of Restricted Stock shall become vested, and the restrictions described in Sections 2(b) and 2(c) shall lapse, in the manner provided below, if the Grantee continues to be employed by, or provide service to, the Employer (as defined in the Plan) from the Date of Grant until the applicable vesting date. For this purpose, the term “Shares” refers to the number of shares underlying that portion of the Award that vests in the manner described under Vest Type and Full Vest Date. The term “Vest Type” describes how those shares will vest before the Full Vest Date. For example, if Vest Type is “monthly”, those shares will vest on a pro rata basis on each monthly anniversary of the Date of Grant. The term “Full Vest Date” is the date on which the shares will be fully vested.

Shares Vest Type Full Vest Date

- 1 -

(a) Unless a later termination date is provided for in a Company-sponsored plan, policy or arrangement, or any agreement to which the Company is a party (as provided in Section 5(f)(v) of the Plan), if the Grantee’s employment or service with the Employer terminates for any reason before the Restricted Stock is fully vested, the shares of Restricted Stock that are not then vested shall be forfeited and must be immediately returned to the Company.

(b) During the period before the shares of Restricted Stock vest (the “Restriction Period”), the non-vested Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of by the Grantee. Any attempt to assign, transfer, pledge or otherwise dispose of the shares contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the shares, shall be null, void and without effect.

(c) The vesting of the Grant is cumulative, but shall not exceed one hundred percent (100%) of the Shares subject to the Grant. If the foregoing schedule would produce fractional Shares, the number of Shares for which the Grant vests shall be rounded down to the nearest whole Share.

3. Issuance of Certificates.

(a) Stock certificates representing the Restricted Stock may be issued by the Company and held in escrow by the Company until the Restricted Stock vests, or the Company may hold non-certificated shares until the Restricted Stock vests. In the event of a dividend or distribution payable in stock or other property or a reclassification, split up or similar event during the Restriction Period, the shares or other property issued or declared with respect to the non-vested shares of Restricted Stock shall be subject to the same terms and conditions relating to vesting as the shares to which they relate.

(b) When the Grantee obtains a vested right to shares of Restricted Stock, a certificate representing the vested shares shall be issued to the Grantee, free of the restrictions under Paragraph 2 of this Agreement.

(c) The obligation of the Company to deliver shares upon the vesting of the Restricted Stock shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriately to comply with relevant securities laws and regulations.

4. Change in Control. The provisions of the Plan applicable to a Change in Control (as defined in the Plan) shall apply to the Restricted Stock.

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5. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. The grant is subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the shares, (iii) changes in capitalization of the Company, and (iv) other requirements of applicable law. The Committee shall have the authority to interpret and construe the grant pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

6. Withholding. The Grantee shall be required to pay to the Company, or make other arrangements satisfactory to the Company to provide for the payment of, any federal, state, local or other taxes that the Employer is required to withhold with respect to the grant or vesting of the Restricted Stock. Subject to Committee approval, the Grantee may elect to satisfy any tax withholding obligation of the Employer with respect to the Restricted Stock by having shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state, local and other tax liabilities.

7. No Employment or Other Rights. This grant shall not confer upon the Grantee any right to be retained by or in the employ or service of the Employer and shall not interfere in any way with the right of the Employer to terminate the Grantee’s employment or service at any time. The right of the Employer to terminate at will the Grantee’s employment or service at any time for any reason is specifically reserved.

8. Assignment by Company. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the Company without the Grantee’s consent.

9. Applicable Law. The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

10. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Compensation Committee at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina, 27703-8466, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Employer, or to such other address as the Grantee may designate to the Employer in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

- 3 -

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Agreement, and the Grantee has placed his or her signature hereon, effective as of the Date of Grant.

INSPIRE PHARMACEUTICALS, INC.

By:

Name:

Title:

I hereby accept the grant of Restricted Stock described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Committee shall be final and binding.

Grantee

Date

- 4 -

EX-99.1

Exhibit 99.1

For Immediate Release

Contact:

Inspire Pharmaceuticals, Inc.

