DISCOVERY LABORATORIES, INC.
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. Discovery Laboratories, Inc. has implemented an automatic option grant
program under the Corporation's 1998 Stock Incentive Plan pursuant to which
eligible non-employee members of the Corporation's Board will automatically
receive special option grants at designated intervals over their period of Board
service in order to provide such individuals with a meaningful incentive to
continue to serve as a member of the Board.
B. Optionee is an eligible non-employee Board member, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic grant of a stock option to purchase shares of
the Corporation's Common Stock under the Plan.
C. The granted option is intended to be a non-statutory option which does
not meet the requirements of Section 422 of the Internal Revenue Code.
D. All capitalized terms in this Agreement, to the extent not otherwise
defined in the 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, a Non-Statutory 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, 6 or 7.
3. Limited Transferability. 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 Corporation may deem appropriate. Should
Optionee die while holding this option, then this
option shall be transferred in accordance with Optionee's will or the laws of
descent and distribution.
4. Exercisability/Vesting.
(a) This option shall be immediately exercisable for any or
all of the Option Shares, whether or not the Option Shares are vested in
accordance with the Vesting Schedule set forth in the Grant Notice, and shall
remain so exercisable until the Expiration Date or the sooner termination of the
option term under Paragraph 5, 6 or 7.
(b) Optionee shall, in accordance with the Vesting Schedule
set forth in the Grant Notice, vest in the Option Shares in a series of
installments over his or her period of Board service. Vesting in the Option
Shares may be accelerated pursuant to the provisions of Paragraph 5, 6 or 7. In
no event, however, shall any additional Option Shares vest following Optionee's
cessation of service as a Board member.
5. Cessation of Board Service. Should Optionee's service as a Board
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while this option
remains 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 Board service or (ii) the Expiration
Date. During such limited period of exercisability, this option may not be
exercised in the aggregate for more than the number of Option Shares (if
any) in which Optionee is vested on the date of his or her cessation of
Board service. Upon the earlier of (i) the expiration of such twelve
(12)-month period or (ii) the specified Expiration Date, the option shall
terminate and cease to be exercisable with respect to any vested Option
Shares for which the option has not been exercised.
(ii) Should Optionee die while holding this option, then
Optionee's Beneficiary shall have the right to exercise this option for
any or all of the Option Shares in which Optionee is vested at the time of
Optionee's cessation of Board service (less any Option Shares purchased by
Optionee after such cessation of Board service but prior to death). Such
right of exercise shall terminate, and this option shall accordingly cease
to be exercisable for those vested Option Shares, upon the earlier of (i)
the expiration of the twelve (12)-month period measured from the date of
Optionee's cessation of Board service or (ii) the specified Expiration
Date.
(iii) Should Optionee cease service as a Board member by
reason of death or Permanent Disability, then all Option Shares at the
time subject to this option
2.
but not otherwise vested shall immediately vest in full so that Optionee
(or his or her Beneficiary) shall have the right to exercise this option
for any or all of the Option Shares as fully-vested shares of Common Stock
at any time prior to the earlier of (i) the expiration of the twelve
(12)-month period measured from the date of Optionee's cessation of Board
service or (ii) the specified Expiration Date.
(iv) Following Optionee's cessation of Board service, the
option may not be exercised in the aggregate for more than the number of
shares in which Optionee was vested on the date of such cessation of Board
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
Optionee's cessation of Board service, terminate and cease to be
outstanding for any and all shares in which Optionee is not otherwise at
that time vested.
6. Corporate Transaction.
(a) In the event of a Corporate Transaction, all Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest so that this option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable for all of the
Option Shares at the time subject to this option and may be exercised for all or
any portion of such shares as fully-vested shares of Common Stock. 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 its parent company.
(b) 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.
7. Change in Control/Hostile Take-Over.
(a) In the event of a Change in Control, all Option Shares
subject to this option at the time of a Change in Control but not otherwise
vested shall automatically vest so that this option shall, immediately prior to
the effective date of such Change in Control, become fully exercisable for all
of the Option Shares at the time subject to this option and may be exercised for
all or any portion of such shares as fully-vested shares of Common Stock. This
option shall remain exercisable for such fully-vested Option Shares until the
earliest to occur of (i) the specified Expiration Date, (ii) the sooner
termination of this option in accordance with Paragraph 5 or 6 or (iii) the
surrender of this option under Paragraph 7(b).
