Exhibit 10.35

MASTER SERVICES AGREEMENT
 
This Master Services Agreement (“Agreement”), is entered into as of August 10,
2007 (“Effective Date”), by and between Discovery Laboratories, Inc., a Delaware
corporation with a principal place of business at 2600 Kelly Road, Suite 100,
Warrington, PA 18976 (“Discovery Labs”) and Kloehn Ltd., a Nevada corporation
having its principal place of business at 1000 Banburry Cross Drive, Las Vegas,
NV 89144 (“Kloehn”).
 
Whereas, Discovery Labs has entered into a strategic alliance dated December 9,
2005 (the “Chrysalis Alliance”) with Philip Morris USA Inc., d/b/a Chrysalis
Technologies (“Chrysalis”) providing for the development and licensing of
combination drug-device surfactant products (“Aerosol Devices”) based on
Discovery Labs’ aerosolized surfactant replacement therapy (“aSRT”), consisting
of devices (the “Base Units”) and related disposable delivery packets (the
“DDPs”); and
 
Whereas, Chrysalis has entered into an agreement with Kloehn pursuant to which
Kloehn is assisting Chrysalis in the engineering and development of the Base
Units and DDPs, particularly in the field of manufacture and assembly of fluidic
components and systems; and
 
Whereas, Kloehn and Discovery Labs have collaborated on the manufacture of Base
Units and DDPs to be used in engineering confidence testing and in the initial
Phase 2 clinical trials planned by Discovery Labs and Discovery Labs wishes to
enter into an arrangement with Kloehn pursuant to which Kloehn will manufacture
for Discovery certain sub-components of, and integrate those sub-components
along with others that may be provided by third parties into, Base Units and
DDPs in connection with Discovery Labs’ new drug application with respect to
Surfaxin for the prevention of respiratory distress syndrome (RDS) in premature
infants, to be filed with the United States Food and Drug Administration (the
“FDA”) and, potentially, foreign regulators (the “aSRT Project”), and Kloehn is
willing to provide such services (the “Services”), upon the terms and conditions
contained herein;
 
NOW, THEREFORE, in consideration of the mutual covenants and promises set forth
below, and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follow:
 
1.
Services.

 

 
1.1
As agreed upon by both parties, Kloehn will perform the Services related to the
aSRT Project on an as-needed basis and as requested by Discovery Labs from time
to time, as more particularly described in this Agreement and in applicable
project work orders. The Services shall be provided on a project-by-project
basis in accordance with the specifications and terms of individual project work
orders (each, a "PWO"). Each PWO shall: (i) describe the activities required for
the assembly of sub-components that comprise the key components of the Base
Units, the DDPs, and the patient interface), the technical specifications for
assembling the Devices, cost analyses and fees, performance milestones and
reporting requirements, timelines and other criteria for the assembly and
delivery of the Base Units and the DDPs; (ii) set forth Kloehn’s compensation
for the Services; (iii) provide that the Base Units, the DDPs and related
systems shall be subject to quality control testing and approval by or on behalf
of Discovery prior to release for clinical trial use as set forth in the Quality
Agreement between the parties dated even date herewith (the “Quality
Agreement”); (iv) be signed by both parties prior to commencing work on any
project; and (v) be governed by this Agreement and made a part hereof. Any
proposed change to the scope of the project or estimated total project costs set
forth in any PWO shall not be deemed effective unless and until such change has
been agreed to in writing by the parties hereto. In the event of a conflict
between the provisions of this Agreement and the provisions of a PWO or any
other attachment, the terms of this Agreement shall prevail. A form of PWO is
attached hereto as Attachment A.

 

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

 

 
1.2
All Services rendered under this Agreement will be performed by Kloehn: (i) with
due care; (ii) in accordance with generally prevailing industry standards; (iii)
in full compliance with current good clinical practices (“cGCP”) and current
good manufacturing practices (“cGMP”) as specified in regulations promulgated
from time to time by the FDA; (iv) in the manner and as provided in the Quality
Agreement between the parties; (v) in accordance with standard operating
procedures (“SOPs”) and policies that are acceptable to Discovery Labs, in its
sole discretion, from time to time; and (vi) in compliance with all applicable
laws and government regulatory requirements.

