NOVADEL PHARMA INC. 1998 STOCK OPTION PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

AGREEMENT, made as of this 17th day of January, 2006, by and between NOVADEL
PHARMA INC., a Delaware corporation having offices at 25 Minneakoning Road,
Flemington, NJ 08822 (the “Company”) and STEVEN B. RATOFF, 5291 N. Camino Sumo,
Tucson, AZ 85718 (the “Optionee”).

WHEREAS, on June 15, 1998, the Board of Directors of the Company (the “Board”)
adopted the NovaDel Pharma Inc. 1998 Stock Option Plan (the “Plan”), subject to
approval by the stockholders of the Company by December 31, 1998; and

WHEREAS, on November 23, 1998, the stockholders of the Company, at the Company’s
Annual Meeting of Stockholders, approved the Board’s adoption of the Plan; and

WHEREAS, on April 19, 2004, the stockholders of the Company, at the Company’s
Annual Meeting of Stockholders, approved an amendment to the Plan that allowed
the Company to grant additional shares under the Plan; and

WHEREAS, on January 17, 2006, the Optionee was elected to the Board of Directors
of the Company; and,

WHEREAS, the grant of the within Options, which are to vest according to a
schedule contained in this Agreement, have been authorized by the Board of
Directors of the Company (the “Board”);

NOW, THEREFORE, it is agreed:

 

1.

Date of Grant. The date of grant of this Option is January 17, 2006.

 

2.

Nature of the Option. This Option is a nonqualified Option issued pursuant to
the terms of the Plan, pursuant to which Optionee is hereby granted the right,
subject to the terms and conditions hereof, to purchase up to ONE HUNDRED
THOUSAND (100,000) shares of the authorized but unissued common stock, par value
$.001 per share, of the Company.

 

3.

Exercise Price. The exercise price is $1.36 for each share of Common Stock.

 

4.

Exercisability of Option. This Option shall be exercisable during its term as
follows:

 

4.1

This Option shall vest and become exercisable in whole or in part to the extent
of:

 

4.1.1

33,333 Option Shares on or after January 17, 2007; and

 

4.1.2

33,333 Option Shares on or after January 17, 2008; and,

 

4.1.3

33,334 Option Shares on or after January 17, 2009.

 

4.2

This Option may not be exercised for a fraction of a share.

 

4.3

After a portion of the Option becomes exercisable it shall remain exercisable
except as otherwise provided herein, until the close of business on January 16,
2011.

 

5.

Method of Exercise.

 

5.1

Notice to the Company. The Option shall be exercised in whole or in part by
written notice in substantially the form attached hereto as Exhibit A directed
to the Company at its principal place of business accompanied by full payment as
hereinafter provided of the exercise price for the number of Option Shares
specified in the notice.

 

5.2

Delivery of Option Shares. The Company shall deliver a certificate for the
Option Shares to the Optionee as soon as practicable after payment therefore.

 

5.3

Payment of Purchase Price.

 

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5.3.1

Cash Payment. The Optionee shall make all payments by wire transfer, certified
or bank check, in each case payable to the order of the Company; the Company
shall not be required to deliver certificates for Option Shares until the
Company has confirmed the receipt of good and available funds in payment of the
purchase price thereof.

 

5.3.2

Payment of Withholding Tax. Any required withholding tax shall be paid in cash
or certified or bank check.

 

5.3.3

Restrictions on Exercise. This Option may not be exercised if the issuance of
such Shares upon such exercise or the method of payment of consideration for
such shares would constitute a violation of any applicable federal or state
securities or other law or regulation, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations (“Regulation C”) as promulgated by
the Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require the Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.

 

6.

Optionee’s Representations. The Optionee hereby represents and warrants to the
Company that:

 

6.1

Investment Intent. The Optionee is acquiring the Option and shall acquire the
Option Shares for his own account and not with a view towards the distribution
thereof.

 

6.2

Option Shares Restricted. The Optionee understands that the Optionee must, for
an indefinite period of time, bear the economic risk of the investment in the
Option Shares, which cannot be sold by him unless they are registered under the
Securities Act of 1933, as amended (the “1933 Act”) or an exemption therefrom is
available thereunder and that the Company is under no obligation to register the
Option Shares for sale under the 1933 Act.

 

6.3

Access to Information. In his position with the Company, the Optionee has had
both the opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information contained in the Company’s offering documents.

 

6.4

Transfer Restrictions. The Optionee is aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the Option
Shares in the absence of registration under the 1933 Act or an exemption
therefrom as provided herein.

 

6.5

Legends. Unless the Option Shares delivered upon exercise are registered under
the 1933 Act, the certificates evidencing the Option Shares shall bear the
following legends:

“The shares represented by this certificate have been acquired for investment
and have not been registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under the 1933 Act.”