3.
(b) Optionee shall have an unconditional right (exercisable
during the thirty (30)-day period immediately following the consummation of a
Hostile Take-Over) to surrender this option to the Corporation in exchange for a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the Option Shares at the time subject to the surrendered
option (whether or not Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate Exercise Price payable for such shares. This Paragraph
7(b) limited stock appreciation right shall in all events terminate upon the
expiration or sooner termination of the option term and may not be assigned or
transferred by Optionee.
(c) To exercise the Paragraph 7(b) 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
this 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, and neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution. Upon receipt of such cash distribution, this option shall
be cancelled with respect to the shares subject to the surrendered option (or
the surrendered portion), and Optionee shall cease to have any further right to
acquire those Option Shares under this Agreement. The option shall, however,
remain outstanding for the balance of the Option Shares (if any) in accordance
with the terms and provisions of this Agreement, and the Corporation shall
accordingly issue a new stock option agreement (substantially in the same form
as this Agreement) for those remaining Option Shares.
8. 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 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; provided, however, that the aggregate Exercise Price shall
remain the same.
9. 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.
10. Manner of Exercising Option.
(a) In order to exercise this option for all or any part of
the Option Shares for which the option is at the time exercisable, Optionee (or
any other person or persons exercising this option) must take the following
actions:
4.
(i) Execute and deliver to the Secretary of the
Corporation a Notice of Exercise (or, to the extent that the option is
exercised for one or more unvested Option Shares, a Purchase Agreement)
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; or
(B) 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
(C) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee shall provide irrevocable
instructions (A) to a Corporation-approved brokerage firm to effect
the immediate sale of the vested shares purchased under the option
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 those shares plus all applicable income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (B) to 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 the sale and remittance procedure
specified above is utilized in connection with the option exercise,
payment of the Exercise Price for the purchased shares must
accompany the Notice of Exercise (or Purchase Agreement) 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 for the satisfaction of all income and employment tax
withholding requirements applicable to the option exercise.
5.
(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.
To the extent any such Option Shares are unvested, the certificates for those
Option Shares shall be endorsed with an appropriate legend evidencing the
Corporation's repurchase rights and may be held in escrow with the Corporation
until such shares vest.
(c) In no event may this option be exercised for any
fractional shares.
11. No Impairment of Rights. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
12. 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. However, the Corporation shall use its best efforts to obtain all such
applicable approvals.
13. Successors and Assigns. Except to the extent otherwise provided
in Paragraph 3 or 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.
14. 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.
6.
15. Construction/Governing Law. This Agreement and the option
evidenced hereby are made and granted pursuant to the automatic option grant
program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that program. 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.
7.
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
pursuant to the automatic option grant program under the Corporation's 1998
Stock Incentive Plan on ________________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Secretary of 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 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 for
any Purchased Shares in which I am vested at the time of exercise.
______________________, 199__
Date
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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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APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Automatic 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. Change in Control shall mean shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:
(a) 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 ▇▇▇▇ ▇▇▇) 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
(b) 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:
A-1.
(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. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 10 of the Agreement.
J. Exercise Price shall mean the exercise price payable per share as
specified in the Grant Notice.
K. Expiration Date shall mean the date on which the option term 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.
▇. ▇▇▇▇▇ Date shall mean the date of grant of the option as specified in
the Grant Notice.
A-2.
▇. ▇▇▇▇▇ Notice shall mean the Notice of Grant of Automatic Stock Option
accompanying this Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. 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 ▇▇▇▇ ▇▇▇) 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.
P. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
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.
T. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. Permanent Disability shall mean the inability of Optionee 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.
V. Plan shall mean Corporation's 1998 Stock Incentive Plan.
W. Purchase Agreement shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and (ii)
preclude the sale, transfer or other disposition of any of the Option Shares
purchased under such agreement while those Option Shares remain subject to the
repurchase right.
X. Stock Exchange shall mean the American Stock Exchange or the New
York Stock Exchange.
A-3.
Y. 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.
Z. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, pursuant to which Optionee shall vest in the Option Shares in one
or more installments over his or her period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.
A-4.