 

 
1.3
During the course of the aSRT Project, Kloehn shall be responsible for and use
its best efforts with respect to the control of access to and utilization of all
aSRT Project materials, including sub-components. Materials and sub-components
vendors shall be selected as set forth in the Quality Agreement. Inventory of
all aSRT Project materials and sub-components shall be tracked by Kloehn in
accordance with cGMP.

 

 
1.4
Kloehn shall provide to Discovery Labs, at such intervals as Discovery Labs may
reasonably request, periodic operating reports, including, but not limited to,
with respect to manufacturing processes and events, inventory purchasing,
storage, utilization and Base Units and DDPs inventory, in a format that is
reasonably acceptable to Discovery.

 

 
1.5
Kloehn shall provide to Discovery Labs quarterly periodic financial reports, in
such detail and format as is reasonably acceptable to Discovery Labs.

 
2.
Compensation and Payment.

 

 
2.1
Fees. In consideration for the Services rendered by Kloehn to Discovery Labs,
Discovery Labs will pay Kloehn per the budget set forth in each PWO.

 

 
2.2
Invoices. Invoices submitted pursuant to a PWO should be submitted to:

 
 Discovery Laboratories, Inc.
 2600 Kelly Road, Suite 100
 Warrington, PA 18976-3622
 Attention: Accounts Payable
 
-2-

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

 
Discovery Labs shall pay Kloehn as promptly as practicable following receipt of
Kloehn’s invoices, provided Kloehn has complied in all material respects with
the terms of this Agreement. If any portion of an invoice is disputed, then
Discovery Labs shall pay the undisputed amounts as set forth in the preceding
sentence and the parties shall use good faith efforts to reconcile the disputed
amount as soon as possible. In the event of any overpayment by Discovery Labs,
Kloehn shall promptly refund to Discovery Labs the amount of such overpayment
or, if acceptable to Discovery Labs, credit the amount of such overpayment on
the next invoice.

3.
Term and Termination.

 

 
3.1
This Agreement will commence on the Effective Date and shall continue to March
31, 2009 (the “Term”). The Term of this Agreement may be extended upon the
mutual written agreement of the parties.

 

 
3.2
Notwithstanding the preceding paragraph, if Discovery Labs shall determine in
the exercise of its reasonable judgment to terminate this Agreement (which
judgment may be based upon, but not be limited to, economic or regulatory events
or developments, inconclusive clinical trial results or commercial feasibility
concerns, or the occurrence of events described in Section 5), Discovery Labs
shall give Kloehn written notice of termination and, within sixty (60) days,
Discovery Labs and Kloehn shall cooperate to develop a plan for the orderly
wind-down and transfer of any Services being performed, including, without
limitation, technology and inventory and related materials and property, if any,
owned by Discovery Labs, all of which potential transfer activities shall be set
forth in each PWO.

 

 
3.3
Upon any material breach of this Agreement by either party, the non-breaching
party may terminate this Agreement upon thirty (30) days written notice to the
breaching party, in accordance with the provisions of Section 3.2. The notice
shall become effective at the end of the thirty (30) day period unless the
breaching party cures such breach within such period. For purposes of this
Agreement, material breach includes, but is not limited to, nonperformance and
breach of confidential information.

 

 
3.4
Neither expiration nor termination of this Agreement shall relieve either party
of its rights or obligations under Sections 3.4, 4, 6.4, 6.5, 6.6, and 6.8
through 6.12.

 
4.
Proprietary Information, Intellectual Property, and Records.

 

 
4.1
Proprietary Information.

 

 
i)
The parties hereto shall use their best efforts and shall keep confidential and
not disclose to third parties or use any of the disclosing party’s Proprietary
Information (as hereafter defined), except as may be required in providing the
Services. Each party hereto will return any Proprietary Information belonging to
the disclosing party upon the first to occur of: a) written request of the
disclosing party, b) expiration of this Agreement, or c) termination of this
Agreement. Proprietary Information will not include any information or material
which:

 

 
a)
is now in the public domain or which becomes generally available to the public
other than as a result of a disclosure by the receiving party; or

 
-3-

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

 

 
b)
was already known to or in the possession of receiving party prior to disclosure
as can be demonstrated by documentary evidence; or

 

 
c)
was disclosed on a non-confidential basis by a third party, provided that such
party is not prohibited by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of nondisclosure to the disclosing
party.

