RESTRICTED STOCK AWARD AGREEMENT

RESTRICTED STOCK AWARD AGREEMENT (this “Agreement”) dated as of September 27,
2010 (the “Effective Date”), between DISCOVERY LABORATORIES, INC., a Delaware
corporation (the “Company”), and ________________ (“Participant”).

WHEREAS, in order to generate an increased incentive to contribute to the
Company’s future success and prosperity, the Company has agreed to award to
Participant ________ (     ) restricted shares of the common stock, par value
$0.001 per share, of the Company (the “Restricted Stock”).

NOW, THEREFORE, in consideration of the above premises and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:

SECTION 1.    General.

(a)           All capitalized terms used in this Agreement without definition
shall have the meanings ascribed to them in the Discovery Laboratories, Inc.,
2007 Long-Term Incentive Plan (“the “Plan”).

(b)           The Award is subject to the terms, conditions and restrictions set
forth in this Agreement, the Notice of Award of Restricted Stock attached hereto
as Annex I (the “Notice”) and the Plan.  In the event of any inconsistency
between the Plan, this Agreement or the Notice, the terms of the Plan shall
control.

SECTION 2.    Award and Vesting of Restricted Stock.  On the date hereof, the
Company hereby grants to Participant ________ (     ) Shares of Restricted Stock
of the Company.  Subject to the earlier forfeiture of Restricted Stock as
provided in Section 4 below, the Restricted Stock awarded to Participant shall
vest as set forth in the Notice.  If and when the restrictions set forth in
Section 3, below, expire with respect to any Shares of Restricted Stock in
accordance with the terms of this Agreement without forfeiture of such Shares,
and upon the satisfaction of all other applicable conditions as to such Shares,
such Shares shall no longer be considered Restricted Stock for purposes of this
Agreement.

SECTION 3.    Restrictions.  The Participant shall have all rights and
privileges of a stockholder as to the Restricted Stock, including the right to
vote (provided, however, that at the discretion of the Company and prior to the
delivery of vested Shares, the Participant may be required to execute a
stockholders agreement in such form as shall be determined by the Company) and
the right to receive dividends or other distributions with respect to the
Restricted Stock, except that the following restrictions shall apply:

(a)           Subject to Section 4, the Restricted Stock shall vest and
restrictions shall lapse in accordance with the vesting schedule set forth on
the Notice.  Participant shall not be entitled to delivery of the certificate or
certificates for Shares of Restricted Stock pursuant to Section 5 hereof until
the applicable vesting date and upon the satisfaction of all other applicable
conditions.

(b)           Participant shall not, without the prior written consent of the
Company, offer, transfer, sell, pledge, assign, hypothecate or otherwise
encumber or dispose of any unvested Shares of Restricted Stock otherwise than by
will or by the laws of descent and distribution.  Any attempt by the Participant
(or his or her estate or personal representative, as the case may be) to offer,
transfer, sell, pledge, assign, hypothecate or otherwise encumber or dispose of
unvested Shares of Restricted Stock or any interest in such Shares in a manner
contrary to the restrictions set forth in this Agreement shall be void and of no
effect.

 
 

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(c)           all shares of common stock distributed as a dividend or
distribution, if any, with respect to Shares of Restricted Stock prior to the
applicable vesting date shall be delivered to and held by the Company and
subject to the same restrictions as the Shares of Restricted Stock in respect of
which the dividend or distribution was made.

SECTION 4.    Acceleration; Forfeiture of Restricted Stock.

(a)           If Participant’s Service to the Company is terminated due to
Participant's death or Disability, then Participant shall be entitled to the
immediate full vesting on the date of termination of all Shares of Restricted
Stock that have not then vested.  Upon the occurrence of a Corporate Transaction
or Change in Control, all Shares of Restricted Stock that have not then vested
are subject to vesting as of the effective date of such Corporate Transaction or
Change in Control in accordance with the provisions of the Plan including,
without limitation, Section 13 of the Plan.

