Unassociated Document


    Exhibit
      4.1

     

    DISCOVERY
      LABORATORIES, INC.

    AMENDED
      AND RESTATED 1998 STOCK INCENTIVE PLAN


    May
      13,
      2005

    



    
      
         

      

      
         

        
          

        

      

      
         

        
        

      

    



    DISCOVERY
      LABORATORIES, INC.

    AMENDED
      AND RESTATED 1998 STOCK INCENTIVE PLAN

    


    


     

    ARTICLE
      ONE

     

    GENERAL
      PROVISIONS

     

    I. PURPOSE
      OF THE PLAN

     

    This
      Amended and Restated 1998 Stock Incentive Plan (the "Plan") is intended to
      promote the interests of Discovery Laboratories, Inc., a Delaware corporation,
      by providing eligible persons with the opportunity to acquire a proprietary
      interest, or otherwise increase their proprietary interest, in the Corporation
      as an incentive for them to remain in the service of the
      Corporation.

     

    The
      Plan
      amends and restates the Corporation's 1998 Stock Incentive Plan and shall serve
      as the successor to the Corporation's 1995 Stock Option Plan and 1993 Stock
      Option Plan (the "Predecessor Plans"). No further option grants shall be made
      under the Predecessor Plans after the Initial Approval Date. All options
      outstanding under the Predecessor Plans on the Initial Approval Date are
      incorporated into the Plan and shall be treated as outstanding options under
      the
      Plan. However, each outstanding option so incorporated shall continue to be
      governed solely by the terms of the documents evidencing such option, and no
      provision of the Plan shall be deemed to affect or otherwise modify the rights
      or obligations of the holders of such incorporated options with respect to
      their
      acquisition of shares of Common Stock.

     

    Capitalized
      terms shall have the meanings assigned to such terms in the attached
      Appendix.

     

    II. STRUCTURE
      OF THE PLAN

     

    A. The
      Plan
      shall be divided into three separate equity programs:

     

    (i) the
      Discretionary Option Grant Program under which eligible persons may, at the
      discretion of the Plan Administrator, be granted options to purchase shares
      of
      Common Stock,

     

    (ii) the
      Stock
      Issuance Program under which eligible persons may, at the discretion of the
      Plan
      Administrator, be issued shares of Common Stock directly, either through the
      immediate purchase of such shares or as a bonus for services rendered the
      Corporation (or any Parent or Subsidiary), and

     

    (iii) the
      Automatic Option Grant Program under which eligible non-employee board members
      shall automatically receive option grants at periodic intervals to purchase
      shares of Common Stock.

     

    B. The
      provisions of Articles One and Five shall apply to all equity programs under
      the
      Plan and shall govern the interests of all persons under the Plan.

     

    III. ADMINISTRATION
      OF THE PLAN

     

    A. The
      Board
      shall have authority to administer the Discretionary Option Grant and Stock
      Issuance Programs with respect to Section 16 Insiders but may delegate such
      authority to the Primary Committee. Administration of the Discretionary Option
      Grant and Stock Issuance Programs with respect to all other persons eligible
      to
      participate in those programs may, at the Board's discretion, be vested in
      the
      Primary Committee or a Secondary Committee, or the Board may retain the power
      to
      administer those programs with respect to all such persons.

     

    B. Members
      of the Primary Committee or any Secondary Committee shall serve for such period
      of time as the Board may determine and may be removed by the Board at any time.
      The Board may also at any time terminate the functions of any Secondary
      Committee and reassume all powers and authority previously delegated to such
      committee.

     

    C. Each
      Plan
      Administrator shall, within the scope of its administrative functions under
      the
      Plan, have full power and authority (subject to the provisions of the Plan)
      to
      establish such rules and regulations as it may deem appropriate for proper
      administration of the Discretionary Option Grant and Stock Issuance Programs
      and
      to make such determinations under, and issue such interpretations of, the
      provisions of such programs and any outstanding options or stock issuances
      thereunder as it may deem necessary or advisable. Decisions of the Plan
      Administrator within the scope of its administrative functions under the Plan
      shall be final and binding on all parties who have an interest in the
      Discretionary Option Grant and Stock Issuance Programs under its jurisdiction
      or
      any option or stock issuance thereunder.

     

    D. Service
      on the Primary Committee or the Secondary Committee shall constitute service
      as
      a Board member, and members of each such committee shall accordingly be entitled
      to full indemnification and reimbursement as Board members for their service
      on
      such committee. No member of the Primary Committee or the Secondary Committee
      shall be liable for any act or omission made in good faith with respect to
      the
      Plan or any option grants or stock issuances under the Plan.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IV. ELIGIBILITY

     

    A. The
      persons eligible to participate in the Discretionary Option Grant and Stock
      Issuance Programs are as follows:

     

    (i) Employees,

     

    (ii) non-employee
      members of the Board or the board of directors of any Parent or Subsidiary,
      and

     

    (iii) consultants
      and other independent advisors who provide services to the Corporation (or
      any
      Parent or Subsidiary).

     

    B. Each
      Plan
      Administrator shall, within the scope of its administrative jurisdiction under
      the Plan, have full authority to determine, (i) with respect to the option
      grants under the Discretionary Option Grant Program, which eligible persons
      are
      to receive option grants, the time or times when such option grants are to
      be
      made, the number of shares to be covered by each such grant, the status of
      the
      granted option as either an Incentive Option or a Non-Statutory Option, the
      time
      or times when each option is to become exercisable, the vesting schedule (if
      any) applicable to the option shares and the maximum term for which the option
      is to remain outstanding and (ii) with respect to stock issuances under the
      Stock Issuance Program, which eligible persons are to receive stock issuances,
      the time or times when such issuances are to be made, the number of shares
      to be
      issued to each Participant, the vesting schedule (if any) applicable to the
      issued shares and the consideration for such shares.

     

    C. The
      Plan
      Administrator shall have the absolute discretion either to grant options in
      accordance with the Discretionary Option Grant Program or to effect stock
      issuances in accordance with the Stock Issuance Program.

     

    D. Only
      non-employee members of the Board shall be eligible to participate in the
      Automatic Option Grant Program.

     

    V.  STOCK
      SUBJECT TO THE PLAN

     

    A. The
      stock
      issuable under the Plan shall be shares of authorized but unissued or reacquired
      Common Stock, including shares repurchased by the Corporation on the open
      market. The maximum number of shares of Common Stock reserved for issuance
      over
      the term of the Plan shall not exceed 12,570,000 shares.

     

    B. No
      one
      person participating in the Plan may receive options, separately exercisable
      stock appreciation rights and direct stock issuances for more than 250,000
      shares of Common Stock in the aggregate per calendar year, beginning with the
      1998 calendar year, provided, however, that the Board shall have the absolute
      discretion to approve annual aggregate grants in excess of such limitation
      in
      the event the Board deems any such action to be in accordance with the
      Corporation’s general compensation policies with respect to executive
      management.

