ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated
____________________ (the "Option Agreement") by and between Discovery
Laboratories, Inc. (the "Corporation") and ______________________________
("Optionee") evidencing the stock option (the "Option") granted on
________________, 19 to Optionee under the terms of the Corporation's 1998 Stock
Incentive Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation right
exercisable upon the following terms and conditions:
(i) Optionee shall have the unconditional right
exercisable at any time during the thirty (30)-day period immediately
following a Hostile Take-Over to surrender the Option to the Corporation,
to the extent the Option is at the time exercisable for one or more shares
of Common Stock. In return for the surrendered Option, 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 for which
the surrendered option (or surrendered portion) is at the time exercisable
over (B) the aggregate Exercise Price payable for such shares.
(ii) To exercise this limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in
which there is specified the number of Option Shares as to which the
Option is being surrendered. Such notice must be accompanied by the return
of Optionee's copy of the Option Agreement, together with any written
amendments to such Agreement. The cash distribution shall be paid to
Optionee within five (5) business days following such delivery date. The
exercise of the limited stock appreciation right in accordance with the
terms of this Addendum is hereby approved by the Plan Administrator in
advance of such exercise, and further approval of the Plan Administrator
shall be required at the time of the actual option surrender and cash
distribution. Upon receipt of such cash distribution, the Option shall be
cancelled with respect to the Option Shares for which the Option has been
surrendered, and Optionee shall cease to have any further right to acquire
those Option Shares under the Option
Agreement. The Option shall, however, remain outstanding and exercisable
for the balance of the Option Shares (if any) in accordance with the terms
of the Option Agreement, and the Corporation shall issue a new stock
option agreement (substantially in the same form of the surrendered Option
Agreement) for those remaining Option Shares.
(iii) In no event may this limited stock appreciation right
be exercised when there is not a positive spread between the Fair Market
Value of the Option Shares subject to the surrendered option and the
aggregate Exercise Price payable for such shares. This limited stock
appreciation right shall in all events terminate upon the expiration or
sooner termination of the Option and may not be assigned or transferred by
Optionee, except to the extent the Option is transferable in accordance
with the provisions of the Option Agreement.
2. For purposes of this Addendum, the following definitions shall be
in effect:
(i) A 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 Securities
Exchange Act of 1934) 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.
(ii) The Take-Over Price shall mean the greater of (A) 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
(B) the highest reported price per share of Common Stock paid by the
tender offeror in effecting the Hostile Take-Over. However, if the
surrendered Option is an Incentive Option, the Take-Over Price shall not
exceed the clause (A) price per share.
2.
IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
DISCOVERY LABORATORIES, INC.
By:
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Title:
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OPTIONEE
EFFECTIVE DATE: _____________________, 199__
3.