(b)           If Participant’s Service to the Company terminates for any reason
other than as set forth in Section 4(a) above, all unvested Shares of Restricted
Stock granted hereunder shall automatically be forfeited as of the date of
termination and reacquired for no additional consideration and without the need
for any further action on behalf of the Company.  In the event of any such
forfeiture, all such forfeited Shares of Restricted Stock shall become the
property of the Company and the certificate(s), if any, representing such Shares
of Restricted Stock shall be returned immediately to the Company.

SECTION 5.    Book Entry Form; Conditions to Issuance of Certificates; Tax
Withholding.

(a)           The Shares of Restricted Stock will initially be issued in
uncertificated form, with the Shares recorded in the name of the Participant in
the books and records of the Company’s transfer agent with appropriate notations
regarding the restrictions on transfer imposed pursuant to this Agreement.

(b)           Upon vesting of any Shares of Restricted Stock granted herebyand
the satisfaction of all other applicable conditions, the Company shall (i) cause
certificates representing the vested Shares to be issued to the Participant or
(ii) credit such aggregate number of vested Shares to which Participant is
entitled to Participant’s (or designee's) balance account with the Depository
Trust Company (DTC) through its Deposit / Withdrawal At Custodian (DWAC) system;
provided, however, that the Company shall not be required to issue or deliver
any such certificate(s) or credit for any vested Shares prior to the fulfillment
of all of the following conditions:

 
1.
The Participant or his legal representative shall pay to the Company the full
amount of all federal and state withholding or other taxes applicable to the
taxable income of Participant resulting from the grant of Shares of Restricted
Stock or the lapse or removal of the restrictions.  The Committee shall be
authorized, in its sole discretion, to establish such rules and procedures
relating to the use of shares of Common Stock to satisfy tax withholding
obligations as it deems necessary or appropriate to facilitate and promote the
conformity of Participant's transactions under the Plan and this Agreement with
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, if such Rule
is applicable to a transaction by Participant;

 
 
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2.
The completion of any registration or other qualification of the Shares under
any state or federal law or under rulings or regulations of the Securities and
Exchange Commission or other governmental regulatory body, which the Committee
shall, in its sole and absolute discretion, deem necessary and advisable;

 
3.
The obtaining of any approval or other clearance from any state or federal
governmental agency that the Committee shall, in its absolute discretion,
determine to be necessary or advisable; and

 
4.
The lapse of any such reasonable period of time following the date the
restrictions lapse as the Committee may from time to time establish for reasons
of administrative convenience.

(c)           On or before the issuance of the stock certificate or certificates
representing the vested Shares of Restricted Stock, the Participant shall
deliver to the Company stock powers endorsed in blank relating to such Shares of
the Restricted Stock, in a form provided by the Company. Participant irrevocably
appoints the Company and each of its officers, employees and agents as his true
and lawful attorneys with power (i) to sign in Participant's name and on
Participant's behalf stock certificates and stock powers covering the Restricted
Stock and such other documents and instruments as the Committee deems necessary
or desirable to carry out the terms of this Agreement and (ii) to take such
other action as the Committee deems necessary or desirable to effectuate the
terms of this Agreement. This power, being coupled with an interest, is
irrevocable.  Participant agrees to execute such other stock powers and
documents as may be reasonably requested from time to time by the Committee to
effectuate the terms of this Agreement.

(d)           The stock certificate or certificates for the Restricted Stock
shall be subject to such stop-transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations, and other requirements
of the Securities and Exchange Commission, any stock exchange or securities
association upon which the Common Stock is then listed, and any applicable
federal or state securities law, and the Company may cause a legend or legends
to be placed on such certificate or certificates to make appropriate reference
to such restrictions.

SECTION 6.    Representations and Warranties.

(a)           Participant hereby represents to the Company that Participant has
read in their entirety and fully understands the provisions of this Agreement
and the Plan, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement, and fully understands all provisions of this Agreement
and the Plan, and the Participant acknowledges that Participant is relying
solely on his or her own advisors and not on any statements or representations
of the Company or any of its agents with respect to the tax consequences of this
Award.  Participant understands that Participant (and not the Company) shall be
responsible for Participant’s own tax liability that may arise as result of the
transactions contemplated by this Agreement.  Participant understands that
Section 83 of the Code, taxes as ordinary income the fair market value, as
defined by the Code, of the Shares of Restricted Stock as of the date they
become “substantially vested” within the meaning of Section 1.83-3(b) of the
regulations promulgated pursuant to Code Section 83.  Participant understands
that Participant may elect to be taxed at the time the shares of Restricted
Stock are granted, rather than at the time, if any, that they become
substantially vested, by filing an election under Section 83(b) of the Code with
the Internal Revenue Service within 30 days from the date of grant.

