DISCOVERY LABORATORIES INC /DE/, S-8, 1998-07-24

DISCOVERY LABORATORIES INC /DE/
S-8, 1998-07-24
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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As filed with the Securities and Exchange Commission on July 24, 1998
Registration No. 333-________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
DISCOVERY LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3171943
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
3359 Durham Road, Doylestown, Pennsylvania 18901
(Address of principal executive offices) (Zip Code)
-----------------
DISCOVERY LABORATORIES, INC. 1998 STOCK INCENTIVE PLAN
ACUTE THERAPEUTICS, INC. 1996 STOCK OPTION/STOCK ISSUANCE PLAN
DISCOVERY LABORATORIES, INC. 1996 STOCK OPTION/STOCK ISSUANCE PLAN
(Full title of the Plans)
-----------------
Robert Capetola, Ph.D.
Chief Executive Officer
DISCOVERY LABORATORIES, INC.
3359 Durham Road, Doylestown, Pennsylvania 18901
(Name and address of agent for service)
(215) 794-3064
(Telephone number, including area code, of agent for service)
-----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share Price Fee
---------- ------------- --------- ----- ---

Discovery Laboratories, Inc. 1998 Stock Incentive Plan
- ------------------------------------------------------
Common Stock, $0.001 par value 1,400,959 $3.15625 (2) $4,421,776.84 $1,304.42

Acute Therapeutics, Inc. 1996 Stock Option/Stock Issuance Plan
- --------------------------------------------------------------
Common Stock, $0.001 par value 618,345 $0.0795 (3) $49,158.43 $14.50

Discovery Laboratories, Inc. 1996 Stock Option/Stock Issuance Plan
- ------------------------------------------------------------------
Common Stock, $0.001 par value 253,536 $0.50 (3) $126,768.00 $37.40
------
Aggregate Filing Fee $1,356.32
</TABLE>

(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the Discovery Laboratories, Inc.
1998 Stock Incentive Plan, the Acute Therapeutics, Inc. 1996 Stock
Option/Stock Issuance Plan or Discovery Laboratories, Inc. 1996 Stock
Option/Stock Issuance Plan by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the
Registrant's receipt of consideration which results in an increase in the
number of the outstanding shares of Registrant's Common Stock.

(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended (the "1933 Act"), on the basis of the
average of the high and low selling prices per share of Registrant's
Common Stock on July 20, 1998, as reported on the Nasdaq National Market.

(3) Calculated solely for purposes of this offering under rule 457(h) of the
1933 Act on the basis of the weighted average exercise price of the
options.
<PAGE>
PART II

Information Required in the Registration Statement

Item 3. Incorporation of Documents by Reference
---------------------------------------

Discovery Laboratories, Inc. (the "Registrant") hereby incorporates by
reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "SEC"):

(a) The Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, filed with the SEC on May 22, 1998 pursuant
to Section 13 of the Securities Exchange Act of 1934, as amended
(the 1934 Act"); and

(b) (1) The Registrant's Quarterly Report on Form 10-QSB for the
fiscal quarter ended March 31, 1998, filed with the SEC on May
15, 1998; and

(2) The Registrant's current report on Form 8-K filed with the SEC
on July 17, 1998.

All reports and definitive proxy or information statements filed pursuant
to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
de-registers all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.

Item 4. Description of Securities
-------------------------

The Registrant is authorized to issue up to 20,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock, par value, $0.001 per share. As
of May 1, 1998, 3,175,955 shares of Common Stock and 2,200,256 shares of Series
B Preferred Stock were issued and outstanding.

Common Stock

Each holder of Common Stock is entitled to one vote for each share held of
record. There is no right to cumulative voting of shares for the election of
directors. The shares of Common Stock are not entitled to preemptive rights and
are not subject to redemption or assessment. Subject to the rights of holders of
preferred stock, each share of Common Stock is entitled to share ratably in
distributions to stockholders and to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
Subject to the rights of holders of preferred stock, upon liquidation,
dissolution or winding up of the Registrant, the holders of Common Stock are
entitled to receive, pro-rata, the assets of the Registrant which are legally
available for distribution to stockholders. The issued and outstanding shares of
Common Stock are validly issued, fully paid and non-assessable.

Preferred Stock

The preferred stock can be issued in one or more series as may be
determined from time-to-time by the

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<PAGE>
Board of Directors. In establishing a series, the Board of Directors shall give
to it a distinctive designation so as to distinguish it from the shares of all
other series and classes, and shall fix the number of shares in such series and
the preferences, rights and restrictions thereof. All shares of any one series
shall be alike in every particular. The Board of Directors has the authority,
without stockholder approval, to fix the rights, preferences, privileges and
restrictions of any series of preferred stock including, without limitation: (a)
the rate of distribution; (b) the price at which and the terms and conditions on
which shares shall be redeemed; (c) the amount payable upon shares for
distributions of any kind; (d) sinking fund provisions for the redemption of
shares; (e) the terms and conditions on which shares may be converted if the
shares of any series are issued with the privilege of conversion; and (f) voting
rights except as limited by law.

Although the Registrant currently does not have any fixed plans to
designate any series of preferred stock or to issue additional shares of
preferred stock other than the shares of Series B Preferred Stock issuable upon
exercise of certain warrants issued in connection with a unit offering conducted
by Old Discovery*, there can be no assurance that the Registrant will not do so
in the future. As a result, the Registrant could authorize the issuance of a
series of preferred stock which would grant to holders preferred rights to the
assets of the Registrant upon liquidation, the right to receive dividend coupons
before dividends would be declared to holders of Common Stock, and the right to
the redemption of such shares, together with a premium, prior to the redemption
of Common Stock. The current stockholders of the Registrant have no redemption
rights, except as set forth in the description of the Series C Preferred Stock
herein. In addition, the Board of Directors could issue large blocks of voting
stock to fend off unwanted tender offers or hostile takeovers without further
stockholder approval.

Series B Preferred Stock

The following is a brief summary of certain provisions of the Series B
Preferred Stock.

Dividends

The holders of Series B Preferred Stock are entitled to receive dividends
if, as and when declared by the Board of Directors out of funds legally
available therefor. No dividend or distribution, as the case may be, will be
declared or paid on any junior stock (including the Common Stock) unless the
dividend also is paid to holders of the Series B Preferred Stock. The Registrant
does not intend to pay cash dividends on the Series B Preferred Stock or the
underlying Common Stock for the foreseeable future.

Conversion

Each share of Series B Preferred Stock may be converted, in whole or in
part, at the option of the holder at any time after the initial issuance date
into 1.556628 of Common Stock based upon a conversion price equal to $6.42 per
share of Common Stock (the "Preferred Conversion Price"). The Preferred
Conversion Price is subject to adjustment upon the occurrence of certain
mergers, reorganizations, consolidations, reclassifications, stock dividends or
stock splits that will result in an increase or decrease in the number of shares
of Common Stock outstanding. In addition, the Preferred Conversion Price is
subject to adjustment on December 1, 1998 (the "Reset Date") if the average
closing bid trading price of the Common Stock for the 30 consecutive trading
days immediately preceding the Reset Date (the "Twelve Month Trading Price") is
less than 135% of the then applicable Preferred Conversion Price ("Reset
Event"). Upon the occurrence of a Reset Event, the then applicable Preferred
Conversion Price will be reduced to equal the greater of (i) the Twelve Month
Trading Price dividend by 1.35 and (ii) 50% of the then applicable Preferred
Conversion Price.

Mandatory Conversion

The Registrant has the right at any time after the Reset Date to cause the
Series B Preferred Stock to be converted in whole or in part, on a pro rata
basis, into shares of Common Stock at the applicable Preferred

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<PAGE>
Conversion Price if the closing price of the Common Stock exceeds 150% of the
then applicable Preferred Conversion Price for at least 20 trading days in any
30 consecutive trading days period.

Liquidation Preference

Upon a (i) liquidation, dissolution or winding up of the Registrant,
whether voluntary or involuntary, (ii) sale or other disposition of all or
substantially all of the assets of the Registrant or (iii) merger,
consolidation, combination, reorganization or other transaction in which the
Registrant is not the surviving entity and voting power of the Registrant's
stockholders after such transaction is less than 50% (a "Merger Transaction")
((i), (ii) and (iii) being collectively referred to as a "Liquidation Event"),
after payment or provision for payment of the debts and other liabilities of the
Registrant, the holders of the Series B Preferred Stock then outstanding will be
first entitled to receive, pro rata, and in preference to the holders of the
Common Stock and any other stock of the Registrant junior to the Series B
Preferred Stock, an amount per share equal to $13.50, subject to adjustment,
plus accrued but unpaid dividends, if any; provided, however, that in the case
of a Merger Transaction, such $13.50 per share may be paid in cash and/or
securities of the surviving entity in such Merger Transaction.

