UNIGENE LABORATORIES, INC.
                           DIRECTORS STOCK OPTION PLAN
1.   Purpose of the Plan.

     The purpose of the  Directors  Stock  Option Plan of Unigene  Laboratories,
Inc.,  is to promote the  interests  of the Company by enhancing  the  Company's
ability to attract and retain as  non-employee  directors  persons of experience
and  ability,  and to  encourage  the  highest  level of  non-employee  director
performance  by providing  such  directors  with a  proprietary  interest in the
Company's growth and financial success.

2. Definitions.

     (a)  "Board" means the Board of Directors of the Company.
     (b)  "Code" means the Internal  Revenue Code of 1986,  as amended,  and the
          rules and regulations thereunder.
     (c)  "Committee"  means a committee  consisting of members of the Board who
          shall be appointed by the Board from time to time,  none of whom shall
          be eligible to participate in the Plan. Members of the Committee shall
          serve at the  pleasure  of the Board  and may  resign at any time upon
          written notice to the Board.
     (d) "Common  Stock"  means the $.01 par value  common stock of the Company.
     (e) "Company"  means Unigene  Laboratories,  Inc.
     (f)  "Date of Grant" means the date of grant of an Option.
     (g)  "Election  Date" means the day of the initial  election or appointment
          to the Board (whether by the stockholders of the Company or the Board)
          of a Non-employee Director.
     (h)  "Non-employee  Director"  means a member  of the  Board  who is not an
          Employee  at the time that a grant of an Option is made to such person
          under the terms of the Plan.
     (i)  "Employee" means any full-time employee of the Company, or any present
          or future parent or subsidiary of the Company.
     (j)  "Fair  Market  Value"  means  the  last  sale  price of  Common  Stock
          immediately  prior to the close of  business  on the date Fair  Market
          Value is to be determined as reported by the Nasdaq Stock Market,  or,
          if the Common Stock is not subject to last sale reporting, the average
          of the bid and asked quotations as reported by the Nasdaq Stock Market
          at the close of business on such date.  If no such last sale report or
          quotations  are available on such date,  such  determination  shall be
          made as of the next  preceding  date on which a last  sale  report  or
          quotations were available.
     (k)  "1994 Plan" means the 1994 Outside  Directors Stock Option Plan of the
          Company.
     (l)  "Option"  means a right  granted to  purchase  Common  Stock under the
          Plan.
     (m)  "Participant" means a Non-employee Director who holds an Option.
     (n)  "Plan"  means the  Directors  Stock  Option Plan of the Company as set
          forth herein and as it may be amended from time to time.
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3.   Shares of Common Stock Eligible for Issuance Under the Plan.

     (a)  Subject to the provisions of Section 7, the aggregate number of shares
          of Common Stock that may be issued or transferred pursuant to exercise
          of Options under the Plan shall not exceed 350,000 shares. Such shares
          may be either authorized but unissued shares or treasury shares.
     (b)  In the event that an Option  previously  granted  shall for any reason
          expire or be terminated  without being  exercised in whole or in part,
          the unpurchased  shares of Common Stock subject to the Option shall be
          restored to the total number of shares of Common Stock with respect to
          which Options may be granted under the Plan.
4.   Administration of the Plan.

     (a)  The Plan shall be administered by the Committee,  which shall have the
          sole and  complete  authority  to  interpret  the Plan and  amend  and
          rescind rules and to make all other  determinations  necessary for the
          Plan's administration.
     (b)  All  action  taken  by  the  Committee  in  the   administration   and
          interpretation  of  the  Plan  shall  be  final  and  binding  on  all
          concerned.
     (c)  The Committee  may  designate  officers or employees of the Company to
          assist the Committee in the  administration of the Plan and to execute
          documents on behalf of the  Committee,  and the Committee may delegate
          to such  officers and  employees  such other  ministerial  and limited
          discretion duties as it sees fit.


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 5. Eligibility and Awards.

     (a)  Only directors of the Company who are Non-employee  Directors shall be
          eligible to participate in the Plan.

     (b)  Options shall be granted under the Plan as follows:

          (i)  on the Election Date of a Non-employee Director that occurs on or
               after the effective date of the Plan, such Non-employee  Director
               shall be granted an Option to  purchase  21,000  shares of Common
               Stock (an "Initial Option");

          (ii) commencing  on May  1,  1999,  and on  each  succeeding  May  1st
               thereafter, each Non-employee Director shall be granted an Option
               to purchase  10,000  shares of Common Stock if such  Non-employee
               Director has served as a  Non-employee  Director for at least six
               months prior to each May 1st (an "Additional Option").

     (c)  Each Option shall be evidenced by a written  instrument  that includes
          such terms and conditions,  consistent with the Plan, as the Committee
          may determine (a "Stock Option Agreement").

 6. Terms and  Conditions  of Options.

     (a)  The purchase price of Common Stock under each Option shall be equal to
          the Fair Market Value of the Common Stock on the Date of Grant.

     (b)  Each  Option  shall  expire  on the tenth  anniversary  of its Date of
          Grant, unless it expires sooner pursuant to the provisions of the Plan
          or the Stock Option Agreement.

     (c)  Each Initial  Option shall  become  exercisable  with respect to 7,000
          shares on each of the  first,  second and third  anniversaries  of its
          Date of Grant.  Each Additional  Option shall become  exercisable with
          respect to all 10,000 shares of Common Stock on the first  anniversary
          of its Date of Grant.  In no event,  however,  shall any Option become
          exercisable  with  respect  to any  shares of Common  Stock  after the
          Participant ceases to be a director of the Company for any reason.