 
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(b)           Participant acknowledges and agrees that the vesting of shares
pursuant to this Agreement is earned only through his or her continued and
satisfactory service to the Company and not through the award of Restricted
Stock hereunder.

(c)           Participant acknowledges and agrees that this Agreement is not a
contract of employment and that nothing in this Agreement shall confer upon
Participant any right with respect to continuation of service to the Company,
nor shall it interfere in any way with his or her right or the Company’s right
to terminate Participant’s service to the Company at any time, with or without
cause.

(d)           Participant hereby accepts this Restricted Stock Award Agreement
subject to all of the terms and provisions hereof.

(e)           Participant acknowledges that, as a condition to the vesting of
the Restricted Shares, the representations and warranties of this Section 6
shall be true and correct as of the vesting date or the date of receipt of any
distributions with respect to the Restricted Stock, as applicable, as if they
had been made on such date with respect to vested Shares of Restricted Stock or
any such other distributions, as applicable.

SECTION 7.    Notices.  Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976,
Attention: Legal Department, or to such other address as shall be provided in
writing to Participant.  Any notice required to be given or delivered to
Participant shall be in writing and addressed to the most recent address of
Participant, as set forth in the books and records of the Company.  All notices
shall be deemed effective one day after being sent by Federal Express or similar
overnight delivery or three days after being mailed registered or certified
mail, postage prepaid, and properly addressed to the party to be notified.

SECTION 8.    Miscellaneous.

(a)           Assignment; Binding Agreement.  This Agreement shall be binding
upon and inure to the benefit of the heirs and representatives of the
Participant and the assigns and successors of the Company, but neither this
Agreement nor any rights hereunder shall be assignable or otherwise subject to
hypothecation by the Participant.

(b)           Entire Agreement; Amendment.  This Agreement represents the entire
agreement of the parties with respect to the subject matter hereof, except that
the provisions of the Plan are incorporated in this Agreement in their
entirety.  In the event of any conflict between the provisions of this Agreement
and the Plan, the provisions of the Plan shall control. This Agreement may be
amended by the Committee without the consent of the Participant except in the
case of an amendment adverse to the Participant (except as may be permitted
under Section 16(b) of the Plan), in which case the Participant's consent shall
be required.

(c)           Counterparts.  This Agreement may be signed in one or more
counterparts, all of which shall be considered one and the same agreement.

 
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(d)           Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to the
conflicts of laws principles of such state.

(e)           Severability.  Whenever possible, each provision in this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
this Agreement shall remain in full force and effect.

(f)           Conformity to Securities Laws.  The Participant acknowledges that
the Plan and this Agreement are intended to conform to the extent necessary with
all provisions of the Securities Act of 1933, as amended, and the Exchange Act,
and any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Awards are granted, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.

(g)           Limitations Applicable to Section 16 Persons.  Notwithstanding any
other provision of the Plan or this Agreement, if Participant is subject to
Section 16 of the Exchange Act, the Plan and this Agreement shall be subject to
any additional limitations set forth in any applicable exemptive rule under
Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the
Exchange Act) that are requirements for the application of such exemptive rule.
To the extent permitted by applicable law, this Agreement shall be deemed
amended to the extent necessary to conform to such applicable exemptive rule.

(h)           No Right To Continued Employment Or Participation; Effect On Other
Plans.  This Agreement shall not confer upon the Participant any right with
respect to continued employment by the Company, a subsidiary or affiliate, nor
shall it interfere in any way with the right of the Company a subsidiary or
affiliate to terminate the Participant's employment at any time.  Payments
received by the Participant pursuant to this Agreement shall not be included in
the determination of benefits under any pension, group insurance or other
benefit plan of the Company or any subsidiaries or affiliate in which the
Participant may be enrolled or for which the Participant may become eligible,
except as may be provided under the terms of such plans or determined by the
Company’s board of directors.