Voting Rights

The holders of the Series B Preferred Stock have the right at all meetings
of stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of Series B Preferred Stock remain outstanding, the
holders of 66.67% of the Series B Preferred Stock are required to approve (i)
the issuance of any securities of the Registrant senior to or on parity with the
Series B Preferred Stock, (ii) any material alteration or change in the rights
or preferences or privileges of the Series B Preferred Stock and (iii) the
declaration or payment of any dividend on any junior stock or the repurchase of
any securities of the Registrant. Except as provided above or as required by
applicable law, the holders of the Series B Preferred Stock, other than in
connection with vesting provisions of employee and consultant agreements, vote
together with the holders of the Common Stock and not as a separate class.

Lock-up and Blackout Periods

The holders of shares of Common Stock issuable upon conversion of shares
of Series B Preferred Stock (the "Conversion Shares") have agreed pursuant to
their subscription agreements executed in connection with the Old Discovery unit
offering not to offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, and Conversion Shares,
without prior written consent. Such restrictions apply until (i) March 2, 1998
with respect to 100% of each of the holders' Conversion Shares, (ii) June 1,
1998 with respect to 75% of such Conversion Shares, (iii) September 1, 1998 with
respect to 50% of such Conversion Shares, and (iv) December 1, 1998 with respect
to the remaining 25% of such Conversion Shares.

In addition, any shares of Common Stock issuable upon conversion of the
Series B Preferred Stock shall be subject to a blackout period for the following
periods: (i) any period not to exceed two 30-day periods within any one 12-month
period the Registrant requires in connection with a primary underwritten
offering of equity securities and (ii) any period, not to exceed a 60-day period
per circumstance or development, when the Registrant determines in good faith
that offers and sales pursuant thereto should not be made by reason of the
presence of material undisclosed circumstances or developments with respect to
which the disclosure that would be required in such a prospectus is premature,
would have a material adverse effect on the Registrant or is otherwise
inadvisable.
Series C Preferred Stock

The Board of Directors has authorized and the Registrant has issued 2,039
shares of Series C Preferred Stock,

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<PAGE>
the rights, preferences and characteristics of which are as follows:

Dividends

The holders of Series C Preferred Stock are entitled to receive, out of
funds legally available therefor, dividends at a rate of $100 per share per
annum (subject to adjustment) prior to the payment or declaration of dividends
on any junior stock (including the Series B Preferred Stock and Common Stock).
Such dividends will accrue and accumulate and will be due and payable only upon
a Liquidation Event (as defined above) or a mandatory redemption as described
below. Notwithstanding the foregoing, the Registrant has agreed pursuant to a
certain stock exchange agreement, dated June 16, 1998, to pay to the holders of
the Series C Preferred Stock, on the 21st day following the closing of the
merger between a wholly-owned subsidiary of the Registrant and Acute
Therapeutics, Inc. (the "Merger")**, shares of Common Stock, at the then current
market price (based on a 20-trading-day average) of the Common Stock, having a
value equal to the dividends on the Acute Therapeutics, Inc. Series B Preferred
Stock that were accrued and unpaid as of the date of the Merger.

Conversion

Each share of the Registrant's Series C Preferred Stock may be converted,
in whole or in part, at the option of the holder at any time after the first
anniversary of the Merger into a number of shares of Common Stock equal to (i)
$1,000 plus all accrued and unpaid dividends on such share of Series C Preferred
Stock (the "Liquidation Value") divided by (ii) the then current fair market
value of the Common Stock based upon the average closing price of the Common
Stock over a 20 trading day period (the "Fair Market Value").

In addition, in the event that, prior to the first anniversary of the
Merger, the Fair Market Value of the Common Stock exceeds 200% of the closing
price on the day following the Merger, 50% of the Series C Preferred Stock shall
be convertible at any time thereafter, at the option of the holders thereof,
into a number of shares of Common Stock per share of Series C Preferred Stock
equal to the Liquidation Value divided by the Fair Market Value of the Common
Stock.

Mandatory Redemption

The Registrant will, upon the first to occur of (i) the approval by the
United States Food and Drug Administration of the first New Drug Application
filed by the Registrant relating to or incorporating Surfaxin(TM) or (ii) 18
months after the closing of the Merger (the "Mandatory Redemption Date"), redeem
from each holder of shares of Series C Preferred Stock, at a price equal to
$1000 per share plus any dividends declared or accrued but unpaid thereon, all
of the outstanding shares of Series C Preferred Stock held by such holder on the
applicable Mandatory Redemption Date payable, at the option of the Registrant,
either in cash or shares of Common Stock valued at the Fair Market Value
thereof.

Liquidation Preference

Upon (i) the voluntary or involuntary liquidation, dissolution or winding
up of the Registrant, (ii) the consolidation or merger of the Registrant into or
with any other entity or entities or the consummation of any transactions which
result in either (a) the exchange by the holders of outstanding shares of the
Registrant of 50% or more of either (1) the then outstanding shares of Common
Stock or (2) the combined voting power of the Registrant's then outstanding
securities entitled to vote generally in the election of directors or other
general matters, (b) the holders of outstanding shares of the Registrant
immediately prior to the consummation of such transaction or transactions
holding less than 50% of the outstanding securities of the resulting entity
entitled to vote generally in the election of directors or other general matters
or (c) the sale or transfer by the Registrant of all or substantially all of its
assets (any of (a) (b) or (c) being referred to as a "Liquidation Event"), after
payment or provision for payment of the debts and other liabilities of the
Registrant, the holders of the Series C

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<PAGE>
Preferred Stock then outstanding will be first entitled to receive, pro rata,
and in preference to the holders of any stock ranking junior to the Series C
Preferred Stock (including the Series B Preferred Stock and the Common Stock),
an amount per share equal to $1,000, subject to adjustment, plus accrued but
unpaid dividends.

Voting Rights

Except as required by applicable law, the holders of the Series C
Preferred Stock will vote together with the holders of Common Stock and the
Series B Preferred Stock on matters submitted to a vote of stockholders of the
Registrant. Each holder of Series C Preferred Stock is entitled to one vote for
each share held of record.

* Discovery Laboratories, Inc. ("Old Discovery") merged with Ansan
Pharmaceuticals, Inc. ("Ansan") effective November 25, 1997. Subsequent to such
merger, Ansan changed its name to Discovery Laboratories, Inc., the Registrant's
current name.

** A wholly-owned subsidiary of the Registrant merged with Acute Therapeutics,
Inc. effective June 16, 1998.

Item 5. Interests of Named Experts and Counsel
--------------------------------------
Not Applicable.

Item 6. Indemnification of Directors and Officers
-----------------------------------------
The Registrant's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transaction from which
the director derives an improper personal benefit.

The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and may indemnify its officers, employees and other agents to the
fullest extent permitted by law. The Registrant believes that indemnification
under its Bylaws covers at least negligence and gross negligence on the part of
an indemnified party in connection with the defense of any action or proceeding
arising out of such party's status or service as a director, officer, employee
or other agent of the Company upon an undertaking by such party to repay such
advances if it is ultimately determined that such party is not entitled to
indemnification.

The Registrant has entered into separate indemnification agreements with
each of its directors and officers. These agreements require the Registrant,
among other things, to indemnify such director or officer against expenses
(including attorneys' fees), judgments, fines and settlements (collectively,
"Liabilities") paid by such individual in connection with any action, suit or
proceeding arising out of such individual's status or service as a director or
officer of the Registrant (other than Liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest)
and to advance expenses incurred by such individual in connection with any
proceeding against such individual with respect to which such individual may be
entitled to indemnification by the Registrant.

Item 7. Exemption from Registration Claimed
-----------------------------------
Not Applicable.

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<PAGE>
Item 8. Exhibits
--------
Exhibit Number Exhibit
- -------------- -------
4 Instruments Defining the Rights of Stockholders. Reference is
made to Item 4 of this Registration Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Richard A. Eisner & Company, LLP, Independent
Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page II-8 of this
Registration Statement.
99.1 Discovery Laboratories, Inc. 1998 Stock Incentive Plan.
99.2 Form of Notice of Grant.
99.3 Form of Stock Option Agreement.
99.4 Addendum to Stock Option Agreement - Involuntary Termination
Following Corporate Transaction.
99.5 Addendum to Stock Option Agreement - Limited Stock Appreciation
Right.
99.6 Form of Notice of Grant - Automatic Stock Option.
99.7 Form of Automatic Stock Option Agreement.
99.8 Acute Therapeutics, Inc. 1996 Stock Option/Stock Issuance Plan.
99.9 Form of Notice of Grant.
99.10 Form of Stock Option Agreement.
99.11 Form of Stock Purchase Agreement.
99.12 Form of Stock Option Assumption Agreement (Unvested Shares).
99.13 Form of Stock Option Assumption Agreement (Accelerated Options).
99.14* Discovery Laboratories, Inc. 1996 Stock Option/Stock Issuance
Plan.
99.15 Form of Notice of Grant.
99.16* Form of Stock Option Agreement.