     

    C. Shares
      of
      Common Stock subject to outstanding options (including options incorporated
      into
      this Plan from the Predecessor Plans) shall be available for subsequent issuance
      under the Plan to the extent those options expire or terminate for any reason
      prior to exercise in full. Unvested shares issued under the Plan and
      subsequently cancelled or repurchased by the Corporation, at the original issue
      price paid per share, pursuant to the Corporation's repurchase rights under
      the
      Plan shall be added back to the number of shares of Common Stock reserved for
      issuance under the Plan and shall accordingly be available for reissuance
      through one or more subsequent option grants or direct stock issuances under
      the
      Plan. However, should the exercise price of an option under the Plan be paid
      with shares of Common Stock or should shares of Common Stock otherwise issuable
      under the Plan be withheld by the Corporation in satisfaction of the withholding
      taxes incurred in connection with the exercise of an option or the vesting
      of a
      stock issuance under the Plan, then the number of shares of Common Stock
      available for issuance under the Plan shall be reduced by the gross number
      of
      shares for which the option is exercised or which vest under the stock issuance,
      and not by the net number of shares of Common Stock issued to the holder of
      such
      option or stock issuance.

     

    D. If
      any
      change is made to the Common Stock by reason of any stock split, stock dividend,
      recapitalization, combination of shares, exchange of shares or other change
      affecting the outstanding Common Stock as a class without the Corporation's
      receipt of consideration, appropriate adjustments shall be made to (i) the
      maximum number and/or class of securities issuable under the Plan, (ii) the
      number and/or class of securities for which any one person may be granted
      options, separately exercisable stock appreciation rights and direct stock
      issuances under this Plan per calendar year, (iii) the number and/or class
      of
      securities for which grants are subsequently to be made under the Automatic
      Option Grant Program to new and continuing non-employee Board members, (iv)
      the
      number and/or class of securities and the exercise price per share in effect
      under each outstanding option under the Plan and (v) the number and/or class
      of
      securities and price per share in effect under each outstanding option
      incorporated into this Plan from the Predecessor Plan. Such adjustments to
      the
      outstanding options are to be effected in a manner which shall preclude the
      enlargement or dilution of rights and benefits under such options. The
      adjustments determined by the Plan Administrator shall be final, binding and
      conclusive.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


     

    ARTICLE
      TWO

     

    DISCRETIONARY
      OPTION GRANT PROGRAM

     

    I. OPTION
      TERMS

     

    Each
      option shall be evidenced by one or more documents in the form approved by
      the
      Plan Administrator; provided, however, that each such document shall comply
      with
      the terms specified below. Each document evidencing an Incentive Option shall,
      in addition, be subject to the provisions of the Plan applicable to such
      options.

     

    A. Exercise
      Price.

     

    1. The
      exercise price per share shall be fixed by the Plan Administrator but shall
      not
      be less than one hundred percent (100%) of the Fair Market Value per share
      of
      Common Stock on the option grant date.

     

    2. The
      exercise price shall become immediately due upon exercise of the option and
      shall, subject to the provisions of Section I of Article Five and the documents
      evidencing the option, be payable in one or more of the forms specified
      below:

     

    (i) cash
      or
      check made payable to the Corporation,

     

    (ii) shares
      of
      Common Stock held for the requisite period necessary to avoid a charge to the
      Corporation's earnings for financial reporting purposes and valued at Fair
      Market Value on the Exercise Date, or

     

    (iii) to
      the
      extent the option is exercised for vested shares, through a special sale and
      remittance procedure pursuant to which the Optionee shall concurrently provide
      irrevocable written instructions to (a) a Corporation-designated brokerage
      firm
      to effect the immediate sale of the purchased shares and remit to the
      Corporation, out of the sale proceeds available on the settlement date,
      sufficient funds to cover the aggregate exercise price payable for the purchased
      shares plus all applicable Federal, state and local income and employment taxes
      required to be withheld by the Corporation by reason of such exercise and (b)
      the Corporation to deliver the certificates for the purchased shares directly
      to
      such brokerage firm in order to complete the sale.

     

    Except
      to
      the extent such sale and remittance procedure is utilized, payment of the
      exercise price for the purchased shares must be made on the Exercise
      Date.

     

    B. Exercise
      and Term of Options. Each option shall be exercisable at such time or times,
      during such period and for such number of shares as shall be determined by
      the
      Plan Administrator and set forth in the documents evidencing the option.
      However, no option shall have a term in excess of ten (10) years measured from
      the option grant date.

     

    C. Effect
      of
      Termination of Service.

     

    1. The
      following provisions shall govern the exercise of any options held by the
      Optionee at the time of cessation of Service or death:

     

        (i) Any
      option outstanding at the time of the Optionee's cessation of Service for any
      reason shall remain exercisable for such period of time thereafter as shall
      be
      determined by the Plan Administrator and set forth in the documents evidencing
      the option, but no such option shall be exercisable after the expiration of
      the
      option term.

     

    (ii) Any
      option exercisable in whole or in part by the Optionee at the time of death
      may
      be subsequently exercised by the personal representative of the Optionee's
      estate or by the person or persons to whom the option is transferred pursuant
      to
      the Optionee's will or in accordance with the laws of descent and
      distribution.

     

    (iii) During
      the applicable post-Service exercise period, the option may not be exercised
      in
      the aggregate for more than the number of vested shares for which the option
      is
      exercisable on the date of the Optionee's cessation of Service. Upon the
      expiration of the applicable exercise period or (if earlier) upon the expiration
      of the option term, the option shall terminate and cease to be outstanding
      for
      any vested shares for which the option has not been exercised. However, the
      option shall, immediately upon the Optionee's cessation of Service, terminate
      and cease to be outstanding to the extent the option is not otherwise at that
      time exercisable for vested shares.

     

    (vi) Should
      the Optionee's Service be terminated for Misconduct, then all outstanding
      options held by the Optionee shall terminate immediately and cease to remain
      outstanding.

     

    2. The
      Plan
      Administrator shall have complete discretion, exercisable either at the time
      an
      option is granted or at any time while the option remains outstanding,
      to:

     

    (i) extend
      the period of time for which the option is to remain exercisable following
      the
      Optionee's cessation of Service from the limited exercise period otherwise
      in
      effect for that option to such greater period of time as the Plan Administrator
      shall deem appropriate, but in no event beyond the expiration of the option
      term, and/or

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (ii) permit
      the option to be exercised, during the applicable post-Service exercise period,
      not only with respect to the number of vested shares of Common Stock for which
      such option is exercisable at the time of the Optionee's cessation of Service
      but also with respect to one or more additional installments in which the
      Optionee would have vested had the Optionee continued in Service.

     

    D. Stockholder
      Rights. The holder of an option shall have no stockholder rights with respect
      to
      the shares subject to the option until such person shall have exercised the
      option, paid the exercise price and become a holder of record of the purchased
      shares.

     

    E. Repurchase
      Rights. The Plan Administrator shall have the discretion to grant options which
      are exercisable for unvested shares of Common Stock. Should the Optionee cease
      Service while holding such unvested shares, the Corporation shall have the
      right
      to repurchase, at the exercise price paid per share, any or all of those
      unvested shares. The terms upon which such repurchase right shall be exercisable
      (including the period and procedure for exercise and the appropriate vesting
      schedule for the purchased shares) shall be established by the Plan
      Administrator and set forth in the document evidencing such repurchase
      right.

