DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
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RECITALS
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A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
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.
4. Dates of Exercise. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service
for any reason (other than death, Permanent Disability or Misconduct)
while this option is outstanding, then this option shall remain
exercisable until the earlier of (i) the expiration of the three (3)-month
period measured from the date of such cessation of Service or (ii) the
Expiration Date.
(ii) Should Optionee die while holding this option,
then Optionee's Beneficiary shall have the right to exercise this option
until the earlier of (A) the expiration of the twelve (12)-month period
measured from the date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then this option
shall remain exercisable until the earlier of (i) the expiration of the
twelve (12)-month period measured from the date of such cessation of
Service or (ii) the Expiration Date.
(iv) During the applicable post-Service exercise
period, this option may not be exercised in the aggregate for more than
the number of vested Option Shares for which the option is exercisable on
the date of Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding for any vested Option
Shares for which the option has not been exercised. However, this option
shall, immediately upon Optionee's cessation of Service for any reason,
terminate and cease to be outstanding to the extent this option is not
otherwise at that time exercisable for vested shares.
(v) Should Optionee's Service be terminated for
Misconduct or should Optionee engage in Misconduct while this option is
outstanding, then this option shall terminate immediately and cease to be
outstanding.
2.
6. Special Acceleration of Option.
(a) In the event of a Corporate Transaction, this option, to
the extent outstanding at that time, but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i) this
option is, in connection with the Corporate Transaction, assumed or otherwise
continued in full force or effect by the successor corporation (or parent
thereof) pursuant to the terms of the Corporate Transaction or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing at the time of the Corporate Transaction on
the Option Shares for which this option is not otherwise at that time
exercisable (the excess of the Fair Market Value of those Option Shares over the
aggregate Exercise Price payable for such shares) and provides for subsequent
pay-out in accordance with the same option exercise schedule set forth in the
Grant Notice.
(b) Immediately following the consummation of the Corporate
Transaction, this option shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the
Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any 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.
7. Adjustment in Option Shares. Should any change be 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 total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
3.
8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a
Notice of Exercise for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) 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
(D) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (I) to a Corporation-approved 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 income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (II) to the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
4.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for
the satisfaction of all income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee and Optionee's assigns and Beneficiaries.
5.
12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. Financing. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.
14. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. Governing Law. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of New York without
resort to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for
favorable tax treatment as an Incentive Option if (and to the extent) this
option is exercised for one or more Option Shares: (A) more than three (3)
months after the date Optionee ceases to be an Employee for any reason
other than death or Permanent Disability or (B) more than twelve (12)
months after the date Optionee ceases to be an Employee by reason of
Permanent Disability.
6.
(ii) No installment under this option shall
qualify for favorable tax treatment as an Incentive Option if (and to the
extent) the aggregate Fair Market Value (determined at the Grant Date) of
the Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other securities
for which this option or any other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option plan
of the Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. Should such One Hundred Thousand Dollar
($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar
year as a Non-Statutory Option.
(iii) Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall qualify
for favorable tax treatment as an Incentive Option only to the extent the
aggregate Fair Market Value (determined at the Grant Date) of the Common
Stock for which this option first becomes exercisable in the calendar year
in which the Corporate Transaction occurs does not, when added to the
aggregate value (determined as of the respective date or dates of grant)
of the Common Stock or other securities for which this option or one or
more other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
Should the applicable One Hundred Thousand Dollar ($100,000) limitation be
exceeded in the calendar year of such Corporate Transaction, the option
may nevertheless be exercised for the excess shares in such calendar year
as a Non- Statutory Option.
(iv) Should Optionee hold, in addition to this
option, one or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this option,
then the foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted.
18. Leave of Absence. The following provisions shall apply upon the
Optionee's commencement of an authorized leave of absence:
(i) The exercise schedule in effect under the
Grant Notice shall be frozen as of the first day of the authorized leave,
and this option shall not become exercisable for any additional
installments of the Option Shares during the period Optionee remains on
such leave.
7.
(ii) Should Optionee resume active Employee
status within sixty (60) days after the start date of the authorized
leave, Optionee shall, for purposes of the exercise schedule set forth in
the Grant Notice, receive Service credit for the entire period of such
leave. If Optionee does not resume active Employee status within such
sixty (60)-day period, then no Service credit shall be given for the
period of such leave.
(iii) If this option is designated as an Incentive
Option in the Grant Notice, then the following additional provision shall
apply:
(A) If the leave of absence continues for more
than ninety (90) days, then this option shall automatically convert
to a Non-Statutory Option at the end of the three (3)-month period
measured from the ninety-first (91st) day of such leave, unless
Optionee's reemployment rights are guaranteed by statute or by
written agreement. Following any such conversion of this option, all
subsequent exercises of this option, whether effected before or
after Optionee's return to active Employee status, shall result in
an immediate taxable event, and the Corporation shall be required to
collect from Optionee the income and employment withholding taxes
applicable to such exercise.
(iv) In no event shall this option become
exercisable for any additional Option Shares or otherwise remain
outstanding if Optionee does not resume Employee status prior to the
Expiration Date of the option term.
8.
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Discovery Laboratories, Inc. (the "Corporation")
that I elect to purchase _________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ _______________ per share
(the "Exercise Price") pursuant to that certain option (the "Option") granted to
me under the Corporation's 1998 Stock Incentive Plan on _______________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
_______________________, 199__
Date
Optionee
Address:
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Print name in exact manner
it is to appear on the
stock certificate:
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Address to which certificate
is to be sent, if different
from address above:
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Social Security Number:
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Employee Number:
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APPENDIX
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The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Beneficiary shall mean, in the event the Plan Administrator implements
a beneficiary designation procedure, the person designated by an Optionee or
Participant, pursuant to such procedure, to succeed to such person's rights
under any outstanding awards held by him or her at the time of death. In the
absence of such designation or procedure, the Beneficiary shall be the personal
representative of the estate of the Optionee or Participant or the person or
persons to whom the award is transferred by will or the laws of descent and
distribution.
C. Board shall mean the Corporation's Board of Directors.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(a) 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
(b) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation, and its successors.
H. 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.
I. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
A-1.
J. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
K. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
L. 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.
X. Xxxxx Date shall mean the date of grant of the option as specified in
the Grant Notice.
X. Xxxxx Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee 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)
A-2.
may consider as grounds for the dismissal or discharge of Optionee or any other
person in the Service of the Corporation (or any Parent or Subsidiary).
Q. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.
S. Option Shares shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. 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.
V. Permanent Disability shall mean the inability of Optionee 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.
W. Plan shall mean the Corporation's 1998 Stock Incentive Plan.
X. Plan Administrator shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.
Y. Service shall mean Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Z. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
AA. 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.
A-3.