* Exhibits 99.14 and 99.16 are incorporated herein by reference to Exhibits
10.12 and 10.13, respectively, to Registrant's Registration Statement No.
333-19375 on Form SB-2, filed with the SEC on January 7, 1997.

Item 9. Undertakings
------------
A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any facts
or events arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (3) to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the Registrant's 1998
Stock Incentive Plan, Acute Therapeutics, Inc.'s 1996 Stock Option/Stock
Issuance Plan or Discovery Laboratories, Inc. 1996 Stock Option/Stock Issuance
Plan.

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<PAGE>

B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6 or
otherwise, the Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

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<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8, and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Doylestown, Pennsylvania on this 24th day of
July, 1998.

DISCOVERY LABORATORIES, INC.

By: /s/ Robert Capetola
---------------------------------------
Robert Capetola, Ph.D.
Chief Executive Officer

POWER OF ATTORNEY
-----------------

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned officers and directors of Discovery
Laboratories, Inc., a Delaware corporation, do hereby constitute and appoint
Robert Capetola, Ph.D. and Evan Myrianthopoulos and each of them, the lawful
attorneys-in-fact and agents with full power and authority to do any and all
acts and things and to execute any and all instruments which said attorneys and
agents, and any one of them, determine may be necessary or advisable or required
to enable said corporation to comply with the Securities Act of 1933, as
amended, and any rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Registration Statement. Without
limiting the generality of the foregoing power and authority, the powers granted
include the power and authority to sign the names of the undersigned officers
and directors in the capacities indicated below to this Registration Statement,
to any and all amendments, both pre-effective and post-effective, and
supplements to this Registration Statement, and to any and all instruments or
documents filed as part of or in conjunction with this Registration Statement or
amendments or supplements thereof, and each of the undersigned hereby ratifies
and confirms that all said attorneys and agents, or any one of them, shall do or
cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.

IN WITNESS WHEREOF, each of the undersigned has executed this Power
of Attorney as of the date indicated.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Robert Capetola Chief Executive Officer
- --------------------- (Principal Executive Officer) July 24, 1998
Robert Capetola, Ph.D.

/s/ Evan Myrianthopoulos Vice President of Finance July 24, 1998
- --------------------- (Principal Financial and Accounting Officer)
Evan Myrianthopoulos

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Signature Title Date
- --------- ----- ----

- ---------------------------- Chairman of the Board of Directors _______, 1998
Steve H. Kanzer, C.P.A., Esq.

/s/ Max Link Director July 24, 1998
- ---------------------
Max Link, Ph.D.

/s/ Herbert McDade Director July 24, 1998
- ---------------------
Herbert McDade

/s/ David Naveh Director July 24, 1998
- ---------------------
David Naveh, Ph.D.

- --------------------- Director _______, 1998
Milton Packer, M.D.

- --------------------- Director _______, 1998
Richard Power

/s/ Mark Rogers Director July 24, 1998
- ---------------------
Mark Rogers, M.D.

/s/ Marvin Rosenthale Director July 24, 1998
- ---------------------
Marvin Rosenthale, Ph.D.

/s/ Richard Sperber Director July 24, 1998
- ---------------------
Richard Sperber

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

EXHIBITS

FORM S-8

UNDER

SECURITIES ACT OF 1933

DISCOVERY LABORATORIES, INC.
<PAGE>

EXHIBIT INDEX
-------------

Exhibit Number Exhibit
- -------------- -------

4 Instruments Defining the Rights of Stockholders. Reference is
made to Item 4 of this Registrant Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Richard A. Eisner & Company, LLP, Independent
Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page II-8 of this
Registration Statement.
99.1 Discovery Laboratories, Inc. 1998 Stock Incentive Plan.
99.2 Form of Notice of Grant.
99.3 Form of Stock Option Agreement.
99.4 Addendum to Stock Option Agreement - Involuntary Termination
Following Corporate Transaction.
99.5 Addendum to Stock Option Agreement - Limited Stock Appreciation
Right.
99.6 Form of Notice of Grant - Automatic Stock Option.
99.7 Form of Automatic Stock Option Agreement.
99.8 Acute Therapeutics, Inc. 1996 Stock Option/Stock Issuance Plan.
99.9 Form of Notice of Grant.
99.10 Form of Stock Option Agreement.
99.11 Form of Stock Purchase Agreement.
99.12 Form of Stock Option Assumption Agreement (Unvested Shares).
99.13 Form of Stock Option Assumption Agreement (Accelerated Options).
99.14* Discovery Laboratories, Inc. 1996 Stock Option/Stock Issuance
Plan.
99.15 Form of Notice of Grant.
99.16* Form of Stock Option Agreement.

EXHIBIT 5
OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP

July 24, 1998

Discovery Laboratories, Inc.
3359 Durham Road
Doylestown, Pennsylvania 18901

Re: Discovery Laboratories, Inc. - Registration Statement for
Offering of an Aggregate of 2,272,840 Shares of Common Stock

Dear Ladies and Gentlemen:

We refer to your Registration Statement on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended, of 2,272,840 shares of
the Common Stock of Discovery Laboratories, Inc. (the "Company") issuable in the
aggregate under (i) the Company's 1998 Stock Incentive Plan (1,400,959 shares),
(ii) the Acute Therapeutics, Inc. 1996 Stock Option/Stock Issuance Plan, as
assumed by the Company (618,345 shares) and (iii) Discovery Laboratories, Inc.
1996 Stock Option/Stock Issuance Plan, as assumed by Ansan Therapeutics, Inc.,
which subsequently changed its name to Discovery Laboratories, Inc. (253,536
shares) (collectively, the "Plans"). We advise you that, in our opinion, when
such shares have been issued and sold pursuant to the applicable provisions of
the Plans, and in accordance with the Registration Statement, such shares will
be duly authorized, validly issued, fully paid and non-assessable shares of the
Company's Common Stock.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

Very truly yours,

/s/ Brobeck, Phleger & Harrison LLP
_______________________________________
BROBECK, PHLEGER & HARRISON LLP

EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS

We consent to the Incorporation by reference in this Registration Statement
of Discovery Laboratories,Inc. on Form S-8 of our report dated January 26, 1998
(with respect to Note L, March 5, 1998) appearing in the Annual Report on Form
10-KSB for the year ended December 31, 1997.

/s/ Richard A. Eisner & Company, LLP
_______________________________________
Richard A. Eisner & Company, LLP

New York, New York
July 23, 1998

DISCOVERY LABORATORIES, INC.
1998 STOCK INCENTIVE PLAN
-------------------------

ARTICLE ONE

GENERAL PROVISIONS
------------------

I. PURPOSE OF THE PLAN

This 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 shall serve as the successor to the Corporation's 1995
Stock Option Plan and 1993 Stock Option Plan (the "Predecessor Plans"), and no
further option grants shall be made under the Predecessor Plans after the date
on which the Plan is approved by the Corporation's stockholders (the
"Stockholder Approval Date"). All options outstanding under the Predecessor
Plans on the Stockholder Approval Date shall be incorporated into the Plan at
that time 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

<PAGE>
(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,

<PAGE>

(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, or the board of directors
of any Subsidiary of the Corporation, 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
initially reserved for issuance over the term of the Plan shall not exceed
1,400,959 shares. Such authorized share reserve is comprised of (i) the number
of shares which remain available for issuance, as of the Stockholder Approval
Date, under the Predecessor Plans as last approved by the Corporation's
stockholders, comprised of the shares subject to the outstanding options to be
incorporated into the Plan as of the Stockholder Approval Date and the
additional shares which would otherwise be available for future grant under the
Predecessor Plans (estimated to be 398,097 shares in the aggregate as of March
1, 1998), plus (ii) an additional increase of 1,002,862 shares authorized by the
Board on March 24, 1998, subject to approval by the Corporation's stockholders
at the 1998 Annual Meeting.

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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

<PAGE>

(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

<PAGE>

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. Immediately following the consummation of the Corporate
Transaction Control, all outstanding options shall terminate and cease to be
outstanding, except to the extent

<PAGE>

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.

E. 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.

F. 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.

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 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.

H. 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

<PAGE>

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.

I. 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.

J. 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 OPTIONS

The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution therefor new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.

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

10.

<PAGE>

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.

11.

<PAGE>

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.

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.

12.

<PAGE>

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

13.

<PAGE>

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.

14.