“The shares represented by this certificate have been acquired pursuant to a
Stock Option Agreement, dated as of January 17, 2006, a copy of which is on file
with the Company, and may not be transferred, pledged or disposed of except in
accordance with the terms and conditions thereof.”

 

7.

Withholding Tax. Not later than the date as of which an amount first becomes
includable in the gross income of the Optionee for Federal income tax purposes
with respect to the Option, the Optionee shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. The obligations of the Company under the Plan
and

 

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pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Optionee from the Company.

 

8.

Death or Disability of Optionee. This Option shall survive the death or
Disability of the Optionee, and shall bind and inure to the benefit of the
Optionee’s heirs, executors, administrators of personal representatives. The
one-year exercise period restriction contained in the Plan shall not apply. For
purposes of this Agreement, “Disability” means (1) the inability by the Optionee
to engage in a substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12
months; or (2) the Optionee is, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected
to last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Company.

 

9.

Termination of Directorship. If the Optionee ceases to serve as a Director of
the Company, Optionee may exercise this Option, to the extent Optionee was
entitled to exercise it at the date of Termination. The three-month exercise
period restriction contained in the Plan shall not apply. If, however,
Optionee’s directorship is terminated by the Company For Cause, this Option
shall become void effective upon the act of Termination For Cause. For purposes
of this Agreement, Termination For Cause includes:

 

(1)

the willful failure, neglect or refusal by the Optionee to perform his duties
hereunder;

 

(2)

any willful, intentional or grossly negligent act by the Optionee having the
effect of injuring, in a material way (whether financial or otherwise and as
determined in good-faith by the President of the Company), the business or
reputation of the Company or any of its affiliates, including but not limited
to, any officer, director, executive or shareholder of the Company or any of its
affiliates;

 

(3)

willful misconduct by the Optionee, including insubordination, in respect of the
duties or obligations of the Optionee under this Agreement;

 

(4)

the Optionee’s indictment of any felony or a misdemeanor involving moral
turpitude (including entry of a nolo contendere plea);

 

(5)

the determination by the Company, after a reasonable and good-faith
investigation by the Company following a written allegation by another employee
of the Company, that the Optionee engaged in some form of harassment protected
by law (including, without limitation age, sex or race discrimination); or

 

(6)

any misrepresentation or embezzlement of the property of the Company or its
affiliates (whether or not a misdemeanor or a felony).

 

10.

Non-Transferability of Option. This Option may not be transferred in any manner
without the Optionee obtaining the express written consent of the Company prior
to the proposed transfer.

 

11.

Term of Option. This Option may not be exercised more than five (5) years from
January 17, 2006, and may be exercised during such term only in accordance with
the terms of this Option Agreement.

 

12.

Restriction on Transfer of Option Shares. Anything in this Agreement to the
contrary notwithstanding, the Optionee hereby agrees that it shall not sell,
transfer by any means or otherwise dispose of the Option Shares acquired by it
without registration under the 1933 Act, or in the event that they are not so
registered, unless (i) an exemption from the 1933 Act registration requirements
is available thereunder, and (ii) the Optionee has furnished the Company with
notice of such proposed transfer and the Company’s legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.

 

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13.

Miscellaneous.

 

13.1

Notices. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be either delivered personally or sent by
registered or certified mail, or by private courier, return receipt requested,
postage prepaid to the Company at its principal executive office and to the
Optionee at his address set forth above, or to such other address as either
party shall have specified by notice in writing to the other. Notice shall be
deemed duly given hereunder when delivered or mailed as provided herein.

 

13.2

Plan Paramount; Conflicts with Law. This Agreement and the Option shall, in all
respects, be subject to the terms and conditions of the Plan, whether or not
stated herein. In the event of a conflict between the provisions the Plan and
the provisions of this Agreement, the provisions of the Plan shall in all
respects be controlling. All capitalized terms not defined herein shall have the
meanings ascribed to them in the Plan.

 

13.3

Stockholder Rights. The Optionee shall not have any of the rights of a
stockholder with respect to the Option Shares until such shares have been issued
after the due exercise of the Option.

 

13.4

Waiver. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.

 

13.5

Entire Agreement. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof. This Agreement may not be
amended except by writing executed by the Optionee and the Company.

 

13.6

Binding Effect; Successors. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and, to the extent not prohibited herein, their
respective heirs, successors, assigns and representatives. Nothing in this
Agreement expressed or implied, is intended to confer on any person other than
the parties hereto and as provided above, their respective heirs, successors,
assigns and representatives any rights, remedies, obligations or liabilities.

