INSPIRE PHARMACEUTICALS, INC. 2005 EQUITY COMPENSATION PLAN DIRECTOR'S NONQUALIFIED STOCK OPTION

Exhibit 10.7

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, as amended (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

No.         

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, as amended (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.

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 “Exercise Price”). The Option shall become exercisable according to Paragraph 2 below. This Option has been granted to the Grantee because the Grantee was [ ALTERNATIVE 1 : elected as a member of the Board as of the Date of Grant ] [ ALTERNATIVE 2 : a member of the Board on the Date of Grant ] [ ALTERNATIVE 3 : the 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.

- 1 -

The number of Shares noted on the first line will vest in equal quarterly installments, beginning one quarter after the date of grant and will fully vest on the corresponding “Full Vest Date.”

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). If the Grantee dies while serving in the Board Position, all of the unexercised Shares shall become immediately exercisable.

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 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.

- 2 -

(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 in the Board Position 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 Compan