<PAGE>

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 20,000 shares of Common Stock, provided that
individual has not previously been 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, with respect to each
Annual Stockholders Meeting held after the 1998 Annual 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-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 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 sixty
percent (60%) of 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. Each option grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal

15.

<PAGE>

annual installments upon the Optionee's completion of each year of Board Service
over the four (4)-year period commencing six (6) months following the option
grant date, with the first such installment to vest eighteen (18) month after
the option grant date.

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.

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

16.

<PAGE>

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.

17.

<PAGE>

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.

18.

<PAGE>

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

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

19.

<PAGE>

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.

20.

<PAGE>

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 (or any Subsidiary) 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

A-1.

<PAGE>

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.

A-2.

<PAGE>

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. 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.

Q. 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).

R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

S. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

A-3.

<PAGE>

T. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.

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. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

W. 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.

X. Plan shall mean the Corporation's 1998 Stock Incentive Plan, as set
forth in this document.

Y. 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.

Z. Plan Effective Date shall mean March 24, 1998, the date on which the
Plan was adopted by the Board.

AA. 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.

AB. 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.

AC. 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.

A-4.

<PAGE>

AD. 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.

AE. 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

AF. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.

AG. Stockholder Approval Date shall mean the date on which the Plan is
approved by the Corporation's stockholders.

AH. 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.

AI. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.

AJ. 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.

AK. 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.

AL. 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.

AM. 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).

A-5.

DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Discovery Laboratories, Inc. (the
"Corporation"):

Optionee: __________________________________________________________
Grant Date: ________________________________________________________
Vesting Commencement Date: _________________________________________
Exercise Price: $ ______________________________________ per share
Number of Option Shares: ___________________________________ shares
Expiration Date: ___________________________________________________
Type of Option: ____ Incentive Stock Option
____ Non-Statutory Stock Option

Exercise Schedule: The Option shall become exercisable with respect
to twenty five percent (25%) of the Option Shares upon Optionee's
completion of one (1) year of Service measured from the Vesting
Commencement Date and shall become exercisable for the balance of
the Option Shares in thirty-six (36) successive equal monthly
installments upon Optionee's completion of each additional month of
Service over the thirty-six (36) month period measured from the
first anniversary of the Vesting Commencement Date. In no event
shall the Option become exercisable for any additional Option Shares
after Optionee's cessation of Service.

Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the Discovery Laboratories, Inc. 1998
Stock Incentive Plan (the "Plan"). Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Stock Option
Agreement and any Addenda to such Stock Option Agreement attached hereto as
Exhibit A. A copy of the Plan is available upon request made to the Corporate
Secretary at the Corporation's principal offices.

<PAGE>

No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or in the Plan shall confer upon Optionee any
right to continue in 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 Optionee) or of Optionee, which
rights are hereby expressly reserved by each, to terminate Optionee's Service at
any time for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

DATED: ___________________________, 199__

DISCOVERY LABORATORIES, INC.

By:
--------------------------------
Title:
--------------------------------

OPTIONEE

Address:
--------------------------------

--------------------------------

ATTACHMENTS
Exhibit A - Stock Option Agreement and Addenda

<PAGE>

EXHIBIT A
---------

STOCK OPTION AGREEMENT
----------------------

DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
----------------------

RECITALS
- --------
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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

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.

<PAGE>

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.

<PAGE>

(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.

<PAGE>

(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.

<PAGE>

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:
-----------------------------------

-----------------------------------

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:
-----------------------------------

<PAGE>

APPENDIX
--------

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.

<PAGE>

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.

M. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.

N. Grant 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.

<PAGE>

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.

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.

ADDENDUM
TO
STOCK OPTION AGREEMENT

The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement (the "Option
Agreement") by and between Discovery Laboratories, Inc. (the "Corporation") and
______________________ ("Optionee") evidencing the stock option (the "Option")
granted on ___________________, 199__ 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.

INVOLUNTARY TERMINATION
FOLLOWING CORPORATE TRANSACTION

1. To the extent the Option does not accelerate, in connection with
a Corporate Transaction, the Option shall continue, over Optionee's period of
Service after the Corporate Transaction, to become exercisable for the Option
Shares in one or more installments in accordance with the provisions of the
Option Agreement. However, immediately upon an Involuntary Termination of
Optionee's Service within twelve (12) months following such Corporate
Transaction, the Option (or any replacement grant), to the extent outstanding at
the time but not otherwise fully exercisable, shall automatically accelerate so
that the Option shall become immediately exercisable for all the Option Shares
at the time subject to the Option and may be exercised for any or all of those
Option Shares as fully vested shares.

2. The Option as accelerated under Paragraph 1 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 date of the Optionee's Involuntary
Termination.

3. For purposes of this Addendum, an Involuntary Termination shall
mean the termination of Optionee's Service by reason of:

(A) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(B) 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

<PAGE>

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.

4. The provisions of Paragraph 2 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Corporate
Transaction and shall supersede any provisions to the contrary in Paragraph 5 of
the Option Agreement.

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:
--------------------------------------
Title:
--------------------------------------

--------------------------------------------
OPTIONEE

EFFECTIVE DATE:___________________, 199__

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

<PAGE>

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.

<PAGE>

DISCOVERY LABORATORIES, INC.

By:
--------------------------------------
Title:
--------------------------------------

--------------------------------------------
OPTIONEE

EFFECTIVE DATE: _____________________, 199__

DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
----------------------------------------
AUTOMATIC STOCK OPTION
----------------------

Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Discovery Laboratories, Inc. (the
"Corporation"):

Optionee:___________________________________________________________

Grant Date:_________________________________________________________

Exercise Price: $ _______________________________________ per share

Number of Option Shares:_____________________________________ shares

Expiration Date:____________________________________________________

Type of Option: Non-Statutory Stock Option

Date Exercisable: Immediately Exercisable

Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, the Option Shares upon Optionee's completion of one (1) year of
service as a member of the Corporation's Board of Directors (the
"Board") measured from the Grant Date. In no event shall any
additional Option Shares vest after Optionee's cessation of Board
service.

Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the automatic option grant program under
the Discovery Laboratories, Inc. 1998 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A. A copy of the Plan is available upon request made to the Corporate
Secretary at the Corporation's principal offices.

REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND
SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE PAID
PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE

<PAGE>

CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND
CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE
AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY
OPTIONEE AT THE TIME OF THE OPTION EXERCISE.

No Impairment of Rights. Nothing in this Notice or in the attached
Automatic Stock Option Agreement or the Plan shall interfere with or otherwise
restrict in any way the rights of the Corporation or the Corporation's
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.

Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.

DATED:________________________, 199__

DISCOVERY LABORATORIES, INC.

By:
--------------------------------------
Title:
--------------------------------------

--------------------------------------
OPTIONEE

Address:
--------------------------------------

--------------------------------------

ATTACHMENTS
Exhibit A - Automatic Stock Option Agreement

<PAGE>

EXHIBIT A

AUTOMATIC STOCK OPTION AGREEMENT

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.

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

<PAGE>

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

<PAGE>

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).

<PAGE>

(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:

<PAGE>

(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.

<PAGE>

(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.

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.

(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.

<PAGE>

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.

<PAGE>

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

--------------------------------------------
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:
--------------------------------------------

<PAGE>

APPENDIX

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Automatic Stock Option Agreement.

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 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

(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.

<PAGE>

(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.

M. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.

A-2.

<PAGE>

N. Grant 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 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.

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.

<PAGE>

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.

EXHIBIT 99.8

ACUTE THERAPEUTICS, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1996 Stock Option/Stock Issuance Plan is intended to promote
the interests of Acute Therapeutics, 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.

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 two (2) separate equity programs:

(i) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock, and

(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).

B. The provisions of Articles One and Four shall apply to both the
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III. ADMINISTRATION OF THE PLAN

A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the 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 the Committee and reassume all
powers and authority previously delegated to the Committee.

<PAGE>

B. The Plan Administrator shall have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or stock issuance thereunder.

IV. ELIGIBILITY

A. The persons eligible to participate in the Plan 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. The Plan Administrator shall have full authority to determine,
(i) with respect to the option grants under the 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 at which 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
to be paid for such shares.

C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance 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. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 234,800
shares.

B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the

<PAGE>

cancellation-regrant provisions of Article Two. Unvested shares issued under the
Plan and subsequently repurchased by the Corporation, at the option exercise
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.

C. 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 maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.

<PAGE>

ARTICLE TWO

OPTION GRANT PROGRAM

I. OPTION TERMS

A. Exercise Price.

1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than 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 Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:

(i) in 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

(ii) 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

<PAGE>

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:

(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently 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.

(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.