Mary Bennett

Executive Vice President,

Operations and Communications

(919) 941-9777 Extension 245

INSPIRE ADDS INDUSTRY EXPERT, ALAN F. HOLMER, TO BOARD OF DIRECTORS

DURHAM, NC – June 13, 2005 – Inspire Pharmaceuticals, Inc. (NASDAQ: ISPH) today announced the election of Alan F. Holmer to Inspire’s Board of Directors, effective June 10, 2005.

Mr. Holmer was elected by Inspire’s Board of Directors to fill a vacancy on Inspire’s Board and will serve the final year of a three-year term that will expire at Inspire’s 2006 annual meeting of stockholders. Mr. Holmer will also serve as a member of the Corporate Governance and Compensation Committees of Inspire’s Board. With this announcement, Inspire’s seven-member Board is now comprised of six members, and Inspire is actively seeking an additional Board member to fill the remaining vacancy.

Mr. Holmer, age 55, recently retired as President and Chief Executive Officer of the Pharmaceutical Research and Manufacturers of America (PhRMA), where he spent nearly ten years leading this well-known organization that represents the interests of leading pharmaceutical and biotechnology companies. In addition to his pharmaceutical industry experience, Mr. Holmer has significant expertise in dealing with legal, international trade and governmental issues, having held various positions within the Office of the U.S. Trade Representative, the Commerce Department and the White House, including serving as Deputy U.S. Trade Representative with rank of Ambassador. Mr. Holmer also served as a partner at the international law firm, Sidley & Austin (now Sidley Austin Brown & Wood LLP), and as an associate at Steptoe & Johnson LLP. Mr. Holmer serves on the boards of several organizations, including the Board of Trustees of the Metropolitan Washington, D.C. Chapter of the Cystic Fibrosis Foundation. Mr. Holmer received an A.B. degree from Princeton University and a J.D. from Georgetown University.

Kenneth B. Lee, Jr., Inspire’s Chairman, stated, “Alan Holmer brings a tremendous breadth of industry and government expertise to Inspire’s Board of Directors. We expect that Alan’s knowledge of the issues and relationships within the global pharmaceutical industry will be very valuable in helping to guide Inspire’s strategic direction. Alan is passionate about helping biopharmaceutical companies, like Inspire, to find treatments for devastating diseases such as cystic fibrosis. With his tremendous experience, energy and commitment, Alan is an outstanding addition to the Inspire Board.”

4222 Emperor Boulevard, Suite 200 · Durham, North Carolina 27703

Telephone 919.941.9777 · Fax 919.941.9797

About Inspire

Inspire is a biopharmaceutical company dedicated to discovering, developing and commercializing prescription pharmaceutical products in disease areas with significant commercial potential and unmet medical needs. Inspire has significant technical and scientific expertise in the therapy areas of ophthalmology and respiratory and is a leader in the field of P2 receptors which are important drug targets in various therapeutic areas, including ophthalmology, respiratory disease and cardiovascular disease. Inspire’s U.S. specialty sales force promotes Elestat^® (epinastine HCl ophthalmic solution) 0.05% and Restasis^® (cyclosporine ophthalmic emulsion) 0.05%, ophthalmology products developed by Inspire’s partner, Allergan, Inc. Elestat and Restasis are trademarks owned by Allergan.

Forward-Looking Statements

The forward-looking statements in this news release relating to management’s expectations and beliefs are based on preliminary information and management assumptions. Such forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respects, including those relating to product development, revenue, expense and earnings expectations, intellectual property rights, adverse litigation developments, competitive products, results and timing of clinical trials, success of marketing efforts, the need for additional research and testing, delays in manufacturing, funding and the timing and content of decisions made by regulatory authorities, including the United States Food and Drug Administration. There can be no assurance that Inspire will be able to identify and elect a qualified candidate to fill the remaining vacancy. Further information regarding factors that could affect Inspire’s results is included in Inspire’s filings with the Securities and Exchange Commission. Inspire undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof.

# # #

4222 Emperor Boulevard, Suite 200 · Durham, North Carolina 27703

Telephone 919.941.9777 · Fax 919.941.9797

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