 

13.7

Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware (without regard to choice of law
provisions).

 

13.8

Headings. The headings contained herein are for the sole purpose of convenience
of reference, and shall not in any way limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.

 

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               IN WITNESS WHEREOF, the parties hereto have signed this Agreement
as of the day and year first above written.

NOVADEL PHARMA INC.

(a Delaware corporation)

 

By:

/s/Jean W. Frydman

 

Vice President, General Counsel & Corporate Secretary

 

Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached
hereto, and represents that the Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.

/s/Steven B. Ratoff

Steven B. Ratoff, Optionee

 

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EXHIBIT A

FORM OF NOTICE OF EXERCISE OF OPTION

Date

NovaDel Pharma Inc.

Attention: Board of Directors

 

Re: NovaDel Pharma Inc. Purchase of Option Shares

Gentlemen:

In accordance with the Stock Option Agreement dated as of January 17, 2006
(“Agreement”) between STEVEN B. RATOFF (“Optionee”) and NovaDel Pharma Inc. (the
“Company”), the Optionee hereby irrevocably elects to exercise the right to
purchase shares of the Company’s common stock, par value $.001 per share
(“Common Stock”), which are being purchased for investment and not for resale.
All capitalized terms not defined herein shall have the meanings ascribed to
them in the Plan.

As payment for my shares, enclosed is (check and complete applicable boxes):

    a (certified check) (bank check) payable to the order of “NovaDel Pharma
Inc.” in the sum of $          ;

    confirmation of wire transfer in the amount of $      and/or

The Optionee hereby represents, warrants to, and agrees with, the Company that

(i)            The Optionee is acquiring the Option Shares for his own account
for investment purposes only and not with a view to, or for the resale in
connection with any “distribution” thereof for purposes of the Securities Act of
1933 (the “1933 Act”);

(ii)           The Optionee is aware of the Company’s business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities. The
Optionee has received a copy of all reports and documents required to be filed
by the Company with the Commission pursuant to the Securities Exchange Act of
1934 (“Exchange Act”) within the last 24 months and all reports issued by the
Company to its stockholders;

(iii)          The Optionee understands that he must bear for an indefinite
period of time the economic risk of an investment in the Option Shares, which
cannot be sold by him unless they are registered under the 1933 Act or an
exemption therefrom is available thereunder and that the Company is under no
obligation to register the Option Shares for sale under the 1933 Act;

(iv)          In his position with the Company, the Optionee has had both the
opportunity to ask questions and receive answers from the officers and directors
of the Company and all persons acting on its behalf concerning the terms and
conditions of the offer made hereunder and to obtain any additional information
to the extent the Company possess or may possess such information or can acquire
it without unreasonable effort or expense necessary to verify the accuracy of
the information obtained pursuant to clause (ii) above;

(v)           The Optionee is aware that the Company shall place stop transfer
orders with its transfer agent against the transfer of the Option Shares in the
absence of registration under the 1933 Act or an exemption therefrom as provided
herein;

(vi)          The Optionee’s rights with respect to the Option Shares shall, in
all respects, be subject to the terms and conditions of the Plan and this
Agreement; and

(vii)         Unless the shares delivered upon exercise are registered under the
1933 Act, the certificates evidencing the Option Shares shall bear the following
legends:

“The shares represented by this certificate have been acquired for investment
and have not been registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under said Act.”

 

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“The shares represented by this certificate have been acquired pursuant to a
Stock Option Agreement, dated as of January 17, 2006, a copy of which is on file
with the Company, and may not be transferred, pledged or disposed of except in
accordance with the terms and conditions thereof.”

(viii)        The Optionee is familiar with the provisions of Rule 144,
promulgated under the 1933 Act, which, in substance, permits limited public
resale of “restricted securities” acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, including, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than one year after the party has purchased,
and made full payment within the meaning of Rule 144, for the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (3) the sale being made through a broker in an
unsolicited “broker’s transaction” or in transactions directly with a market
maker (as said term is defined under the Exchange Act) and the amount of
securities being sold during any three-month period not exceeding the specified
limitations stated in Rule 144, if applicable.

(ix)          The Optionee further understands that at the time he decides to
sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Optionee would be precluded from selling the securities under
Rule 144 even if the two-year minimum holding period is satisfied.

(x)           The Optionee further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
1933 Act, compliance with Regulation A, or some other registration exemption
will be required; and that, notwithstanding the fact that Rule 144 is not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.

Kindly forward to me my certificate at your earliest convenience.

Very truly yours,

 

 

 

 

(Signature)

 

(Address)

 

 

 

(Print Name)

 

 

 

 

 

 

 

(Social Security Number)

 

 

 

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