(v) In the event of an Involuntary Termination following a
Corporate Transaction, the provisions of Section III of this Article Two
shall govern the period for which the outstanding options are to remain
exercisable following the Optionee's cessation of Service and shall
supersede any provisions to the contrary in this section.

2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

<PAGE>

(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
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

F. First Refusal Rights. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Option Grant Program. Such right of first refusal shall be exercisable
in accordance with the terms established by the Plan Administrator and set forth
in the document evidencing such right.

G. Limited Transferability of Options. During the lifetime of the
Optionee, the option 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.

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 Four 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.

<PAGE>

A. Eligibility. Incentive Options may only be granted to
Employees.

B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

C. 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 (1) 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.

D. 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

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 for all of the 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 such option 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.

<PAGE>

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. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

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 (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) 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 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, in whole or in part, of
one or more outstanding options (and the automatic termination, in whole or in
part, of one or more outstanding repurchase rights, with the immediate vesting
of the shares of Common Stock subject to those terminated rights) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction.

F. The Plan Administrator shall also have full power and authority
to grant options under the Plan which will automatically accelerate in whole or
in part should the Optionee's Service subsequently 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
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.

G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar ($100,000)
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.

H. The grant of options under the Plan 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.

<PAGE>

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Option Grant Program
and to grant in substitution new options covering the same or different number
of shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new grant date.

<PAGE>

ARTICLE THREE

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

A. Purchase Price.

1. The purchase price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the stock issuance date.

2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for one or
both 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. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

(i) the Service period to be completed by the Participant
or the performance objectives to be attained,

(ii) the number of installments in which the shares are to
vest,

(iii) the interval or intervals (if any) which are to
lapse between installments, and

10.

<PAGE>

(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.

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 shareholder 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 repurchase
such unvested shares and 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 such
surrendered shares.

5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock 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.

C. First Refusal Rights. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first

11.

<PAGE>

refusal shall be exercisable in accordance with the terms established by the
Plan Administrator and set forth in the document evidencing such right.

II. CORPORATE TRANSACTION

A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase\cancellation rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those
repurchase\cancellation rights are 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.

B. 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\cancellation rights with respect to those shares
remain outstanding, to provide that those rights shall automatically terminate
on an accelerated basis, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently 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\cancellation rights
are assigned to the successor corporation (or parent thereof).

C. 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\cancellation rights remain outstanding, to provide for
the automatic termination of one or more outstanding repurchase\cancellation
rights, and the immediate vesting of the shares of Common Stock subject to those
rights, upon the occurrence of a Corporate Transaction.

III. SHARE ESCROW/LEGENDS

12.

<PAGE>

ARTICLE FOUR

MISCELLANEOUS

I. FINANCING

A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price or the purchase price for shares issued under the
Plan by delivering a 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. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not 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.

B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.

II. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.

B. The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all options and unvested stock issuances outstanding under the
Plan shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.

13.

<PAGE>

III. 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 any rights and obligations with respect
to 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, the Board shall not, without the approval of the
Corporation's stockholders, (i) increase the maximum number of shares issuable
under the Plan, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) materially modify the
eligibility requirements for Plan participation or (iii) materially increase the
benefits accruing to Plan participants.

B. Options to purchase shares of Common Stock may be granted under
the Plan and shares of Common Stock may be issued under the Plan 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 the Plan are
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 grants or 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.

IV. 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.

V. WITHHOLDING

The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of such shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.

VI. REGULATORY APPROVALS

The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and

14.

<PAGE>

permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.

VII. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in 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 at any time for any reason, with or without
cause.

15.

<PAGE>

APPENDIX

The following definitions shall be in effect under the Plan:

A. Board shall mean the Corporation's Board of Directors.

B. Code shall mean the Internal Revenue Code of 1986, as amended.

C. Committee shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.

D. Common Stock shall mean the Corporation's common stock.

E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(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.

F. Corporation shall mean Acute Therapeutics, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Acute Therapeutics, Inc. which shall by appropriate
action adopt the Plan.

G. 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.

H. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.

I. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

A-1.

<PAGE>

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.

(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.

J. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.

K. 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) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or her
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 such
individual'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 the individual's consent.

L. Misconduct shall mean 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).

A-2.

<PAGE>

M. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.

N. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.

O. Option Grant Program shall mean the option grant program in
effect under the Plan.

P. Optionee shall mean any person to whom an option is granted under
the Option Grant Program.

Q. 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.

R. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.

S. Permanent Disability 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.

T. Plan shall mean the Corporation's 1996 Stock Option/Stock
Issuance Plan, as set forth in this document.

U. Plan Administrator shall mean either the Board or the Committee,
to the extent the Committee is at the time responsible for the administration of
the Plan.

V. Service shall mean the provision of services to 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.

W. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.

X. 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.

A-3.

<PAGE>

Y. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.

Z. 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.

AA. 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).

A-4.

Exhibit 99.9

ACUTE THERAPEUTICS, INC.
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Acute Therapeutics, Inc. (the
"Corporation"):

Optionee: _______________________________________________________
Grant Date ______________________________________________________
Vesting Commencement Date: _____________________________________
Exercise Price: $__________ per share
Number of Option Shares: ________________ shares
Expiration Date: _________________________________________________
Type of Option: _________________________________________________
Date Exercisable: Immediately Exercisable
Vesting Schedule: With respect to twenty-five percent (25%) of the
Option Shares, the Option shall be immediately exercisable for such
Option Shares as fully vested shares of the Corporation's Common
Stock. With respect to the remaining seventy-five percent (75%) of
the Option Shares, such Option Shares shall be unvested and subject
to repurchase by the Corporation at the Exercise Price paid per
share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, the Option Shares in a series of three (3) successive equal
annual installments upon Optionee's completion of each additional
year of Service after the Vesting Commencement Date. In no event
shall any additional Option Shares vest after Optionee's cessation
of Service.

Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the Acute Therapeutics, Inc. 1996 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A. Optionee understands that any
Option Shares purchased under the Option shall be subject to the terms set forth
in the Stock Purchase Agreement attached hereto as Exhibit B.

<PAGE>

Optionee hereby acknowledges receipt of a copy of the Plan in the
form attached hereto as Exhibit C.

REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL. OPTIONEE HEREBY
AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE
SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY
THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE
ATTACHED STOCK PURCHASE AGREEMENT.

No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in 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 Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

________________________, 1996
Date

ACUTE THERAPEUTICS, INC.

By: __________________________________

Title: _______________________________

______________________________________
_________________________, OPTIONEE

Address: _____________________________
______________________________________

ATTACHMENTS
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 1996 Stock Option/Stock Issuance Plan

<PAGE>

EXHIBIT A

STOCK OPTION AGREEMENT

<PAGE>

EXHIBIT B

STOCK PURCHASE AGREEMENT

<PAGE>

EXHIBIT C

1996 STOCK OPTION/STOCK ISSUANCE PLAN

Exhibit 99.10

ACUTE THERAPEUTICS, INC.
STOCK OPTION AGREEMENT

RECITALS

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).

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:

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, 6 or 17.

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, and shall remain so exercisable until the
Expiration Date or sooner termination of the option term under Paragraph 5, 6 or
17. Any unvested Option Shares purchased under this option shall be subject to
repurchase by the Corporation, at the Exercise Price paid per share, upon
Optionee's cessation of Service prior to vesting in those Option Shares.

<PAGE>

(b) Optionee shall, in accordance with the Vesting Schedule,
vest in the Option Shares in one or more installments over his or her period of
Service. Vesting in the Option Shares may be accelerated pursuant to the
provisions of Paragraph 6. In no event, however, shall any additional Option
Shares vest following Optionee's cessation of Service.

(i) Should Optionee cease to remain in Service
for any reason (other than death, Permanent Disability or Misconduct)
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) During the limited post-Service exercise
period, this option may not be exercised in the aggregate for more than
the number of Option Shares in which Optionee is, at the time of
Optionee's cessation of Service, vested in accordance with the Vesting
Schedule. 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.

(v) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to
remain outstanding.

<PAGE>

(vi) In the event of a Corporate Transaction, 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 this paragraph.

6. Special Acceleration of Option.

(a) All the Option Shares subject to this option at the time
of a Corporate Transaction but not otherwise vested shall automatically vest and
the Corporation's repurchase rights with respect to those Option Shares shall
immediately terminate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares of Common Stock and may be exercised for
any or all of those Option Shares. No such accelerated vesting of the Option
Shares, 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), and the Corporation's repurchase rights with respect to the unvested
Option Shares are to be assigned to such 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 unvested
Option Shares at the time of the Corporate Transaction (the excess of the Fair
Market Value of those Option Shares over the Exercise Price payable for such
shares) and provides for subsequent payout in accordance with the Vesting
Schedule. The determination of option comparability under clause (i) shall be
made by the Plan Administrator, and its 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.