 

 
ii)
“Discovery Proprietary Information” includes (i) all proprietary information
and/or material owned by Discovery Labs, and now or hereafter included in
Discovery Labs’ intellectual property portfolio including, but not limited to:
Surfaxin® (KL4-Surfactant, sinapultide, lucinactant) and/or surfactant lavage
techniques used to treat pulmonary diseases, and shall further include all data,
materials, products, technology, computer programs, specifications, manuals,
business plans, software, marketing plans, and financial information, (ii) all
proprietary information, intellectual property and/or material licensed to
Discovery Labs, including, without limitation, that certain license granted to
Discovery Labs pursuant to the Chrysalis Alliance, (iii) the Base Units and
DDPs, (iv) all trade secrets owned, licensed or otherwise developed and
controlled by Discovery Labs, including without limitation trade secrets related
to the manufacture, release and quality control activities of Discovery Labs’
surfactant replacement therapy platform and aSRT product candidates and
delivered to Kloehn as part of a technology transfer, and (v) any information or
material learned from or developed by Discovery Labs in the course of the aSRT
Project or for Discovery Labs by Kloehn in connection with the Services
hereunder.

 

 
iii)
“Kloehn Proprietary Information” includes all proprietary information owned or
licensed by Kloehn relating to the pumping mechanism and syringe subcomponents
and shall further include all of Kloehn’s data, materials, products, technology,
computer programs, specifications, manuals, business plans, software, marketing
plans, and financial information, to the extent that the foregoing is owned,
licensed or developed by Kloehn or otherwise made available to Kloehn by a third
party on a confidential basis, as may be disclosed to Discovery Labs as a result
of providing the Services hereunder.

 

 
iv)
The confidentiality obligations of this Section 4 shall survive the expiration
or termination of this Agreement for a period of five (5) years thereafter.

 
-4-

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

 

4.2
Intellectual Property.

 

 
i)
Kloehn acknowledges and agrees that, as between Discovery Labs and Kloehn, all
ownership, copy, patent, trade secrecy, trademark, service mark, trade name and
other rights in any and all work product created hereunder (hereinafter
“Intellectual Property”), which Intellectual Property shall include, without
limitation, all inventions, discoveries, designs, programs, improvements,
developments, new concepts, methods, agents, materials, and ideas, whether
patentable or not, and products, processes and know-how related to the use or
production thereof made or conceived by Kloehn for the aSRT Project pursuant to
this Agreement and on behalf of Discovery Labs, during the term of this
Agreement or within six (6) months thereafter, that relate to or results from
any work performed by Kloehn for Discovery Labs or that make use of Discovery
Labs’ equipment, supplies, facilities, technology or trade secrets shall be the
sole property of Discovery Labs, including without limitation the information
and/or material licensed to Discovery Labs pursuant to the Chrysalis Alliance,
whether developed independently by Kloehn or jointly with others and whether
Discovery Labs uses, registers or markets the same. For the purposes of this
Agreement, “Intellectual Property” does not include any fluidic pump technology
and trade secrets that are owned, and were developed by, Kloehn prior to and
independently of the Services provided under this Agreement.

 

 
ii)
Kloehn does hereby agree to promptly disclose all Intellectual Property to
Discovery Labs in writing, sign all papers, execute all oaths and do everything
necessary to assign to Discovery Labs, and does hereby assign to Discovery Labs,
all rights in and to the Intellectual Property. For these purposes Kloehn agrees
to make, constitute and appoint Discovery Labs, irrevocably and coupled with an
interest, Kloehn’s true and lawful attorney in fact, in Kloehn’s name, place and
stead, to sign, execute, acknowledge, deliver and record all documents and
instruments, at any time and in any manner, which Discovery Labs may deem
necessary or desirable to grant and assign to Discovery Labs all rights of any
nature whatsoever (including, but not limited to the exclusive global
copyrights, patents, trademarks and service marks) in and to the Intellectual
Property. Such documents and instruments shall include but not be limited to all
documents required in applying for and obtaining registration of all priority
rights in the Intellectual Property and all documents necessary to assign to
Discovery Labs all rights thereto. As necessary and upon request, during and
after the term of this Agreement, Kloehn agrees to further assist Discovery Labs
to evidence, perfect, register or enforce any and all rights set forth in this
Section 4.