     

    F. Limited
      Transferability of Options. During the lifetime of the Optionee, Incentive
      Options shall be exercisable only by the Optionee and shall not be assignable
      or
      transferable other than by will or by the laws of descent and distribution
      following the Optionee's death. However, a Non-Statutory Option may, in
      connection with the Optionee's estate plan, be assigned in whole or in part
      during the Optionee's lifetime to one or more members of the Optionee's
      immediate family or to a trust established exclusively for one or more such
      family members. The assigned portion may only be exercised by the person or
      persons who acquire a proprietary interest in the option pursuant to the
      assignment. The terms applicable to the assigned portion shall be the same
      as
      those in effect for the option immediately prior to such assignment and shall
      be
      set forth in such documents issued to the assignee as the Plan Administrator
      may
      deem appropriate.

     

    II. INCENTIVE
      OPTIONS

     

    The
      terms
      specified below shall be applicable to all Incentive Options. Except as modified
      by the provisions of this Section II, all the provisions of Articles One, Two
      and Five shall be applicable to Incentive Options. Options which are
      specifically designated as Non-Statutory Options when issued under the Plan
      shall not be subject to the terms of this Section II.

     

    A. Eligibility.
      Incentive Options may only be granted to Employees.

     

    B. Dollar
      Limitation. The aggregate Fair Market Value of the shares of Common Stock
      (determined as of the respective date or dates of grant) for which one or more
      options granted to any Employee under the Plan (or any other option plan of
      the
      Corporation or any Parent or Subsidiary) may for the first time become
      exercisable as Incentive Options during any one calendar year shall not exceed
      the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
      holds two (2) or more such options which become exercisable for the first time
      in the same calendar year, the foregoing limitation on the exercisability of
      such options as Incentive Options shall be applied on the basis of the order
      in
      which such options are granted.

     

    C. 10%
      Stockholder. If any Employee to whom an Incentive Option is granted is a 10%
      Stockholder, then the exercise price per share shall not be less than one
      hundred ten percent (110%) of the Fair Market Value per share of Common Stock
      on
      the option grant date, and the option term shall not exceed five (5) years
      measured from the option grant date.

     

    III. CORPORATE
      TRANSACTION/CHANGE IN CONTROL

     

    A. In
      the
      event of any Corporate Transaction, each outstanding option shall automatically
      accelerate so that each such option shall, immediately prior to the effective
      date of the Corporate Transaction, become fully exercisable with respect to
      the
      total number of shares of Common Stock at the time subject to such option and
      may be exercised for any or all of those shares as fully-vested shares of Common
      Stock. However, an outstanding option shall not so accelerate if and to the
      extent: (i) such option is, in connection with the Corporate Transaction, either
      to be assumed by the successor corporation (or parent thereof) or to be replaced
      with a comparable option to purchase shares of the capital stock of the
      successor corporation (or parent thereof), (ii) such option is to be replaced
      with a cash incentive program of the successor corporation which preserves
      the
      spread existing on the unvested option shares at the time of the Corporate
      Transaction and provides for subsequent payout in accordance with the same
      vesting schedule applicable to those option shares or (iii) the acceleration
      of
      such option is subject to other limitations imposed by the Plan Administrator
      at
      the time of the option grant. The determination of option comparability under
      clause (i) above shall be made by the Plan Administrator, and its determination
      shall be final, binding and conclusive.

     

    B. All
      outstanding repurchase rights shall also terminate automatically, and the shares
      of Common Stock subject to those terminated rights shall immediately vest in
      full, in the event of any Corporate Transaction, except to the extent: (i)
      those
      repurchase rights are to be assigned to the successor corporation (or parent
      thereof) in connection with such Corporate Transaction or (ii) such accelerated
      vesting is precluded by other limitations imposed by the Plan Administrator
      at
      the time the repurchase right is issued.

     

    C. The
      Plan
      Administrator shall have the discretion, exercisable either at the time the
      option is granted or at any time while the option remains outstanding, to
      provide for the automatic acceleration of one or more outstanding options upon
      the occurrence of a Corporate Transaction, whether or not those options are
      to
      be assumed or replaced in the Corporate Transaction.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    D. Each
      option which is assumed in connection with a Corporate Transaction shall be
      appropriately adjusted, immediately after such Corporate Transaction, to apply
      to the number and class of securities which would have been issuable to the
      Optionee in consummation of such Corporate Transaction had the option been
      exercised immediately prior to such Corporate Transaction. Appropriate
      adjustments to reflect such Corporate Transaction shall also be made to (i)
      the
      exercise price payable per share under each outstanding option, provided the
      aggregate exercise price payable for such securities shall remain the same,
      (ii)
      the maximum number and/or class of securities available for issuance over the
      remaining term of the Plan and (iii) the maximum number and/or class of
      securities for which any one person may be granted stock options, separately
      exercisable stock appreciation rights and direct stock issuances under the
      Plan
      per calendar year.

     

    E. Notwithstanding
      Section III.A. of this Article Two, the Plan Administrator shall have the
      discretionary authority, exercisable either at the time the option is granted
      or
      at any time while the option remains outstanding, to provide for the automatic
      acceleration of one or more outstanding options under the Discretionary Option
      Grant Program upon the occurrence of a Corporate Transaction, whether or not
      those options are to be assumed or replaced in the Corporate Transaction. In
      addition, the Plan Administrator may provide that one or more of the
      Corporation's outstanding repurchase rights with respect to shares held by
      the
      Optionee at the time of such Corporate Transaction shall immediately terminate,
      and the shares subject to those terminated repurchase rights shall accordingly
      vest in full, even in the event the options are to be assumed.

     

    F. The
      Plan
      Administrator shall have full power and authority exercisable, either at the
      time the option is granted or at any time while the option remains outstanding,
      to provide for the automatic acceleration of one or more outstanding options
      under the Discretionary Option Grant Program in the event the Optionee's Service
      terminates by reason of an Involuntary Termination within a designated period
      (not to exceed eighteen (18) months) following the effective date of any
      Corporate Transaction in which those options are assumed or replaced and do
      not
      otherwise accelerate. Any options so accelerated shall remain exercisable for
      fully-vested shares until the earlier of (i) the expiration of the option term
      or (ii) the expiration of the one (1)-year period measured from the effective
      date of the Involuntary Termination. In addition, the Plan Administrator may
      provide that one or more of the Corporation's outstanding repurchase rights
      with
      respect to shares held by the Optionee at the time of such Involuntary
      Termination shall immediately terminate, and the shares subject to those
      terminated repurchase rights shall accordingly vest in full.