(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 and the Corporation's repurchase
rights with respect to the unvested Option Shares are assigned, all the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest and the Corporation's repurchase rights with respect to those
Option Shares shall terminate so that this option shall immediately become
exercisable for all those Option Shares as fully-vested shares of Common Stock
and may be exercised for any or all of those vested Option Shares at any time
prior to the earlier of (i) the Expiration Date or

<PAGE>

(ii) the expiration of the one (l)-year period measured from the date of such
Involuntary Termination.

(e) 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.

9. Manner of Exercising Option.

(i) Execute and deliver to the Corporation 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) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 14.

Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:

<PAGE>

(C) in 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) to the extent the option is exercised for
vested Option Shares, 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.

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 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) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of Federal and state
securities laws.

(v) 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. 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.

<PAGE>

10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.

11. Compliance with Laws and Regulations.

12. 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.

13. 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.

14. 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.

15. 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

<PAGE>

under the Plan or this Agreement shall be conclusive and binding on all persons
having an interest in this option.

16. 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.

17. Stockholder Approval.

(a) The grant of this option is subject to approval of the
Plan by the Corporation's stockholders within twelve (12) months after the
adoption of the Plan by the Board. Notwithstanding any provision of this
Agreement to the contrary, this option may not be exercised in whole or in part
until such stockholder approval is obtained. In the event that such stockholder
approval is not obtained, then this option shall terminate in its entirety and
Optionee shall have no further rights to acquire any Option Shares hereunder.

(b) 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 such 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.

18. 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:

(ii) This option shall not become exercisable in
the calendar year in which granted if (and to the extent) the aggregate
Fair Market Value (determined at the Grant Date) of the Common Stock for
which this option would otherwise first become exercisable in such
calendar year would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock and any other
securities for which 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. To the extent the exercisability of
this option is deferred by reason of the foregoing limitation, the

<PAGE>

deferred portion shall become exercisable in the first calendar year or
years thereafter in which the One Hundred Thousand Dollar ($100,000)
limitation of this Paragraph 18(ii) would not be contravened, but such
deferral shall in all events end immediately prior to the effective date
of a Corporate Transaction in which this option is not to be assumed or
the Optionee's Involuntary Termination in connection with a Corporate
Transaction, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.

(iii) 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.

<PAGE>

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. Code shall mean the Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation's common stock.

E. 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.

F. Corporation shall mean Acute Therapeutics, Inc., a Delaware
corporation.

H. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

I. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.

J. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.

K. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

A-1.

<PAGE>

(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.

(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.

L. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.

M. Grant 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.

N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

O. 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

A-2.

<PAGE>

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.

Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

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.

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 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.

W. Plan shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.

X. Plan Administrator shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.

Y. Purchase Agreement shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.

A-3.

<PAGE>

Z. 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.

AA. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.

AB. 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.

AC. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, as such vesting schedule is subject to acceleration in the event
of a Corporate Transaction.

A-4.

Exhibit 99.11

ACUTE THERAPEUTICS, INC.
STOCK PURCHASE AGREEMENT

AGREEMENT made this _____________ day of __________199__, by and
between Acute Therapeutics, Inc., a Delaware corporation, and
_____________________________________________, Optionee under the Corporation's
1996 Stock Option/Stock Issuance Plan.

All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.

A. EXERCISE OF OPTION

1. Exercise. Optionee hereby purchases shares of Common Stock (the
"Purchased Shares") pursuant to that certain option (the "Option") granted
Optionee on ____________________, 199__ (the "Grant Date") to purchase up to
_______________ shares of Common Stock (the "Option Shares") under the Plan at
the exercise price of $___________ per share (the "Exercise Price").

2. Payment. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.

3. Stockholder Rights. Until such time as the Corporation exercises
the Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a stockholder (including voting, dividend
and liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of Articles B and C.

B. SECURITIES LAW COMPLIANCE

1. Restricted Securities. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee

<PAGE>

is prepared to hold the Purchased Shares for an indefinite period and that
Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts
certain resales of unrestricted securities is not presently available to exempt
the resale of the Purchased Shares from the registration requirements of the
1933 Act.

2. Restrictions on Disposition of Purchased Shares. Optionee shall
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:

- Optionee shall have provided the Corporation with a written
summary of the terms and conditions of the proposed disposition.

- Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.

- Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that
(a) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (b) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.

The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.

3. Restrictive Legends. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:

"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement
for the shares under such Act, (b) a "no action" letter of the Securities
and Exchange Commission with respect to such sale or offer or (c)
satisfactory assurances to the Corporation that registration under such
Act is not required with respect to such sale or offer."

"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated __________, 199__ between the
Corporation and the registered holder of the

<PAGE>

shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."

C. TRANSFER RESTRICTIONS

1. Restriction on Transfer. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.

2. Transferee Obligations. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.

3. Market Stand-Off.

(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.

(b) Owner shall be subject to the Market Stand-Off provided
and only if the officers and directors of the Corporation are also subject to
similar restrictions.

(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.

(d) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.

<PAGE>

D. REPURCHASE RIGHT

1. Grant. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or (at the discretion of the
Corporation and with the consent of Optionee) any portion of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule (such shares to be hereinafter
referred to as the "Unvested Shares").

2. Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.

3. Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.

4. Aggregate Vesting Limitation. If the Option is exercised in more
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.

5. Recapitalization. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the Purchased Shares are
at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the

<PAGE>

Repurchase Right in order to reflect the effect of any such Recapitalization
upon the Corporation's capital structure; provided, however, that the aggregate
purchase price shall remain the same.

6. Corporate Transaction.

(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.

(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.

(c) The Repurchase Right shall automatically lapse in its
entirety, and all the Purchased Shares shall immediately vest in full, upon an
Involuntary Termination of Optionee's Service within eighteen (18) months
following the effective date of a Corporate Transaction in which the Repurchase
Right does not otherwise terminate pursuant to Paragraph D.6(a) above.

E. RIGHT OF FIRST REFUSAL

1. Grant. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.

2. Notice of Intended Disposition. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of

<PAGE>

the third-party offeror, and (ii) provide satisfactory proof that the
disposition of the Target Shares to such third-party offeror would not be in
contravention of the provisions set forth in Articles B and C.

3. Exercise of the First Refusal Right. The Corporation shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.

Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.

4. Non-Exercise of the First Refusal Right. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.

5. Partial Exercise of the First Refusal Right. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by

<PAGE>

written notice to the Corporation delivered within five (5) business days after
Owner's receipt of the Exercise Notice, to effect the sale of the Target Shares
pursuant to either of the following alternatives:

(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation
did not exercise the First Refusal Right; or

(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph E.3.
The First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.

Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.

6. Recapitalization/Reorganization.

(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.

(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.

7. Lapse. The First Refusal Right shall lapse upon the earliest to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.

F. SPECIAL TAX ELECTION

The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax

<PAGE>

consequences applicable to the acquisition of the Purchased Shares and the form
for making the Code Section 83(b) election are set forth in Exhibit II. OPTIONEE
SHOULD CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF
ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING
THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S
SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.

G. GENERAL PROVISIONS

1. Assignment. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.

2. No Employment or Service Contract. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in 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 Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.

3. Notices. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.

4. No Waiver. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.

5. Cancellation of Shares. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner

<PAGE>

and holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.

H. MISCELLANEOUS PROVISIONS

1. Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.

2. Agreement is Entire Contract. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.

3. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without resort to that
State's conflict-of-laws rules.

4. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

5. Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

ACUTE THERAPEUTICS, INC.

By: ________________________________________

Title: _____________________________________

Address: ___________________________________

____________________________________________

____________________________________________
OPTIONEE

Address: ___________________________________

____________________________________________

10.

<PAGE>

SPOUSAL ACKNOWLEDGMENT

The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.

____________________________________________
OPTIONEE'S SPOUSE

Address: ___________________________________

____________________________________________

11.

<PAGE>

EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED ______________________ hereby sell(s), assign(s)
and transfer(s) unto Acute Therapeutics, Inc. (the "Corporation"),
_______________________ (________) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented by
Certificate No. ____________________ herewith and do(es) hereby irrevocably
constitute and appoint _______________________________ Attorney to transfer the
said stock on the books of the Corporation with full power of substitution in
the premises. Dated: ____________

Signature ________________________________________

Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.

