DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has approved the issuance of stock option grants for the
purpose of retaining the services of selected Employees, non-employee members of
the Board or 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 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 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 also be assigned
in whole or in part in accordance with the terms of a Qualified Domestic
Relations Order. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
Qualified Domestic Relations Order. 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 Compensation Committee of the Board of Directors 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 or Permanent Disability) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to
exercise this option, but in no event shall this option be exercisable
at any time after the Expiration Date.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option. Such right shall lapse and this
option shall cease to be outstanding upon 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 Optionee shall have a
period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option. In no event
shall this option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain
outstanding.
(v) During the limited 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 at the time
of Optionee's cessation of Service. Upon the expiration of such limited
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. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's
cessation of Service, this option shall immediately terminate and cease
to be outstanding with respect to those shares.
(vi) In the event of an Involuntary Termination following a
Corporate Transaction or Change in Control, the provisions of Paragraph
6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall
supersede any provisions to the contrary in Paragraph 5.
6. Special Acceleration of Option.
(a) This option, to the extent outstanding at the time of a Corporate
Transaction 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, 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) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the Option
Shares for which this option is not exercisable at the time of the Corporate
Transaction (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 exercise schedule in effect for the option
pursuant to the option exercise schedule set forth in the Grant Notice. The
determination of option comparability under clause (i) shall be made by the
Compensation Committee of the Board of Directors and such determination shall be
final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with 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) Should there occur an Involuntary Termination of Optionee's
Service within eighteen (18) months following a Corporate Transaction in which
this option is assumed or replaced, then this option, to the extent outstanding
at such time but not otherwise exercisable, shall automatically accelerate so
that this option shall immediately become exercisable for all 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. The option shall remain so exercisable
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until the earlier of (i) the Expiration Date or (ii) the expiration of the one
(1)-year period measured from the effective date of such Involuntary
Termination.
(e) Upon an Involuntary Termination of Optionee's Service within
eighteen (18) months following a Change in Control, this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become
exercisable for all 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. The
option shall remain so exercisable until the earlier of (i) the Expiration Date
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
(f) 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.
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;
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(B) a promissory note payable to the
Corporation, but only to the extent authorized by the
Compensation Committee of the Board of Directors 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 written instructions
(I) to 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 (II) to the Corporation to deliver the
certificates for the purchased shares directly to
such brokerage firm in order to complete the sale
transaction.
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 Federal, state and local
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.
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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, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
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 Compensation Committee of the Board of Directors 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
promissory note. 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 Compensation Committee of the Board of Directors in its sole
discretion.(1)
14. Construction. This Agreement and the option evidenced hereby are made
and granted pursuant to the authority vested in the Compensation Committee of
the Board of Directors. All decisions of the Compensation Committee of the Board
of Directors with respect
_____________
(1) Authorization of payment of the Exercise Price by a promissory note under
such provisions may, under currently proposed Treasury Regulations, result in
the loss of incentive stock option treatment under the Federal tax laws.
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to any question or issue arising under 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 Delaware 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, then this option shall be void with respect to
such excess shares, unless stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable.
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.
(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 any earlier installments of
the Common Stock and any other securities for which this option or any
other Incentive Options granted to Optionee prior to the Grant Date
(whether by 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 or Involuntary Termination, 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
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year in which the Corporate Transaction or Involuntary Termination
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 by 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 or Involuntary Termination, 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.
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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 by the
Corporation 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.
_____________________, l99__
Date
_______________________________
Optionee
Address:_______________________
_______________________________
Print name in exact manner
it is to appear on the
stock certificate: _______________________________
Address to which certificate
is to be sent, if different
from address above: _______________________________
_______________________________
Social Security Number: _______________________________
Employee Number: _______________________________
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. 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.
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:
(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.
G. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation.
H. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
A-l.
I. 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.
J. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
K. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
L. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
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 National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
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 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.
P. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
A-2.
Q. Involuntary Termination shall mean the termination of Optionee's Service
which occurs by reason of:
(i) Optionee'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 level of responsibility, (b)
a reduction in Optionee's level of compensation (including base salary,
fringe benefits and participation in 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 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)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual 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. Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.
V. Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Grant Notice.
W. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
X. 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.
A-3.
Y. 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 which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
Z. Qualified Domestic Relations Order shall mean a Domestic Relations Order
which substantially complies with the requirements of Code Section 414(p). The
Compensation Committee of the Board of Directors shall have the sole discretion
to determine whether a Domestic Relations Order is a Qualified Domestic
Relations Order.
AA. 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.
AB. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
AC. 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-4.