     

    G. The
      Plan
      Administrator shall have full power and authority, exercisable either at the
      time the option is granted or at any time while the option remains outstanding,
      to provide for the automatic acceleration of one or more outstanding options
      under the Discretionary Option Grant Program upon (i) a Change in Control or
      (ii) the termination of the Optionee's Service by reason of an Involuntary
      Termination within a designated period (not to exceed eighteen (18) months)
      following the effective date of such Change in Control. Each option so
      accelerated shall remain exercisable for fully-vested shares until the earlier
      of (i) the expiration of the option term or (ii) the expiration of the one
      (1)-year period measured from the effective date of the Optionee's cessation
      of
      Service. In addition, the Plan Administrator may provide that one or more of
      the
      Corporation's outstanding repurchase rights with respect to shares held by
      the
      Optionee at the time of such Change in Control or Involuntary Termination shall
      immediately terminate, and the shares subject to those terminated repurchase
      rights shall accordingly vest in full.

     

    H. The
      portion of any Incentive Option accelerated in connection with a Corporate
      Transaction or Change in Control shall remain exercisable as an Incentive Option
      only to the extent the applicable One Hundred Thousand Dollar limitation is
      not
      exceeded. To the extent such dollar limitation is exceeded, the accelerated
      portion of such option shall be exercisable as a Non-Statutory Option under
      the
      Federal tax laws.

     

    I. The
      outstanding options shall in no way affect the right of the Corporation to
      adjust, reclassify, reorganize or otherwise change its capital or business
      structure or to merge, consolidate, dissolve, liquidate or sell or transfer
      all
      or any part of its business or assets.

     

    IV. CANCELLATION
      AND REGRANT OF OPTION -- OMITTED

     

    V. STOCK
      APPRECIATION RIGHTS

     

    A. The
      Plan
      Administrator shall have full power and authority to grant to selected Optionees
      tandem stock appreciation rights and/or limited stock appreciation
      rights.

     

    B. The
      following terms shall govern the grant and exercise of tandem stock appreciation
      rights:

     

    (i) One
      or
      more Optionees may be granted the right, exercisable upon such terms as the
      Plan
      Administrator may establish, to elect between the exercise of the underlying
      option for shares of Common Stock and the surrender of that option in exchange
      for a distribution from the Corporation in an amount equal to the excess of
      (a)
      the Fair Market Value (on the option surrender date) of the number of shares
      in
      which the Optionee is at the time vested under the surrendered option (or
      surrendered portion thereof) over (b) the aggregate exercise price payable
      for
      such shares.

     

    (ii) No
      such
      option surrender shall be effective unless it is approved by the Plan
      Administrator, either at the time of the actual option surrender or at any
      earlier time. If the surrender is so approved, then the distribution to which
      the Optionee shall be entitled may be made in shares of Common Stock valued
      at
      Fair Market Value on the option surrender date, in cash, or partly in shares
      and
      partly in cash, as the Plan Administrator shall in its sole discretion deem
      appropriate.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (iii) If
      the
      surrender of an option is not approved by the Plan Administrator, then the
      Optionee shall retain whatever rights the Optionee had under the surrendered
      option (or surrendered portion thereof) on the option surrender date and may
      exercise such rights at any time prior to the later of (a) five (5) business
      days after the receipt of the rejection notice or (b) the last day on which
      the
      option is otherwise exercisable in accordance with the terms of the documents
      evidencing such option, but in no event may such rights be exercised more than
      ten (10) years after the option grant date.

     

    C. The
      following terms shall govern the grant and exercise of limited stock
      appreciation rights:

     

    (i) One
      or
      more Section 16 Insiders may be granted limited stock appreciation rights with
      respect to their outstanding options.

     

    (ii) Upon
      the
      occurrence of a Hostile Take-Over, each individual holding one or more options
      with such a limited stock appreciation right shall have the unconditional right
      (exercisable for a thirty (30)-day period following such Hostile Take-Over)
      to
      surrender each such option to the Corporation, to the extent the option is
      at
      the time exercisable for vested shares of Common Stock. In return for the
      surrendered option, the Optionee shall receive a cash distribution from the
      Corporation in an amount equal to the excess of (A) the Take-Over Price of
      the
      shares of Common Stock which are at the time vested under each surrendered
      option (or surrendered portion thereof) over (B) the aggregate exercise price
      payable for such shares. Such cash distribution shall be paid within five (5)
      days following the option surrender date.

     

    (iii) The
      balance of the option (if any) shall remain outstanding and exercisable in
      accordance with the documents evidencing such option.

    



    
      
         

      

      
         

        
          

        

      

      
         

      

    


     

    ARTICLE
      THREE

     

    STOCK
      ISSUANCE PROGRAM

     

    I. STOCK
      ISSUANCE TERMS

     

    Shares
      of
      Common Stock may be issued under the Stock Issuance Program through direct
      and
      immediate issuances without any intervening option grants. Each such stock
      issuance shall be evidenced by a Stock Issuance Agreement which complies with
      the terms specified below.

     

    A. Purchase
      Price.

     

    1. The
      purchase price per share shall be fixed by the Plan Administrator, but shall
      not
      be less than one hundred percent (100%) of the Fair Market Value per share
      of
      Common Stock on the issuance date.

     

    2. Subject
      to the provisions of Section I of Article Five, shares of Common Stock may
      be
      issued under the Stock Issuance Program for any of the following items of
      consideration which the Plan Administrator may deem appropriate in each
      individual instance:

     

    (i) cash
      or
      check made payable to the Corporation, or

     

    (ii) past
      services rendered to the Corporation (or any Parent or Subsidiary).

     

    B. Vesting
      Provisions.

     

    1. Shares
      of
      Common Stock issued under the Stock Issuance Program may, in the discretion
      of
      the Plan Administrator, be fully and immediately vested upon issuance or may
      vest in one or more installments over the Participant's period of Service or
      upon attainment of specified performance objectives.

     

    2. Any
      new,
      substituted or additional securities or other property (including money paid
      other than as a regular cash dividend) which the Participant may have the right
      to receive with respect to the Participant's unvested shares of Common Stock
      by
      reason of any stock dividend, stock split,

     

    recapitalization,
      combination of shares, exchange of shares or other change affecting the
      outstanding Common Stock as a class without the Corporation's receipt of
      consideration shall be issued subject to (i) the same vesting requirements
      applicable to the Participant's unvested shares of Common Stock and (ii) such
      escrow arrangements as the Plan Administrator shall deem
      appropriate.

     

    3. The
      Participant shall have full stockholder rights with respect to any shares of
      Common Stock issued to the Participant under the Stock Issuance Program, whether
      or not the Participant's interest in those shares is vested. Accordingly, the
      Participant shall have the right to vote such shares and to receive any regular
      cash dividends paid on such shares.

     

    4. Should
      the Participant cease to remain in Service while holding one or more unvested
      shares of Common Stock issued under the Stock Issuance Program or should the
      performance objectives not be attained with respect to one or more such unvested
      shares of Common Stock, then those shares shall be immediately surrendered
      to
      the Corporation for cancellation, and the Participant shall have no further
      stockholder rights with respect to those shares. To the extent the surrendered
      shares were previously issued to the Participant for consideration paid in
      cash
      or cash equivalent (including the Participant's purchase-money indebtedness),
      the Corporation shall repay to the Participant the cash consideration paid
      for
      the surrendered shares and shall cancel the unpaid principal balance of any
      outstanding purchase-money note of the Participant attributable to the
      surrendered shares.