 

 
iii)
Kloehn acknowledges and agrees that should Kloehn’s services hereunder result in
the creation of copyrightable Intellectual Property, said Intellectual Property
is a work made for hire as the term is used in the United States Copyright Laws
in that it was prepared within the scope of Discovery Labs’ engagement of
Kloehn’s services and it constitutes a work specially ordered by Discovery Labs.

 
-5-

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

 

 
iv)
Kloehn may develop innovative fluidic pump technology pursuant to this Agreement
and wishes to retain rights to any such technology for all uses other than with
respect to respiratory medical devices (“Non-medical Fluidics”).  Such
Non-medical Fluidics may constitute “Chrysalis Technology Improvements”, which
is defined under the Chrysalis Alliance to include, among other things,
inventions created or reduced to practice by or on behalf of Discovery Labs and
its subcontractors in the performance of the Chrysalis Alliance, which
inventions relate primarily to Chrysalis’ proprietary Aerosol Technology (which
includes, without limitation, technologies, devices, processes, equipment,
materials and know-how relating to the aerosolization of liquid forms of drug
products and the Base Units and DDPs).  Under the Chrysalis Alliance, such
Chrysalis Technology Improvements are the property of Chrysalis.  Accordingly,
Discovery Labs is unable to agree to the retention of rights by Kloehn in
Non-medical Fluidics.  Nevertheless, Discovery Labs acknowledges and agrees that
Kloehn may negotiate with Chrysalis for rights to Non-medical Fluidics and, to
the extent that an agreement is reached between Kloehn and Chrysalis and
provided that such rights are beyond the scope of the rights granted to
Discovery Labs under the Chrysalis Alliance, Discovery Labs will execute such
agreements as may reasonably be required to transfer and vest such rights to
Kloehn.

 

 
4.3
Records and Materials. Kloehn agrees to keep, separate and segregate from other
work, all documents, records, notebooks, correspondence, processes, techniques,
methods, agents, know-how and other material which directly relate to Kloehn’s
performance under this Agreement. At Discovery Labs’ request, Kloehn shall
afford Discovery Labs access to said records relating to this Agreement.
Discovery Labs shall own all right for, title to and interest in such items,
whether prepared or acquired by Kloehn or provided to Kloehn by Discovery Labs
or other party. Upon expiration or termination of this Agreement or upon earlier
request by Discovery Labs, Kloehn shall immediately assemble all tangible items
of work in process, notes, plans and other materials related in any way to
Kloehn’s performance under this Agreement and all documents, records, notebooks
and similar repositories of or containing confidential information, including
copies thereof, then in Kloehn’s possession or subject to Kloehn’s control,
whether prepared by Kloehn or others, and will promptly (not to exceed five (5)
business days after termination) deliver such items to Discovery Labs or, at
Discovery Labs’ instructions, destroy them and certify such destruction in
writing to Discovery Labs.

 

 
4.4
Audits. During the term of this Agreement and for a period of 5 (five) years
thereafter, Kloehn agrees to permit Discovery Labs (or its designee) to examine
with prior notice at any reasonable time during normal business hours: (a) the
facilities where the Services are being performed, and (b) reports, databases
and any other relevant information necessary to confirm that the Services are
being conducted in conformance with this Agreement and in compliance with
applicable laws and regulations. Kloehn agrees to cooperate with Discovery Labs
(or its designee) and provide all requested documentation. Kloehn agrees to take
or cause to be taken any reasonable actions requested by the Company to cure
deficiencies noted during an audit or inspection.

