Document:

Exhibit
          4.1

       

      DISCOVERY
        LABORATORIES, INC.

       

      AMENDED
        AND RESTATED 1998 STOCK INCENTIVE PLAN

      

      June
        8,
        2006

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      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 13,770,000 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
        40,000 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, provided further,
        that
        such amount shall be increased to 25,000 shares for grants on or after the
        date
        of the 2005 Annual Meeting, and such amount shall be further increased to
        30,000
        shares for grants on or after the date of the 2006 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, 25,000 or 30,000-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).Exhibit
      10.1

    

    CONSULTING
      AGREEMENT

    

    This
      agreement is made by and between Triangle
      Petroleum Corporation, having
      its principal office at 521 3rd
      Avenue
      S.W., Suite 1110, Calgary, AB, Canada, T2P 3T3 (hereinafter referred to as
      the
“COMPANY” or “Client”), and Parabolic, LLC having its principal office at 100
      Crescent Court, Suite 700, Dallas, TX 75201 with office in California (the
      “CONSULTANT”).

    

    In
      consideration of the mutual promises contained herein and on the terms and
      conditions hereinafter set forth, the Company and Consultant agree as
      follows:

     

    1.           
      PROVISION
      OF SERVICES:
      Consultant will conduct a market management program for Triangle Petroleum
      Corp.
      (“TPLM”) for November of 2006 following the receipt by Consultant of the
      compensation set forth in paragraph 2 hereunder. It is understood that Client
      is
      interested in introducing TPLM to the investment community. By this agreement,
      Client is retaining Consultant to engage in a market management campaign
      designed to publicize TPLM as set forth in the following paragraphs of this
      agreement.

    

    A) Consultant
      shall, to the extent reasonably required, develop and coordinate a program
      to
      increase public awareness of TPLM, particularly among the investment community,
      which program may include proprietary services to be rendered by the Consultant
      and/or third parties. Services provided by Consultant may include all or part
      of
      the following: email news release to a huge subscriber base comprised of
      investors, brokers, and financiers interested in small cap and micro-cap
      companies, networking, and other proprietary methods.

    

    (B) Consultant
      shall use its best effort to perform under this agreement, and for this purpose
      consultant shall, at all times, maintain or keep and make available qualified
      persons or a network of qualified outside professionals for the performance
      of
      its obligations under this agreement. 

    

    2.           
      COMPENSATION 

    

    
      	
            	(A)	
              The
                total cost for the Consultant’s services is $250,000 (US Funds), as
                payment for the consulting agreement. At Client’s option, five (5) months
                of services (January through May of 2007) may be added for an additional
                $250,000 (US Funds).

            

    

    

    
      	
            	(B)	
              Client
                understands and agrees that the compensation paid to consultant is
                earned
                by consultant upon receipt. The compensation paid to consultant
                under this agreement is solely an inducement for consultant to accept
                this engagement on Clients’ behalf.  Client further understands and
                agrees that the compensation paid to consultant is not returnable
                or
                refundable under any circumstances, including any claim made by
                client that the services contracted for were not performed or were
                not of
                value sufficient to warrant the compensation paid to
                consultant.

            

    

     

    3.            
      LIABILITY;
      INDEMNIFICATION

    

    (A) The
      Company shall indemnify, save harmless and defend Consultant and its officers,
      directors, employees and agents from, against and in respect of any loss,
      damage, liability, judgment, cost or expense whatsoever, including counsel
      fees,
      suffered or incurred by it or him by reason of, or on account of, its status
      or
      activities as a consultant to the Company hereunder, except for any loss ,
      damage, liability, judgment, cost or expense resulting from willful malfeasance,
      bad faith or gross negligence in the performance of Consultant’s duties
      hereunder.

    

    (B) Consultant
      shall indemnify, save harmless and defend the Company and its officers,
      directors, employees and agents from, against and in respect of any loss,
      damage, liability, judgment, cost or expense whatsoever, including counsel
      fees,
      suffered or incurred by it or him by reason of, or on account of, willful
      malfeasance, bad faith or gross negligence in the performance of Consultant’s
      duties hereunder.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.           
      STATUS
      OF CONSULTANT

    

    Consultant
      shall at all time be an independent contractor of the Company and, except as
      expressly provided or authorized by this Agreement, shall have no authority
      to
      act for or represent the Company. The Company acknowledges that the Consultant
      may, from time to time, subcontract the performance of certain of its services
      hereunder to third parties, in which event the Consultant shall be responsible
      for the timely and professional performance of such services as if the
      Consultant had provided same.

    

    5.           
      OTHER
      ACTIVITIES OF CONSULTANT

    

    The
      Company recognizes that Consultant now renders and may continue to render
      management and other services to other companies, which may or may not have
      policies and conduct activities similar to those of the Company. Consultant
      shall be free to render such advice and other services and the Company hereby
      consents thereto. Consultant shall not be required to devote its full time
      and
      attention to the performance of its duties under this Agreement, but shall
      devote only so much of its time and attention as it deems reasonable or
      necessary for such purposes.

    

    6.           
      TERMS 

    

    
      	
            	(A)	
              Consulting
                agreement will become effective upon receipt of signed contract and
                payment. 

            

    

    

    
      	
            	(B)	
              TPLM
                hereby authorizes and agrees to allow Contractor or third
                parties to republish any and all of its press releases.
                

            

    

    

    
      	
            	(C)	
              Contractor
                agrees to have an Officer of the Company sign-off on any materials
                Contractor intends to send out.

            

    

    

    7.           
      IN
      GENERAL 

    

    This
      agreement sets forth the entire agreement and understanding between the parties
      with respect to its subject matter and supersedes all prior discussions,
      agreements and understandings of any nature between them with respect thereto.
      This agreement shall be governed by and construed in accordance with the laws
      of
      the State of California applicable to agreements made to be performed entirely
      within such State.

    

    IN
      WITNESS WHEREOF, The parties have caused this agreement to be signed by their
      respective officers or representatives duly authorized on this 1st day of
      November, 2006.

    

    

    /s/
      ADAM GILLMAN

    Parabolic,
      LLC

    

    Client:

    

    /s/
      MARK GUSTAFSON

    Signature      

    

    Mark
      Gustafson, President and CEO

    Printed
      Name

    

    
      
         

      

      
        2

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