     

    5. The
      Plan
      Administrator may in its discretion waive the surrender and cancellation of
      one
      or more unvested shares of Common Stock which would otherwise occur upon the
      cessation of the Participant's Service or the non-attainment of the performance
      objectives applicable to those shares. Such waiver shall result in the immediate
      vesting of the Participant's interest in the shares as to which the waiver
      applies. Such waiver may be effected at any time, whether before or after the
      Participant's cessation of Service or the attainment or non-attainment of the
      applicable performance objectives.

     

    II. CORPORATE
      TRANSACTION/CHANGE IN CONTROL

     

    A. All
      of
      the Corporation's outstanding repurchase rights under the Stock Issuance Program
      shall terminate automatically, and all the shares of Common Stock subject to
      those terminated rights shall immediately vest in full, in the event of any
      Corporate Transaction, except to the extent (i) those repurchase rights are
      to
      be assigned to the successor corporation (or parent thereof) in connection
      with
      such Corporate Transaction or (ii) such accelerated vesting is precluded by
      other limitations imposed in the Stock Issuance Agreement.

     

    B. The
      Plan
      Administrator shall have the discretion, exercisable either at the time the
      unvested shares are issued or at any time while the Corporation's repurchase
      right remains outstanding, to provide for the automatic termination of one
      or
      more of those outstanding rights and the immediate vesting of the shares of
      Common Stock subject to such rights upon the occurrence of a Corporate
      Transaction.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    C. The
      Plan
      Administrator shall have the discretionary authority, exercisable either at
      the
      time the unvested shares are issued or any time while the Corporation's
      repurchase rights remain outstanding under the Stock Issuance Program, to
      provide that those rights shall automatically terminate in whole or in part,
      and
      the shares of Common Stock subject to those terminated rights shall immediately
      vest, in the event the Participant's Service should terminate by reason of
      an
      Involuntary Termination within a designated period (not to exceed eighteen
      (18)
      months) following the effective date of any Corporate Transaction in which
      those
      repurchase rights are assigned to the successor corporation (or parent
      thereof).

     

    D. The
      Plan
      Administrator shall have the discretionary authority, exercisable either at
      the
      time the unvested shares are issued or any time while the Corporation's
      repurchase rights remain outstanding under the Stock Issuance Program, to
      provide that those rights shall automatically terminate in whole or in part,
      and
      the shares of Common Stock subject to those terminated rights shall immediately
      vest upon (i) a Change in Control or (ii) the termination of the Participant's
      Service by reason of an Involuntary Termination within a designated period
      (not
      to exceed eighteen (18) months) following the effective date of such Change
      in
      Control.

     

    III. SHARE
      ESCROW/LEGENDS

     

    Unvested
      shares may, in the Plan Administrator's discretion, be held in escrow by the
      Corporation until the Participant's interest in such shares vests or may be
      issued directly to the Participant with restrictive legends on the certificates
      evidencing those unvested shares.

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


     

    ARTICLE
      FOUR

     

    AUTOMATIC
      OPTION GRANT PROGRAM

     

    I. OPTION
      TERMS

     

    A. Grant
      Dates. Option grants shall be made on the dates specified below:

     

    1. Each
      individual who is first elected or appointed as a non-employee Board member
      at
      any time after the Plan Effective Date shall automatically be granted, on the
      date of such initial election or appointment, a Non-Statutory Option to purchase
      30,000 shares of Common Stock, provided that individual has not previously
      been
      a director of or in the employ of the Corporation or any Parent or
      Subsidiary.

     

    2. On
      the
      date of the 1998 Annual Meeting (the Stockholder Approval Date) and on the
      date
      of each Annual Stockholders Meeting held after such date, each individual who
      is
      to continue to serve as an Eligible Director, whether or not that individual
      is
      standing for re-election to the Board at that particular Annual Meeting, shall
      automatically be granted a Non-Statutory Option to purchase 10,000 shares of
      Common Stock, provided that such amount shall be increased to 20,000 shares
      for
      grants on or after the date of the 2000 Annual Meeting and such amount shall
      be
      further increased to 25,000 shares for grants on or after the date of the 2005
      Annual Meeting, with respect to each Annual Stockholders Meeting, such
      individual has served as a non-employee board member for at least six (6)
      months. There shall be no limit on the number of such 10,000, 20,000 or
      25,000-share option grants any one Eligible Director may receive over his or
      her
      period of Board Service, and non-employee Board members who have previously
      been
      a director of or in the employ of the Corporation (or any Parent or Subsidiary)
      shall be eligible to receive one or more such annual option grants over their
      period of continued Board Service.

     

    B. Exercise
      Price.

     

    1. The
      exercise price per share shall be equal to the Fair Market Value per share
      of
      Common Stock on the option grant date.

     

    2. The
      exercise price shall be payable in one or more of the alternative forms
      authorized under the Discretionary Option Grant Program. Except to the extent
      the sale and remittance procedure specified thereunder is utilized, payment
      of
      the exercise price for the purchased shares must be made on the Exercise
      Date.

     

    C. Option
      Term. Each option shall have a term of ten (10) years measured from the option
      grant date.

     

    D. Exercise
      and Vesting of Options. Each option shall be immediately exercisable for any
      or
      all of the option shares. However, any shares purchased under the option shall
      be subject to repurchase by the Corporation, at the exercise price paid per
      share, upon the Optionee's cessation of Board Service prior to vesting in those
      shares. With respect to options granted on or after the date of the 1998 annual
      stockholders’ meeting, each option shall vest, and the Corporation’s repurchase
      right shall lapse, on the first anniversary of the date of grant.

     

    E. Termination
      of Board Service. The following provisions shall govern the exercise of any
      options held by the Optionee at the time the Optionee ceases to serve as a
      Board
      member:

     

    (i) The
      Optionee (or, in the event of the Optionee's death, the personal representative
      of the Optionee's estate or the person or persons to whom the option is
      transferred pursuant to the Optionee's will or in accordance with the laws
      of
      descent and distribution) shall have a twelve (12)-month period following the
      date of such cessation of Board Service in which to exercise each such
      option.

     

    (ii) During
      the twelve (12)-month post-service exercise period, the option may not be
      exercised in the aggregate for more than the number of vested shares of Common
      Stock for which the option is exercisable at the time of the Optionee's
      cessation of Board Service.

     

    (iii) Should
      the Optionee cease to serve as a Board member by reason of death or Permanent
      Disability, then all shares at the time subject to the option shall immediately
      vest so that such option may, during the twelve (12)-month exercise period
      following such cessation of Board Service, be exercised for all or any portion
      of those shares as fully-vested shares of Common Stock.

     

    (iv) In
      no
      event shall the option remain exercisable after the expiration of the option
      term. Upon the expiration of the twelve (12)-month post-service exercise period
      or (if earlier) upon the expiration of the option term, the option shall
      terminate and cease to be outstanding for any vested shares for which the option
      has not been exercised. However, the option shall, immediately upon the
      Optionee's cessation of Board Service for any reason other than death or
      Permanent Disability, terminate and cease to be outstanding to the extent the
      option is not otherwise at that time exercisable for vested shares.

