Exhibit 4.1






                          DISCOVERY LABORATORIES, INC.

                 AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN

                                  May 11, 2004






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                          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.

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         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.

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         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 9,570,000
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.

         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.


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                                   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.


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                           (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.


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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.


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         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

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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.


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         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.


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                  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.


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         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 20,000 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, 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 or 20,000-share option grants any one
Eligible Director may receive over his or her period of Board Service, and

                                       20
<PAGE>

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.

                                       21

<PAGE>

                           (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.

                                       22

<PAGE>

         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.


                                       23
<PAGE>

                  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

                                       24
<PAGE>

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.

                                       25
<PAGE>





                                    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.

                                       26
<PAGE>

         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

                                       27
<PAGE>

         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.

                                       28
<PAGE>

         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).

                                       29