<PAGE>

EXHIBIT II

FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION

I. Federal Income Tax Consequences and Section 83(b) Election For Exercise
of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
exercise of a Non-Statutory Option, as specified in the Grant Notice, then under
Code Section 83, the excess of the Fair Market Value of the Purchased Shares on
the date any forfeiture restrictions applicable to such shares lapse over the
Exercise Price paid for such shares will be reportable as ordinary income on the
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Purchased Shares pursuant to the
Repurchase Right. However, Optionee may elect under Code Section 83(b) to be
taxed at the time the Purchased Shares are acquired, rather than when and as
such Purchased Shares cease to be subject to such forfeiture restrictions. Such
election must be filed with the Internal Revenue Service within thirty (30) days
after the date of the Agreement. Even if the Fair Market Value of the Purchased
Shares on the date of the Agreement equals the Exercise Price paid (and thus no
tax is payable), the election must be made to avoid adverse tax consequences in
the future. The form for making this election is attached as part of this
exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY
PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE
FORFEITURE RESTRICTIONS LAPSE.

II. Federal Income Tax Consequences and Conditional Section 83(b) Election
For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant
to the exercise of an Incentive Option, as specified in the Grant Notice, then
the following tax principles shall be applicable to the Purchased Shares:

(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.

(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (b)
the Exercise Price paid for the Purchased Shares will be includible in
Optionee's taxable income for alternative minimum tax purposes.

(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the year
of such disposition equal in amount to the excess of (a) the Fair Market
Value of the Purchased Shares on the date the Option is exercised or (if
later) on the date any forfeiture restrictions applicable to the Purchased
Shares lapse over (b) the Exercise Price paid for the Purchased Shares.
Any additional gain recognized upon the disqualifying disposition will be
either short-term or long-term capital

II-1.

<PAGE>

gain depending upon the period for which the Purchased Shares are held
prior to the disposition.

(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition 1 of the Purchased Shares
within two (2) years after the Grant Date or within one (1) year after the
exercise date of the Option.

(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection
with the exercise of the Option for any Purchased Shares at the time
subject to forfeiture restrictions, file a protective election under Code
Section 83(b) which would limit (a) Optionee's alternative minimum taxable
income upon exercise and (b) Optionee's ordinary income upon a
disqualifying disposition to the excess of the Fair Market Value of the
Purchased Shares on the date the Option is exercised over the Exercise
Price paid for the Purchased Shares. Accordingly, such election if
properly filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the attached form
for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.

--------
1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's
spouse, a transfer into joint ownership with right of survivorship if
Optionee remains one of the joint owners, a pledge, a transfer by bequest
or inheritance or certain tax free exchanges permitted under the Code.

II-2.

<PAGE>

SECTION 83(b) ELECTION

This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
Address:
Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is
____________ shares of the common stock of Acute Therapeutics, Inc.

(3) The property was issued on _____________, 199__.

(4) The taxable year in which the election is being made is the calendar year
199__.

(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a
__________ (_)-year period ending on ___________________________________
______________________________, ______.

(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $_________ per share.

(7) The amount paid for such property is $____________ per share.

(8) A copy of this statement was furnished to Acute Therapeutics, Inc. for
whom taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed on _______________________, 199__.

___________________________________ ______________________________________
Spouse (if any) Taxpayer

This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.

<PAGE>

The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the "Code"). Accordingly,
it is the intent of the Taxpayer to utilize this election to achieve the
following tax results:

1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Code.

2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.

THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN
CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER
THE FEDERAL TAX LAWS.

<PAGE>

APPENDIX

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Stock Purchase Agreement.

B. Board shall mean the Corporation's Board of Directors.

C. Code shall mean the Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation's common stock.

E. Corporate Transaction shall mean either of the following stockholder-
approved transactions:

(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.

F. Corporation shall mean Acute Therapeutics, Inc., a Delaware
corporation.

G. Disposition Notice shall have the meaning assigned to such term in
Paragraph E.2.

H. Exercise Notice shall have the meaning assigned to such term in
Paragraph E.3.

I. Exercise Price shall have the meaning assigned to such term in
Paragraph A.1.

J. Fair Market Value of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.

K. First Refusal Right shall mean the right granted to the Corporation in
accordance with Article E.

L. Grant Date shall have the meaning assigned to such term in Paragraph
A.1.

A-1.

<PAGE>

M. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to
which Optionee has been informed of the basic terms of the Option.

N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

O. 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
his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and target bonuses
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.

P. Market Stand-Off shall mean the market stand-off restriction specified
in Paragraph C.3.

Q. 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).

R. 1933 Act shall mean the Securities Act of 1933, as amended.

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. Option shall have the meaning assigned to such term in Paragraph A.1.

V. Option Agreement shall mean all agreements and other documents
evidencing the Option.

A-2.

<PAGE>

W. Optionee shall mean the person to whom the Option is granted under the
Plan.

X. Owner shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.

Y. 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.

Z. Permitted Transfer shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.

AA. Plan shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.

AB. Plan Administrator shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.

AC. Prior Purchase Agreement shall have the meaning assigned to such term
in Paragraph D.4.

AD. Purchased Shares shall have the meaning assigned to such term in
Paragraph A.1.

AE. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.

AF. Reorganization shall mean any of the following transactions:

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,

(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or

A-3.

<PAGE>

(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.

AG. Repurchase Right shall mean the right granted to the Corporation in
accordance with Article D.

AH. SEC shall mean the Securities and Exchange Commission.

AI. Service shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
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, a non-employee member
of the board of directors or an independent consultant.

AJ. 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.

AK. Target Shares shall have the meaning assigned to such term in
Paragraph E.2.

AL. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.

AM. Unvested Shares shall have the meaning assigned to such term in
Paragraph D.1.

A-4.

Exhibit 99.12

DISCOVERY LABORATORIES, INC.
STOCK OPTION ASSUMPTION AGREEMENT

Optionee: 1~

STOCK OPTION ASSUMPTION AGREEMENT issued as of the 16th day of June,
1998 by Discovery Laboratories, Inc., a Delaware corporation ("Discovery").

WHEREAS, the undersigned individual ("Optionee") holds one or more
outstanding options to purchase shares of the common stock of Acute
Therapeutics, Inc., a Delaware corporation ("ATI"), which were granted to
Optionee under the ATI 1996 Stock Option/Stock Issuance Plan (the "Plan"), and
are evidenced by a Stock Option Agreement (the "Option Agreement") between ATI
and Optionee.

WHEREAS, ATI has been acquired by Discovery through the merger of a
wholly-owned Discovery subsidiary ("Acquisition Sub") with and into ATI (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of March 5, 1998
by and among Discovery, ATI, Acquisition Sub and certain shareholders of ATI
(the "Merger Agreement").

WHEREAS, the provisions of the Merger Agreement require Discovery to
assume all obligations of ATI under all options outstanding under the Plan at
the consummation of the Merger and to issue to the holder of each outstanding
option an agreement evidencing the assumption of such option.

WHEREAS, pursuant to the provisions of the Merger Agreement, the
exchange ratio (the "Exchange Ratio") in effect for the Merger is 3.90 shares of
Discovery common stock (the "Discovery Stock") for each outstanding share of ATI
common stock (the "ATI Stock").

WHEREAS, this Agreement is to become effective immediately upon the
consummation of the Merger (the "Effective Time") in order to reflect certain
adjustments to Optionee's outstanding options under the Plan which have become
necessary by reason of the assumption of those options by Discovery in
connection with the Merger.

NOW, THEREFORE, it is hereby agreed as follows:

1. The stock options held by Optionee under the Plan immediately
prior to the Effective Time (the "ATI Options") and the exercise price payable
per share are set forth in Exhibit A hereto. Discovery hereby assumes, as of the
Effective Time, all the duties and obligations of ATI under each of the ATI
Options. In connection with such assumption, the number of shares of Discovery
Stock purchasable under each ATI Option hereby assumed and the exercise price
payable thereunder have been adjusted to reflect the Exchange Ratio at which
shares of ATI Stock were converted into shares of Discovery Stock in
consummation of the Merger. Accordingly, the number of shares of Discovery Stock
subject to each ATI Option hereby assumed shall be as specified for that option
in attached Exhibit B, and the adjusted

<PAGE>

exercise price payable per share of Discovery Stock under the assumed ATI Option
shall be as indicated for that option in attached Exhibit B.

2. The intent of the foregoing adjustments to each assumed ATI
Option is to assure that the spread between the aggregate fair market value of
the shares of Discovery Stock purchasable under each such option and the
aggregate exercise price as adjusted pursuant to this agreement will,
immediately after the consummation of the Merger, equal the spread which
existed, immediately prior to the Merger, between the then aggregate fair market
value of the ATI Stock subject to the ATI Option and the aggregate exercise
price in effect at such time under the Option Agreement. Such adjustments are
also designed to preserve, immediately after the Merger, on a per share basis,
the same ratio of exercise price per option share to fair market value per share
which existed under the ATI Option immediately prior to the Merger.