     

    (v) Notwithstanding
      anything contained in Subparagraphs (i) through (iv), above, of Paragraph E
      of
      this Article Four, the Plan Administrator shall have complete discretion,
      exercisable either at the time an option is granted or at any time while the
      option remains outstanding, to:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1. extend
      the period of time for which the option is to remain exercisable following
      Optionee's cessation of Board Service from the limited exercise period otherwise
      in effect for that option to such greater period of time as the Plan
      Administrator shall deem appropriate, but in no event beyond the expiration
      of
      the option term, and/or

     

    2. permit
      the option to be exercised, during the applicable post-Service exercise period,
      not only with respect to the number of vested shares of Common Stock for which
      such option is exercisable at the time of the Optionee's cessation of Service
      but also with respect to one or more additional installments in which the
      Optionee would have vested had the Optionee continued in Board
      Service.

     

    II. CORPORATE
      TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

     

    A. In
      the
      event of any Corporate Transaction, the shares of Common Stock at the time
      subject to each outstanding option but not otherwise vested shall automatically
      vest in full so that each such option shall, immediately prior to the effective
      date of the Corporate Transaction, become fully exercisable for all of the
      shares of Common Stock at the time subject to such option and may be exercised
      for all or any portion of those shares as fully-vested shares of Common Stock.
      Immediately following the consummation of the Corporate Transaction, each
      automatic option grant shall terminate and cease to be outstanding, except
      to
      the extent assumed by the successor corporation (or parent
      thereof).

     

    B. In
      connection with any Change in Control, the shares of Common Stock at the time
      subject to each outstanding option but not otherwise vested shall automatically
      vest in full so that each such option shall, immediately prior to the effective
      date of the Change in Control, become fully exercisable for all of the shares
      of
      Common Stock at the time subject to such option and may be exercised for all
      or
      any portion of those shares as fully-vested shares of Common Stock. Each such
      option shall remain exercisable for such fully-vested option shares until the
      expiration or sooner termination of the option term or the surrender of the
      option in connection with a Hostile Take-Over.

     

    C. Upon
      the
      occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day
      period in which to surrender to the Corporation each of his or her outstanding
      automatic option grants. The Optionee shall in return be entitled to a cash
      distribution from the Corporation in an amount equal to the excess of (i) the
      Take-Over Price of the shares of Common Stock at the time subject to each
      surrendered option (whether or not the Optionee is otherwise at the time vested
      in those shares) over (ii) the aggregate exercise price payable for such shares.
      Such cash distribution shall be paid within five (5) days following the
      surrender of the option to the Corporation. No approval or consent of the Board
      or any Plan Administrator shall be required in connection with such option
      surrender and cash distribution.

     

    D. Each
      option which is assumed in connection with a Corporate Transaction shall be
      appropriately adjusted, immediately after such Corporate Transaction, to apply
      to the number and class of securities which would have been issuable to the
      Optionee in consummation of such Corporate Transaction had the option been
      exercised immediately prior to such Corporate Transaction. Appropriate
      adjustments shall also be made to the exercise price payable per share under
      each outstanding option, provided the aggregate exercise price payable for
      such
      securities shall remain the same.

     

    E. The
      grant
      of options under the Automatic Option Grant Program shall in no way affect
      the
      right of the Corporation to adjust, reclassify, reorganize or otherwise change
      its capital or business structure or to merge, consolidate, dissolve, liquidate
      or sell or transfer all or any part of its business or assets.

     

    III. REMAINING
      TERMS

     

    The
      remaining terms of each option granted under the Automatic Option Grant Program
      shall be the same as the terms in effect for option grants made under the
      Discretionary Option Grant Program.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    ARTICLE
      FIVE

     

    MISCELLANEOUS

     

    I. FINANCING

     

    The
      Plan
      Administrator may permit any Optionee or Participant to pay the option exercise
      price under the Discretionary Option Grant Program or the purchase price of
      shares issued under the Stock Issuance Program by delivering a full-recourse,
      interest bearing promissory note payable in one or more installments. The terms
      of any such promissory note (including the interest rate and the terms of
      repayment) shall be established by the Plan Administrator in its sole
      discretion. In no event may the maximum credit available to the Optionee or
      Participant exceed the sum of (i) the aggregate option exercise price or
      purchase price payable for the purchased shares plus (ii) any Federal, state
      and
      local income and employment tax liability incurred by the Optionee or the
      Participant in connection with the option exercise or share
      purchase.

     

    II. TAX
      WITHHOLDING

     

    A. The
      Corporation's obligation to deliver shares of Common Stock upon the exercise
      of
      options or the issuance or vesting of such shares under the Plan shall be
      subject to the satisfaction of all applicable Federal, state and local income
      and employment tax withholding requirements.

     

    B. The
      Plan
      Administrator may, in its discretion, provide any or all holders of
      Non-Statutory Options or unvested shares of Common Stock under the Plan (other
      than the options granted or the shares issued under the Automatic Option Grant
      Program) with the right to use shares of Common Stock in satisfaction of all
      or
      part of the Taxes incurred by such holders in connection with the exercise
      of
      their options or the vesting of their shares. Such right may be provided to
      any
      such holder in either or both of the following formats:

     

    Stock
      Withholding: The election to have the Corporation withhold, from the shares
      of
      Common Stock otherwise issuable upon the exercise of such Non-Statutory Option
      or the vesting of such shares, a portion of those shares with an aggregate
      Fair
      Market Value equal to the percentage of the Taxes (not to exceed one hundred
      percent (100%)) designated by the holder.

     

    Stock
      Delivery: The election to deliver to the Corporation, at the time the
      Non-Statutory Option is exercised or the shares vest, one or more shares of
      Common Stock previously acquired by such holder (other than in connection with
      the option exercise or share vesting triggering the Taxes) with an aggregate
      Fair Market Value equal to the percentage of the Taxes (not to exceed one
      hundred percent (100%)) designated by the holder.

     

    III. EFFECTIVE
      DATE AND TERM OF THE PLAN

     

    A. The
      Plan
      shall become effective immediately upon the Plan Effective Date. Options may
      be
      granted under the Discretionary Option Grant or Automatic Option Grant Program
      at any time on or after the Plan Effective Date. However, no options granted
      under the Plan may be exercised, and no shares shall be issued under the Plan,
      until the Stockholder Approval Date. If the Stockholder Approval Date does
      not
      occur within twelve (12) months after the Plan Effective Date, then all options
      previously granted under this Plan shall terminate and cease to be outstanding,
      and no further options shall be granted and no shares shall be issued under
      the
      Plan.

     

    B. One
      or
      more provisions of the Plan, including (without limitation) the option/vesting
      acceleration provisions of Article Two relating to Corporate Transactions and
      Changes in Control, may, in the Plan Administrator's discretion, be extended
      to
      one or more options incorporated from the Predecessor Plan on the Stockholder
      Approval Date which do not otherwise contain such provisions.