     (d)  Any Option that has not  theretofore  expired shall  terminate 90 days
          following the termination of the  Participant's  service as a director
          of the  Company  for any  reason,  and no shares  of Common  Stock may
          thereafter be purchased pursuant to such Option, except that:

          (i)  Upon  the  resignation  of a  Participant  as a  director  due to
               disability,  the  Participant  may, within a 180-day period after
               the  date of such  termination,  purchase  all or any part of the
               shares of Common  Stock that such  Participant  was  entitled  to
               purchase under such Option on the date of such termination.

          (ii) Upon the death of a  Participant  while  serving as a director or
               within the 90-day  period  referred to above,  the  Participant's
               estate or the person to whom such Participant's  rights under the
               Option  are  transferred  by will  or the  laws  of  descent  and
               distribution  may, within a 180-day period after the date of such
               Participant's  death,  purchase  all or any part of the shares of
               Common Stock that such Participant was entitled to purchase under
               such Option on the date of death.

     (e)  Upon the exercise of an Option, the purchase price shall be payable in
          full in cash;  provided,  however,  that the  Committee  may determine
          acceptable  methods for tendering shares of Common Stock in payment of
          the  exercise  price,  and  may  impose  such  other  limitations  and
          prohibitions on the tendering of such shares as it deems  appropriate.
          Any shares so tendered to the Company in payment or partial payment of
          the  purchase  price shall be valued at their Fair Market Value on the
          exercise date.

     (f)  No Option shall be exercisable in whole or in part and no certificates
          representing  shares of Common  Stock  subject to the Option  shall be
          delivered,

          (i)  If  any  requisite   approval  or  consent  of  any  governmental
               authority having  jurisdiction over the exercise of Options shall
               not have  been  secured  or if the  issuance  of shares of Common
               Stock subject to the Option would  violate any federal,  state or
               local law, regulation or order;

          (ii) At any time that the Common  Stock of the  Company is listed on a
               stock  exchange  or the  Nasdaq  Stock  Market,  if the shares of
               Common   Stock   subject  to  the  Option  shall  not  have  been
               effectively  listed on such  exchange or the Nasdaq Stock Market,
               unless the Company is advised by its counsel that such listing is
               not required; or

          (iii)At any time that the Company shall  determine that any applicable
               withholding tax or other  withholding  obligations  have not been
               satisfied.


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7.   Adjustment    Provisions.
     If any  subdivision  or  combination of shares of Common Stock or any stock
dividend,  capital reorganization or recapitalization occurs after the effective
date of the Plan, the Committee shall make such proportionate adjustments as are
appropriate  in the number of shares of Common  Stock  that may be issued  under
Section 3 and in the  purchase  price of, and the  number of shares  underlying,
outstanding  Options in order to prevent  the  dilution  or  enlargement  of the
rights of each Participant.

8.   Effect of Merger or Other Reorganization.

     If the  Company  dissolves,  sells  substantially  all of  its  assets,  is
acquired in a stock-for-stock or securities exchange, or is a party to a merger,
consolidation  or  other  reorganization  in  which  it  is  not  the  surviving
corporation,  then  each  Option  shall  be  exercisable  in full  for a  period
commencing  upon the date the action of the  stockholders  (or of the Board,  if
stockholder  action is not  required)  is taken to approve the  transaction  and
ending on the date of consummation of such transaction,  and upon the expiration
of  that  period  all  Options  and  all  rights  with  respect   thereto  shall
automatically  terminate;  except  that,  if  following  such  approval  no such
transaction is  consummated,  all outstanding  Options not exercised  during the
period will be restored to their original vesting schedule.

9.   General Provisions.

     (a)  Nothing in the Plan or in any instrument executed pursuant to the Plan
          shall confer upon any  Participant any right to continue to serve as a
          director of the Company.

     (b)  No shares of Common Stock shall be issued  pursuant to the exercise of
          an Option  unless and until all  requirements  imposed by federal  and
          state  securities  and other laws,  rules and  regulations  and by any
          regulatory agencies having jurisdiction, and by any stock exchanges or
          the Nasdaq  Stock  Market  upon which the Common  Stock may be listed,
          have been fully satisfied. As a condition precedent to the issuance of
          shares pursuant to the exercise of an Option,  the Company may require
          the   Participant  to  take  any   reasonable   action  to  meet  such
          requirements.

     (c)  No Participant shall be entitled to the rights and privileges of stock
          ownership  relating to any shares of Common Stock underlying an Option
          granted  hereunder  until such Option is exercised  and the shares are
          issued.

     (d)  Each Option is personal to the  grantee,  is not  transferable  by the
          Participant  other  than  by  will  or by  the  laws  of  descent  and
          distribution or a "qualified  domestic  relations order" as defined by
          the Code, and is exercisable,  during the Participant's lifetime, only
          by the  Participant  or his legal  representative.


10.  Amendment and Termination.
     The Board shall have the power, in its sole discretion,  to amend,  suspend
or terminate the Plan at any time;  provided that no such amendment,  suspension
or termination of the Plan shall, without the consent of the Participant, alter,
terminate,  impair or adversely  affect any right or obligation under any Option
previously granted under the Plan.

11.  Effective  Date and Duration of Plan.
     This  Plan  shall  become  effective  on the date  that it is  approved  by
stockholders  of the Company at the  Company's  1999 Annual  Meeting.  No Option
shall be granted under the Plan after the tenth  anniversary  of such  effective
date or, if earlier, the termination of the Plan pursuant to Section 10.

12.  Termination of 1994 Plan.
     On the effective  date of the Plan, the 1994 Plan shall  terminate,  except
for currently issued and outstanding  options that shall remain  outstanding and
subject to the terms of the 1994 Plan.