3. The following provisions shall govern each ATI Option hereby
assumed by Discovery:

(a) Unless the context otherwise requires, all
references to the "Corporation" in each Option Agreement and in the
Plan shall mean Discovery, all references to "Common Stock" shall
mean shares of Discovery Stock, and all references to the "Board" or
the "Committee" shall mean the Board of Directors of Discovery or
the Compensation Committee of such Board.

(b) The grant date and the expiration date of each
assumed ATI Option and all other provisions which govern either the
exercisability or the termination of the assumed ATI Option shall
remain the same as set forth in the Option Agreement applicable to
that option and shall accordingly govern and control Optionee's
rights under this Agreement to purchase Discovery Stock.

(c) Each assumed ATI Option shall continue to vest and
become exercisable in accordance with the same vesting/exercise
schedule in effect under the applicable Option Agreement immediately
prior to the Effective Time, with the number of shares of Discovery
Stock subject to each such installment adjusted to reflect the
Exchange Ratio. Accordingly, no accelerated vesting of the ATI
Options shall be deemed to automatically occur by reason of the
Merger.

(d) For purposes of applying any and all provisions of
the Option Agreement relating to Optionee's "Service" with ATI,
Optionee shall be deemed to continue in Service for so long as
Optionee renders services as an employee, non-employee Board member
or consultant or independent advisor to Discovery or any present or
future Discovery subsidiary, including (without limitation) ATI.

(e) The adjusted exercise price payable for the
Discovery Stock subject to each assumed ATI Option shall be payable
in any of the forms authorized under the Option Agreement applicable
to that option.

<PAGE>

(f) In order to exercise each assumed ATI Option,
Optionee must deliver to Discovery a written notice of exercise in
which the number of shares of Discovery Stock to be purchased
thereunder must be indicated. The exercise notice must be
accompanied by payment of the adjusted exercise price payable for
the purchased shares of Discovery Stock and should be delivered to
Discovery at the following address:

Discovery Laboratories, Inc.
509 Madison Avenue, 14th Floor
New York, NY 10022
Attention: Option Plan Administrator

4. Except to the extent specifically modified by this Option
Assumption Agreement, all of the terms and conditions of each Option Agreement
as in effect immediately prior to the Merger shall continue in full force and
effect and shall not in any way be amended, revised or otherwise affected by
this Stock Option Assumption Agreement.

<PAGE>

IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused this
Stock Option Assumption Agreement to be executed on its behalf by its
duly-authorized officer as of the 16th day of June, 1998.

DISCOVERY LABORATORIES, INC.

By: ______________________________________
Name: ____________________________________
Title: ___________________________________

ACKNOWLEDGMENT

The undersigned acknowledges receipt of the foregoing Stock Option
Assumption Agreement and understands that all rights and liabilities with
respect to each of his or her ATI Options hereby assumed by Discovery
Laboratories, Inc. are as set forth in the Option Agreement, the Plan and such
Stock Option Assumption Agreement.

___________________________________________
1~, OPTIONEE

DATED: __________________, 199__

<PAGE>

EXHIBIT A

Optionee's Outstanding Options to Purchase Shares of
Acute Therapeutics, Inc.
Common Stock (Pre-Merger)

Number of Option Shares Exercise Price
----------------------- --------------

2~ 3~

<PAGE>

EXHIBIT B

Optionee's Outstanding Options to Purchase Shares of
Discovery Laboratories, Inc.
Common Stock (Post-Merger)

Number of Option Shares Exercise Price
----------------------- --------------

4~ 5~

Exhibit 99.13

Accelerated Options
-------------------

DISCOVERY LABORATORIES, INC.
STOCK OPTION ASSUMPTION AGREEMENT

Optionee: 1~

STOCK OPTION ASSUMPTION AGREEMENT issued as of the 16th day of June,
1998 by Discovery Laboratories, Inc., a Delaware corporation ("Discovery").

WHEREAS, one or more stock options held by Optionee under the Plan
have been accelerated in connection with the Merger.

WHEREAS, this Agreement is to become effective immediately upon the
consummation of the Merger (the "Effective Time") in order to reflect certain
adjustments to Optionee's outstanding options under the Plan which have become
necessary by reason of the acceleration and assumption of those options by
Discovery in connection with the Merger.

NOW, THEREFORE, it is hereby agreed as follows:

1. The stock options held by Optionee under the Plan immediately
prior to the Effective Time (the "ATI Options") that were accelerated in
connection with the Merger and the exercise price payable per share are set
forth in Exhibit A hereto. Discovery hereby assumes,

<PAGE>

as of the Effective Time, all the duties and obligations of ATI under each of
the ATI Options. In connection with such assumption, the number of shares of
Discovery Stock purchasable under each ATI Option hereby assumed and the
exercise price payable thereunder have been adjusted to reflect the Exchange
Ratio at which shares of ATI Stock were converted into shares of Discovery Stock
in consummation of the Merger. Accordingly, the number of shares of Discovery
Stock subject to each ATI Option hereby assumed shall be as specified for that
option in attached Exhibit B, and the adjusted exercise price payable per share
of Discovery Stock under the assumed ATI Option shall be as indicated for that
option in attached Exhibit B.

3. The following provisions shall govern each accelerated ATI Option
hereby assumed by Discovery:

(b) The vesting of each ATI Option has been accelerated
in connection with the Merger so that each such option may be
exercised for any or all of the shares subject to the option as
fully-vested shares of Discovery Stock.

(c) The grant date and the expiration date of each
assumed ATI Option and all other provisions which govern either the
exercisability or the termination of the assumed ATI Option shall
remain the same as set forth in the Option Agreement applicable to
that option and shall accordingly govern and control Optionee's
rights under this Agreement to purchase Discovery Stock.

<PAGE>

Discovery Laboratories, Inc.
509 Madison Avenue, 14th Floor
New York, NY 10022
Attention: Option Plan Administrator

<PAGE>

IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused this
Stock Option Assumption Agreement to be executed on its behalf by its
duly-authorized officer as of the 16th day of June, 1998.

DISCOVERY LABORATORIES, INC.

By: ______________________________________
Name: ____________________________________
Title: ___________________________________

ACKNOWLEDGMENT

__________________________________________
1~, OPTIONEE

DATED: __________________, 199__

<PAGE>

EXHIBIT A

Optionee's Outstanding Options to Purchase Shares of
Acute Therapeutics, Inc.
Common Stock (Pre-Merger)

Number of Option Shares Exercise Price
----------------------- --------------

2~ 3~

<PAGE>

EXHIBIT B

Optionee's Outstanding Options to Purchase Shares of
Discovery Laboratories, Inc.
Common Stock (Post-Merger)

Number of Option Shares Exercise Price
----------------------- --------------

4~ 5~

Exhibit 99.15

DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Discovery Laboratories, Inc. (the
"Corporation"):

Optionee: __________________________________________________________
Grant Date: ________________________________________________________
Vesting Commencement Date: _________________________________________
Exercise Price: $___________________________________ per share
Number of Option Shares: __________________________ shares
Expiration Date: ___________________________________________________
Type of Option: ______ Incentive Stock Option
______ Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable

Vesting Schedule: The Option Shares shall be unvested and subject to
repurchase by the Corporation at the Exercise Price paid per share.
Optionee shall acquire a vested interest in, and the Corporation's
repurchase right shall accordingly lapse with respect to twenty-five
percent (25%) of the Option Shares upon Optionee's completion of one
(1) year of Service measured from the Vesting Commencement Date and
shall lapse with respect to the balance of the Option Shares in
thirty-six (36) successive equal monthly installments upon
Optionee's completion of each additional month of Service over the
thirty-six (36) month period measured from the Vesting Commencement
Date. In no event shall any additional Option Shares vest after
Optionee's cessation of Service.

Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the Discovery Laboratories, Inc. 1996
Stock Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be
bound by the terms of the Plan and the terms of the Option as set forth in the
Stock Option Agreement attached hereto as Exhibit A. Optionee understands that
any Option Shares purchased under the Option shall be subject to the terms set
forth in the Stock Purchase Agreement attached hereto as Exhibit B. Optionee
hereby acknowledges receipt of a copy of the Plan in the form attached hereto as
Exhibit C.

REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL. OPTIONEE HEREBY
AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE

<PAGE>

OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST
REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS
ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.

Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

________________________, 199__
Date

DISCOVERY LABORATORIES, INC.

By: __________________________________

Title: _______________________________

______________________________________
OPTIONEE

Address: _____________________________

______________________________________

ATTACHMENTS
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 1996 Stock Option/Stock Issuance Plan

<PAGE>

EXHIBIT A

STOCK OPTION AGREEMENT

<PAGE>

EXHIBIT B

STOCK PURCHASE AGREEMENT

<PAGE>

EXHIBIT C

1996 STOCK OPTION/STOCK ISSUANCE PLAN