 
-6-

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

 
5.
Future Transactions

 

 
5.1
The parties contemplate that Kloehn’s satisfactory performance of the Services,
when combined with the achievement, as determined in the sole and unfettered
discretion of Discovery Labs, of satisfactory developmental, clinical,
marketing, business and financial results with respect to the aSRT Project,
provide the basis for future agreements between Discovery Labs and Kloehn.
Specifically, (a) Kloehn must timely perform the Services according to the
standards set forth in this Agreement and the Quality Agreement, (b) Kloehn must
establish and maintain the technology necessary to support any future iteration
of the aSRT Project, and (c) Kloehn must maintain a competitive Services pricing
structure. For the avoidance of doubt, assuming that the expectations and
business needs of the parties and all applicable technical and regulatory
requirements are satisfied at all times, and subject to the contingencies noted
in Section 5.2, the parties anticipate, and agree to negotiate in good faith to
enter into, future agreements associated with the aSRT Project, with specific
reference, but potentially not limited to, the core business of Kloehn, fluidic
pump technology.

 

 
5.2
Kloehn acknowledges that, to manufacture and market aSRT devices in accordance
with cGMP and to assure a continuous supply of Base Units and DDPs at all times,
Discovery Labs intends to work with more than one FDA-qualified manufacturer and
integrator and, in order to secure the commitment of such manufacturers and
integrators, Discovery Labs will likely be required to direct a minimal level of
orders to such entities. Notwithstanding the foregoing, with respect to Kloehn’s
core business of developing and manufacturing pumping mechanisms and syringe
subcomponents, in which Kloehn asserts a proprietary interest and related
intellectual property (the “Kloehn Subcomponents”), Discovery Labs and Kloehn
agree to negotiate in good faith to execute and deliver an agreement under which
Kloehn will be the sole manufacturer of the Kloehn Subcomponents, provided that
such agreement shall contain terms and conditions satisfactory to both parties
providing for back-up inventories and, further providing for volume
requirements, mechanisms to transfer manufacturing processes and know-how to one
or more successor manufacturers designated by Discovery Labs in the event of a
default or failure by Kloehn to manufacture to Discovery Labs’ specifications.
The foregoing assumes that the expectations and business needs of the parties
and applicable technical and regulatory requirements are and will continue to be
satisfied at all times.

 

 
5.3
Notwithstanding anything in this Agreement to the contrary, Kloehn acknowledges
that Discovery Labs may enter into one or more agreements with other parties
(“Collaborators”) for the purpose of assigning or delegating to such
Collaborators (pursuant to licensing or other arrangements) commercialization,
manufacturing and assembly responsibilities for the Base Units, DDPs and related
equipment. Such arrangements may provide, among other things, that Discovery
Labs would no longer act as the procurer of Base Units, DDPs and related
systems. In such event, Discovery Labs will not be obligated to require such
Collaborators to comply with the undertakings of Discovery Labs under this
Agreement, but will apprise such Collaborators of Kloehn’s previous commitment
to the aSRT Project and will discuss with such Collaborators Kloehn’s historical
performance under this Agreement and, to the extent practical, facilitate
negotiations between such Collaborators and Kloehn, in particular with respect
to the core business of Kloehn, fluidic pump technology. Kloehn acknowledges
that Discovery Labs can not compel such Collaborators to agree to negotiate in
good faith to enter into future agreements.

 
-7-

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

 

 
5.4
Notwithstanding the foregoing, the parties recognize that there can be no
assurance that Discovery Labs, or any of its potential Collaborators, will deem
it necessary or desirable to pursue the development of the aSRT Project, or that
unforeseen developments, including, without limitation, actions of the FDA or
other governmental agency, may not arise which would make the continuation of
Kloehn’s Services in the event of the ongoing development and ensuing
commercialization of the aSRT Project undesirable or impractical.

 
6.
Miscellaneous Provisions.

 

 
6.1
Assignment. Due to the specialized nature of the Services provided by Kloehn
hereunder, Kloehn may not assign, transfer or convey this Agreement or any
moneys due or to become due hereunder without the prior written consent of
Discovery Labs, which consent shall not be unreasonably withheld. Discovery Labs
may assign its rights and obligations under this Agreement without the consent
of Kloehn.