     

    C. The
      Plan
      shall terminate upon the earliest of (i) March 24, 2008 (ii) the date on which
      all shares available for issuance under the Plan shall have been issued as
      fully-vested shares or (iii) the termination of all outstanding options in
      connection with a Corporate Transaction. Upon such plan termination, all
      outstanding option grants and unvested stock issuances shall thereafter continue
      to have force and effect in accordance with the provisions of the documents
      evidencing such grants or issuances.

     

    IV. AMENDMENT
      OF THE PLAN

     

    A. The
      Board
      shall have complete and exclusive power and authority to amend or modify the
      Plan in any or all respects. However, no such amendment or modification shall
      adversely affect the rights and obligations with respect to stock options or
      unvested stock issuances at the time outstanding under the Plan unless the
      Optionee or the Participant consents to such amendment or modification. In
      addition, certain amendments may require stockholder approval pursuant to
      applicable laws or regulations.

     

    B. Options
      to purchase shares of Common Stock may be granted under the Discretionary Option
      Grant Programs and shares of Common Stock may be issued under the Stock Issuance
      Program that are in each instance in excess of the number of shares then
      available for issuance under the Plan, provided any excess shares actually
      issued under those programs shall be held in escrow until there is obtained
      stockholder approval of an amendment sufficiently increasing the number of
      shares of Common Stock available for issuance under the Plan. If such
      stockholder approval is not obtained within twelve (12) months after the date
      the first such excess issuances are made, then (i) any unexercised options
      granted on the basis of such excess shares shall terminate and cease to be
      outstanding and (ii) the Corporation shall promptly refund to the Optionees
      and
      the Participants the exercise or purchase price paid for any excess shares
      issued under the Plan and held in escrow, together with interest (at the
      applicable Short Term Federal Rate) for the period the shares were held in
      escrow, and such shares shall thereupon be automatically cancelled and cease
      to
      be outstanding.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    V. USE
      OF
      PROCEEDS

     

    Any
      cash
      proceeds received by the Corporation from the sale of shares of Common Stock
      under the Plan shall be used for general corporate purposes.

     

    VI. REGULATORY
      APPROVALS

     

    A. The
      implementation of the Plan, the granting of any stock option under the Plan
      and
      the issuance of any shares of Common Stock (i) upon the exercise of any granted
      option or (ii) under the Stock Issuance Program shall be subject to the
      Corporation's procurement of all approvals and permits required by regulatory
      authorities having jurisdiction over the Plan, the stock options granted under
      it and the shares of Common Stock issued pursuant to it.

     

    B. No
      shares
      of Common Stock or other assets shall be issued or delivered under the Plan
      unless and until there shall have been compliance with all applicable
      requirements of Federal and state securities laws, including the filing and
      effectiveness of the Form S-8 registration statement for the shares of Common
      Stock issuable under the Plan, and all applicable listing requirements of any
      stock exchange (or the Nasdaq National Market, if applicable) on which Common
      Stock is then listed for trading.

     

    VII. NO
      EMPLOYMENT/SERVICE RIGHTS

     

    Nothing
      in the Plan shall confer upon the Optionee or the Participant any right to
      continue in Service or Board Service for any period of specific duration or
      interfere with or otherwise restrict in any way the rights of the Corporation
      (or any Parent or Subsidiary employing or retaining such person) or of the
      Optionee or the Participant, which rights are hereby expressly reserved by
      each,
      to terminate such person's Service or Board Service at any time for any reason,
      with or without cause.

    



    
      
         

      

      
         

        
          

        

      

      
         

        
        

      

    

    APPENDIX

     

    The
      following definitions shall be in effect under the Plan:

     

    A. Automatic
      Option Grant Program shall mean the automatic option grant program in effect
      under the Plan.

     

    B. Board
      shall mean the Corporation's Board of Directors.

     

    C. Board
      Service shall mean the performance of services for the Corporation by a person
      in the capacity of a non-employee member of the board of directors.

     

    D. Change
      in
      Control shall mean a change in ownership or control of the Corporation effected
      through either of the following transactions:

     

    (i) the
      acquisition, directly or indirectly by any person or related group of persons
      (other than the Corporation or a person that directly or indirectly controls,
      is
      controlled by, or is under common control with, the Corporation), of beneficial
      ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
      possessing more than fifty percent (50%) of the total combined voting power
      of
      the Corporation's outstanding securities pursuant to a tender or exchange offer
      made directly to the Corporation's stockholders which the Board does not
      recommend such stockholders to accept, or

     

    (ii) a
      change
      in the composition of the Board over a period of thirty-six (36) consecutive
      months or less such that a majority of the Board members ceases, by reason
      of
      one or more contested elections for Board membership, to be comprised of
      individuals who either (A) have been Board members continuously since the
      beginning of such period or (B) have been elected or nominated for election
      as
      Board members during such period by at least a majority of the Board members
      described in clause (A) who were still in office at the time the Board approved
      such election or nomination.

     

    E. Code
      shall mean the Internal Revenue Code of 1986, as amended.

     

    F. Common
      Stock shall mean the Corporation's common stock.

     

    G. Corporate
      Transaction shall mean either of the following stockholder-approved transactions
      to which the Corporation is a party:

     

    (i) a
      merger
      or consolidation in which securities possessing more than fifty percent (50%)
      of
      the total combined voting power of the Corporation's outstanding securities
      are
      transferred to a person or persons different from the persons holding those
      securities immediately prior to such transaction, or

     

    (ii) the
      sale,
      transfer or other disposition of all or substantially all of the Corporation's
      assets in complete liquidation or dissolution of the Corporation.

     

    H. Corporation
      shall mean Discovery Laboratories, Inc., a Delaware corporation, and its
      successors.

     

    I. Discretionary
      Option Grant Program shall mean the discretionary option grant program in effect
      under the Plan.

     

    J. Eligible
      Director shall mean a non-employee Board member who is not a 10%
      Stockholder.

     

    K. Employee
      shall mean an individual who is in the employ of the Corporation (or any Parent
      or Subsidiary), subject to the control and direction of the employer entity
      as
      to both the work to be performed and the manner and method of
      performance.

     

    L.  Exercise
      Date shall mean the date on which the Corporation shall have received written
      notice of the option exercise.

     

    M. Fair
      Market Value per share of Common Stock on any relevant date shall be determined
      in accordance with the following provisions:

     

    (i) If
      the
      Common Stock is at the time traded on the Nasdaq SmallCap Market or Nasdaq
      National Market, then the Fair Market Value shall be deemed equal to the closing
      selling price per share of Common Stock on the date in question, as such price
      is reported on such market or any successor system. If there is no closing
      selling price for the Common Stock on the date in question, then the Fair Market
      Value shall be the closing selling price on the last preceding date for which
      such quotation exists.

     

    (ii) If
      the
      Common Stock is at the time listed on any Stock Exchange, then the Fair Market
      Value shall be deemed equal to the closing selling price per share of Common
      Stock on the date in question on the Stock Exchange determined by the Plan
      Administrator to be the primary market for the Common Stock, as such price
      is
      officially quoted in the composite tape of transactions on such exchange. If
      there is no closing selling price for the Common Stock on the date in question,
      then the Fair Market Value shall be the closing selling price on the last
      preceding date for which such quotation exists.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    N. Hostile
      Take-Over shall mean the acquisition, directly or indirectly, by any person
      or
      related group of persons (other than the Corporation or a person that directly
      or indirectly controls, is controlled by, or is under common control with,
      the
      Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
      1934 Act) of securities possessing more than fifty percent (50%) of the total
      combined voting power of the Corporation's outstanding securities pursuant
      to a
      tender or exchange offer made directly to the Corporation's stockholders which
      the Board does not recommend such stockholders to accept.