(i)           No Strict Construction.  No rule of strict construction shall be
implied against the Company, the Committee or any other person in the
interpretation of any of the terms of the Plan, this Agreement or any rule or
procedure established by the Committee.

(j)           Use of the Word "Participant".  Wherever the word "Participant" is
used in any provision of this Agreement under circumstances where the provision
should logically be construed to apply to the executors, the administrators, or
the person or persons to whom the Restricted Stock may be transferred by will or
the laws of descent and distribution, the word "Participant" shall be deemed to
include such person or persons.

(k)           Further Assurances.  The Participant agrees, upon demand of the
Company or the Committee, to do all acts and execute, deliver and perform all
additional documents, instruments and agreements (including, without limitation,
stock powers with respect to shares of Common Stock issued as a dividend or
distribution on Restricted Stock) which may be reasonably required by the
Company or the Committee, as the case may be, to implement the provisions and
purposes of this Agreement and the Plan.

 
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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the date first above written.

       
[Participant]
          DISCOVERY LABORATORIES, INC.          
 
By:
/s/        Name:  John Cooper       Title:    President and CFO          

 
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STOCK POWER

ASSIGNMENT SEPARATE
FROM CERTIFICATE

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_____________________, ________ (     ) restricted shares of Common Stock of
DISCOVERY LABORATORIES, INC. standing in the undersigned’s name on the books of
said Company, represented by the within Certificate No. ___, and hereby
irrevocably constitutes and appoints _______________________ attorney to
transfer the said shares on the books of the within named Company with full
power of substitution in the premises.

            Dated
 
   
[Participant]
 

 
 
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ANNEX I
 
DISCOVERY LABORATORIES, INC.
NOTICE OF AWARD OF RESTRICTED STOCK
 
Pursuant to the Discovery Laboratories, Inc. 2007 Long-Term Incentive Plan (the
“Plan”), notice is hereby given of the following grant of restricted shares of
the Common Stock, par value $0.001 per share, of Discovery Laboratories, Inc.
(the “Corporation”):
 
Participant:
 
Award Date:
 
Number of Shares of Restricted Stock:
 
Vesting Schedule and Date: In addition to the rights of Participant to vesting
of this grant under the Restricted Stock Award Agreement and the Plan,
Participant shall acquire a vested interest in the Restricted Stock covered by
this Notice on the date of the earliest to occur of the following events:
 
(i) the second anniversary of the date of grant;
 
(ii) the date of issuance by the United States Food and Drug Administration
(FDA) of a marketing approval with respect to the Corporation’s New Drug
Application (NDA) for Surfaxin® for the prevention of respiratory distress
syndrome (RDS) in premature infants; or
 
(iii) the effective date of a strategic alliance, collaboration agreement or
other similar arrangement between the Corporation and one or more third parties
providing for the support for the development and/or commercialization of one or
more of the Corporation’s lead research and development programs – Surfaxin,
Surfaxin LS™ or Aerosurf®. The determination of whether a transaction meets the
requirements of this vesting event shall be solely within the discretion of the
Board of Directors of the Corporation, and evidenced by a resolution adopted at
any time after the date of grant;
 
Provided, further, that on such date Participant shall be actively providing
Service to the Corporation.  In no event shall any additional Shares of
Restricted Stock vest after Participant’s termination of Service.
 
Participant understands and agrees to be bound by the terms set forth in the
related Restricted Stock Award Agreement.  Participant understands and agrees
that the Shares of Restricted Stock are granted subject to and in accordance
with the terms of the Plan.
 
Definitions. All capitalized terms used and not otherwise defined in this Notice
shall have the meaning assigned to them in the Restricted Stock Award Agreement.
 

DATED:
   
DISCOVERY LABORATORIES, INC.
 
PARTICIPANT
By:   _______________________________
 
_______________________________
John Cooper
President and CFO
 
 [____________]