 

 
6.2
Notices. All notices under this Agreement shall be given in writing and
delivered personally (against receipt), sent by prepaid registered or certified
mail, return receipt requested, or by prepaid overnight courier service or, to
the extent receipt is confirmed, telecopy or other electronic transmission
service, to the appropriate address or number as set forth below:

 
If to Discovery Labs:

Discovery Laboratories, Inc.
2600 Kelly Road, Suite 100
Warrington, PA 18976-3622
Attention: Chuck Katzer, Senior Vice President, Manufacturing Operations
Fax: (215) 488-9530
E-mail: ckatzer@discoverylabs.com
 
-8-

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

 
With a copy to:

Discovery Laboratories, Inc.
2600 Kelly Road, Suite 100
Warrington, PA 18976-3622
Attention: David Lopez, Executive Vice President, General Counsel
Fax: (215) 488-9557
E-mail: dlopez@discoverylabs.com
 
If to Kloehn:

Kloehn Ltd. USA
10000 Banburry Cross Drive
Las Vegas, NV 89144
Attention: Michael Marshall, Vice President, General Manager
Fax: (702) 243-7727
E-mail: mmarshall@kloehn.com

With a copy to:

Kenneth L. Sherman, Esq.
Myers Dawes Andras & Sherman, LLP
19900 MacArthur Boulevard, 11th Floor
Irvine, CA 92612
Fax: (949) 223-9610
E-mail: sherman@mdaslaw.com

or to such addresses either party may from time to time designate by written
notice to the other, and shall be given by mail (postage prepaid), express
courier (prepaid), fax or by personal delivery. The date of receipt by fax,
personal delivery, express courier or mailing as the case may be, shall be
deemed the date of delivery to a party.
 

6.3
Representations and Warranties. Kloehn represents and warrants that:

 

 
i)
as of the Effective Date of this Agreement, Kloehn has no conflicting third
party agreements, and Kloehn will not enter into any third party agreements
during the Term of this Agreement that would prevent or interfere with Kloehn’s
performance of Kloehn’s obligations hereunder; and

 
-9-

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

 

 
ii)
if applicable, the person(s) responsible for providing the Services has not been
debarred by the FDA under 21 U.S.C. 335a and that it will not subcontract any of
the Services to any person who has been debarred.

 

 
6.4
Indemnification. Kloehn shall indemnify, defend and hold Discovery Labs harmless
from and against any claim, loss, damage and expense including reasonable
attorney’s fees (the foregoing, individually and collectively, “Claim”), arising
out of Kloehn’s breach or alleged breach of any of the covenants,
representations and warranties contained in this Agreement and arising out of
Services performed and carried out pursuant to this Agreement; provided,
however, that Kloehn shall have no obligation to indemnify Discovery Labs to the
extent that it shall be finally determined by a court of competent jurisdiction
that such claim, loss, damage and expense are the result of Discovery Labs’
gross negligence or willful misconduct, and in such event, Discovery Labs shall
be required to reimburse Kloehn for costs of defense incurred by Kloehn prior to
such determination. The indemnity provided in this Agreement shall be in
addition to, and not in substitution of, any indemnity provided in the Quality
Agreement or other agreement between the parties. Discovery Labs acknowledges
and agrees that the indemnity provided in this Section 6.4 is limited to the
performance and undertakings of Kloehn under this Agreement. In the event any
Claims arise out of or relate to the use of Base Units and Disposable Dose
Packets to treat humans as part of a clinical trial, Discovery Labs acknowledges
that Kloehn will be obligated to indemnify Discovery Labs pursuant to this
Section 6.4 only if, and only to the extent that, Kloehn shall have breached
this Agreement, for example, by manufacturing Base Units or Disposable Dose
Packets that deviate from the specifications provided in an applicable PWO, and
not in connection with Claims arising out of a defect in the design of the Base
Units or Disposable Dose Packets or the improper use of the Base Units or
Disposable Dose Packets by third parties.

 

 
6.5
Independent Contractor. The parties hereto are acting as independent contractors
and shall not be deemed to be partners, joint ventures or each other’s employees
or agents. Neither party shall have the right to act on behalf of the other
except as expressly set forth in this Agreement. Kloehn will be solely
responsible for and will pay all taxes related to the receipt of payments
hereunder and shall give reasonable proof and supporting documents, if
reasonably requested, to verify the payment of such taxes.