     

    O. Incentive
      Option shall mean an option which satisfies the requirements of Code Section
      422.

     

    P. Initial
      Approval Date shall mean June 16, 1998, the date on which the Corporation's
      1998
      Stock Incentive Plan was initially approved by the stockholders of the
      Corporation.

     

    Q. Involuntary
      Termination shall mean the termination of the Service of any individual which
      occurs by reason of:

     

    (i) such
      individual's involuntary dismissal or discharge by the Corporation for reasons
      other than Misconduct, or

     

    (ii) Optionee's
      voluntary resignation following (A) a change in Optionee's position with the
      Corporation (or Parent or Subsidiary employing Optionee) which materially
      reduces Optionee's duties and responsibilities or the level of management to
      which Optionee reports, (B) a reduction in Optionee's level of compensation
      (including base salary, fringe benefits and target bonus under any corporate
      performance-based bonus or incentive programs) by more than fifteen percent
      (15%) or (C) a relocation of Optionee's place of employment by more than fifty
      (50) miles, provided and only if such change, reduction or relocation is
      effected by the Corporation without Optionee's consent.

     

    R. Misconduct
      shall mean, unless otherwise determined by the Plan Administrator and recorded
      in the agreements evidencing the option grant or stock issuance, the commission
      of any act of fraud, embezzlement or dishonesty by the Optionee or Participant,
      any unauthorized use or disclosure by such person of confidential information
      or
      trade secrets of the Corporation (or any Parent or Subsidiary), or any other
      intentional misconduct by such person adversely affecting the business or
      affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
      The foregoing definition shall not be deemed to be inclusive of all the acts
      or
      omissions which the Corporation (or any Parent or Subsidiary) may consider
      as
      grounds for the dismissal or discharge of any Optionee, Participant or other
      person in the Service of the Corporation (or any Parent or
      Subsidiary).

     

    S. 1934
      Act
      shall mean the Securities Exchange Act of 1934, as amended.

     

    T. Non-Statutory
      Option shall mean an option not intended to satisfy the requirements of Code
      Section 422.

     

    U. Optionee
      shall mean any person to whom an option is granted under the Discretionary
      Option Grant or Automatic Option Grant Program.

     

    V. Parent
      shall mean any corporation (other than the Corporation) in an unbroken chain
      of
      corporations ending with the Corporation, provided each corporation in the
      unbroken chain (other than the Corporation) owns, at the time of the
      determination, stock possessing fifty percent (50%) or more of the total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

     

    W. Participant
      shall mean any person who is issued shares of Common Stock under the Stock
      Issuance Program.

     

    X. Permanent
      Disability or Permanently Disabled shall mean the inability of the Optionee
      or
      the Participant to engage in any substantial gainful activity by reason of
      any
      medically determinable physical or mental impairment expected to result in
      death
      or to be of continuous duration of twelve (12) months or more. However, solely
      for purposes of the Automatic Option Grant Program, Permanent Disability or
      Permanently Disabled shall mean the inability of the non-employee Board member
      to perform his or her usual duties as a Board member by reason of any medically
      determinable physical or mental impairment expected to result in death or to
      be
      of continuous duration of twelve (12) months or more.

     

    Y. Plan
      shall mean the Corporation's Amended and Restated 1998 Stock Incentive Plan,
      as
      set forth in this document.

     

    Z. Plan
      Administrator shall mean the particular entity, whether the Primary Committee,
      the Board or the Secondary Committee, which is authorized to administer the
      Discretionary Option Grant and Stock Issuance Programs with respect to one
      or
      more classes of eligible persons, to the extent such entity is carrying out
      its
      administrative functions under those programs with respect to the persons under
      its jurisdiction.

     

    AA. Plan
      Effective Date shall mean March 24, 1998, the date on which the Plan was adopted
      by the Board.

     

    BB. Predecessor
      Plans shall mean the Corporation's 1995 Stock Option Plan and 1993 Stock Option
      Plan as in effect immediately prior to the Plan Effective Date
      hereunder.

     

    CC. Primary
      Committee shall mean the committee of two (2) or more non-employee Board members
      appointed by the Board to administer the Discretionary Option Grant and Stock
      Issuance Programs with respect to Section 16 Insiders.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    DD. Secondary
      Committee shall mean a committee of one (1) or more Board members appointed
      by
      the Board to administer the Discretionary Option Grant and Stock Issuance
      Programs with respect to eligible persons other than Section 16
      Insiders.

     

    EE. Section
      16 Insider shall mean an officer or director of the Corporation subject to
      the
      short-swing profit liabilities of Section 16 of the 1934 Act.

     

    FF. Service
      shall mean the performance of services for the Corporation (or any Parent or
      Subsidiary) by a person in the capacity of an Employee, a non-employee member
      of
      the board of directors or a consultant or independent advisor, except to the
      extent otherwise specifically provided in the documents

     

    evidencing
      the option grant or stock issuance.

     

    GG. Stock
      Exchange shall mean either the American Stock Exchange or the New York Stock
      Exchange.

     

    HH. Stockholder
      Approval Date shall mean the date on which the Plan is approved by the
      Corporation's stockholders.

     

    II Stock
      Issuance Agreement shall mean the agreement entered into by the Corporation
      and
      the Participant at the time of issuance of shares of Common Stock under the
      Stock Issuance Program.

     

    JJ. Stock
      Issuance Program shall mean the stock issuance program in effect under the
      Plan.

     

    KK. Subsidiary
      shall mean any corporation (other than the Corporation) in an unbroken chain
      of
      corporations beginning with the Corporation, provided each corporation (other
      than the last corporation) in the unbroken chain owns, at the time of the
      determination, stock possessing fifty percent (50%) or more

     

    of
      the
      total combined voting power of all classes of stock in one of the other
      corporations in such chain.

     

    LL. Take-Over
      Price shall mean the greater of (i) the Fair Market Value per share of Common
      Stock on the date the option is surrendered to the Corporation in connection
      with a Hostile Take-Over or (ii) the highest reported price per share of Common
      Stock paid by the tender offeror in effecting such Hostile Take-Over. However,
      if the surrendered option is an Incentive Option, the Take-Over Price shall
      not
      exceed the clause (i) price per share.

     

    MM. Taxes
      shall mean the Federal, state and local income and employment tax liabilities
      incurred by the holder of Non-Statutory Options or unvested shares of Common
      Stock in connection with the exercise of those options or the vesting of those
      shares.

     

    NN. 10%
      Stockholder shall mean the owner of stock (as determined under Code Section
      424(d)) possessing more than ten percent (10%) of the total combined voting
      power of all classes of stock of the Corporation (or any Parent or
      Subsidiary).