 

 
6.6
Insurance. Throughout the term of this Agreement, Kloehn shall maintain, and
shall provide to Discovery Labs, copies of insurance policies with the following
minimum coverages and under which Discovery Labs shall be named an additional
insured: (i) standard property insurance, in such form as is acceptable to
Discovery Labs and covering all component materials, equipment, improvements and
all devices (including all such materials, equipment, improvements and devices
that are owned by Discovery Labs and in the possession of Kloehn at any time),
in such amounts, and with such retentions, deductibles, limits and sub-limits as
Discovery Labs and Kloehn shall agree, but in no event less than the estimated
replacement cost of Kloehn’s facility and all fixtures, equipment, inventory and
other personal property located therein, and the cost of re-validating and
qualifying the facility under the FDA regulations, (ii) standard general
liability insurance including bodily injury, death, property damage in a minimum
amount of $5,000,000 per occurrence and $10,000,000 in the aggregate; (iii)
product liability insurance in a minimum amount of $5,000,000 per occurrence and
$10,000,000 in the aggregate; (iv) workers compensation insurance; and (v) such
other coverages as are normal and customary in the industry for similar contract
manufacturers and integrators, in such amounts as are reasonably acceptable to
both parties.

 
-10-

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

 

 
6.7
Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of Delaware, United States of America (regardless of
its or any other jurisdiction’s choice-of-law principles).

 

 
6.8
Equitable Remedies. Each of the parties agrees that money damages would not be a
sufficient remedy for any breach of this Agreement by such party and that the
other party will be entitled to seek specific performance and injunctive relief
as remedies for any such breach. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Agreement but shall be in addition to
all other remedies available at law or equity.

 

 
6.9
Waiver. Failure by either party to insist on strict adherence to any one or more
of the terms or conditions of this Agreement, or on one or more occasions, will
not be construed as a waiver, nor deprive that party of the right to require
strict compliance with the same thereafter.

 

 
6.10
Business Identifiers; Publicity. Neither party shall use the trade name, logos,
or trademarks of the other party and/or its products or services without the
other party’s prior written consent. Neither party shall identify the other
party as a prospective, current, or former client in any press release,
publicity, advertising, or other disclosure without prior written consent of the
other party. Notwithstanding the foregoing, Discovery Labs may disclose the
existence of this Agreement, the identity of Kloehn and the nature of the
Services provided hereunder, if in the reasonable exercise of its judgment,
Discovery Labs concludes that disclosure is necessary or appropriate to comply
with the requirements of the federal securities laws.

 

 
6.11
Severability. If any provision of this Agreement is for any reason declared
invalid, void or unenforceable by a court of competent jurisdiction, the
validity and binding effect of any remaining provisions will not be affected and
the remaining portion of this Agreement will remain in full force and effect as
if this Agreement had been executed with said provisions eliminated.

 

 
6.12
Entire Agreement. This Agreement, the Quality Agreement dated even date
herewith, and the Confidentiality Agreement dated as of January 11, 2006,
contain the entire agreement of the parties and supersedes and cancels all other
agreements, discussions, representations or understandings between the parties
with respect to the subject matter hereof, including the Interim Letter
Agreement dated as of April 12, 2006 between the parties. No amendments hereto,
or waivers or releases of obligations hereunder, shall be effective unless
agreed to in writing by the parties hereto. This Agreement may be signed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

 
DISCOVERY LABORATORIES, INC.
   
KLOEHN LTD.
               
By:
   
By:

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

Name:
   

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

Name:

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

Title:

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

   

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

Title:

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

 
-11-

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

 
 
Attachment A
 
Sample Project Work Order

Project Work Order pursuant to Master Services Agreement between Discovery
Laboratories, Inc. and Kloehn Ltd., dated August 10, 2007 (the “Agreement”).
 
1. Describe, in detail, the activities to be to be performed hereunder:
 

2. Specifications:
 

3. Budget:
 

4. Fees:
 

5. Milestone and other reporting requirements:
 

6. Timelines:
 

7. The Services to be performed pursuant to this PWO shall be subject to quality
control testing and approval as set forth in the Quality Agreement between the
parties dated April 20, 2007.
 

-i-

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

 
 
8. In the event of termination of the Agreement the following the respective
responsibilities of the parties are as follows:
 
 
DISCOVERY LABORATORIES, INC.
   
KLOEHN LTD.
               
By:
   
By:

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

Name:
   

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

Name:

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

Title:

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

   

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

Title:

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

 
-ii-

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