Unassociated Document


     

    
      Exhibit
10.2

    

     

    
      SEPARATION OF EMPLOYMENT
AGREEMENT AND GENERAL RELEASE

      


      


      THIS
SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE (this “Agreement”) is
made as of August 13, 2009 between Discovery Laboratories, Inc. (the “Company”)
and Robert J. Capetola, Ph.D. (“Executive”) (hereinafter collectively referred
to as the “Parties”).

       

      WHEREAS,
the Company and Executive are parties to an employment agreement dated May 4,
2006, as amended (the “Employment Agreement”);

       

      WHEREAS,
Executive desires to resign all of his positions with the Company and Executive
and the Company wish to mutually agree on matters relating to Executive’s
resignation, on the terms set forth in this Agreement; and

       

      NOW,
THEREFORE, for good and valuable consideration, the receipt of which is hereby
acknowledged, and intending to be legally bound hereby, Executive and the
Company agree as follows:

       

      1. Resignation from Employment
and the Board of Directors.  As of 5:00 p.m. on the date of
this Agreement as set forth above (the “Resignation Date”), Executive hereby
resigns all employment and related job duties and responsibilities with the
Company including, without limitation, his positions as President and Chief
Executive Officer and as a member of the Board of Directors of the
Company.  This resignation is the product of an agreement by the
Parties hereto and is not a result of any disagreement Executive had about the
operations, policies or practices of the Company or any of its subsidiaries or
affiliates.  Terms not otherwise defined in this Agreement shall have
the meaning given to them in the Employment Agreement.

       

      2. Severance Payments and
Benefits to Executive.

       

      (a) Separation
Payment.  On the Effective Date (as defined in Section 8(d) of
this Agreement), Company shall pay to Executive a lump sum cash payment in an
amount equal to the sum of (i) all unpaid compensation accrued through the
Resignation Date, and any unreimbursed employee business expenses (subject to
submission of appropriate documentation) (provided, that any
payment under this Section 2(a) shall not exceed the amount that otherwise would
be calculated in accordance with Section 7(a)(i) of the Employment Agreement),
plus (ii) $250,000.

       

      (b) Periodic Severance
Payments.  During the period beginning as of the Resignation
Date and ending on
May 3, 2010 (the “Severance Period”, unless terminated early under Section 2(e)
or 2(f) of this Agreement), Company shall pay to Executive an amount equal to
his Base Salary (calculated at a rate of $490,000 per annum), payable in
accordance with the Company’s normal bi-weekly payroll practices and less any
required withholdings.

       

      (c) Severance Period
Benefits.  During the period beginning as of the Resignation
Date and ending on May 3, 2010 (the “Benefits Period”, unless extended under
Section 2(e) or 2(f) of this Agreement), the Company shall provide Executive
continuation of the health (initially pursuant to the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”)), life and other benefits as set forth, and
to the extent described, in Section 7(b)(iv) of the Employment
Agreement.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (d) Stock Options and Restricted
Stock.  On the Effective Date, all shares of stock and all
options to acquire Company stock held by Executive shall accelerate and become
fully vested and all stock options shall continue to be exercisable for the
remainder of their stated terms.  In the event of a Change of Control,
if Executive shall elect not to exercise all or any portion of his Company
options, Executive shall be treated no less favorably than the Company’s senior
executives with respect to any extension, monetization or other disposition of
such executives’ similar unexercised options in connection with the Change of
Control.

       

      (e) Additional Severance
Payments and Benefits in the Event of a Corporate
Transaction.  In the event that, prior to the expiration of the
Severance Period, the Company consummates a Corporate Transaction, as that term
is defined below, then:

       

      
        	
                1)  

              	
                the
      periodic payments under Section 2(b) shall cease and, within 10 days from
      the date of a Corporate Transaction (or, if the Corporate Transaction
      consists of more than one transaction, the date of the last of such
      transactions), the Company shall pay Executive a lump sum cash payment in
      the amounts described in Section 7(b)(iii) of the Employment Agreement,
      reduced by the aggregate of any severance payments paid to Executive
      pursuant to Sections 2(a)(ii) and 2(b);
and

              


      

       

      
        	
                2)  

              	
                the
      Benefits Period under Section 2(c) shall be extended for a period ending
      24 months after the Resignation
Date.

              


      

       

      For the
purposes of this Agreement, the term “Corporate Transaction” means (i) one or
more corporate partnering or strategic alliance transactions, Business
Combinations or public or private financings that (A) are completed during the
Severance Period and (B) result in cash proceeds (net of transaction costs) to
the Company of at least $20 million received during the Severance Period or
within 90 calendar days thereafter, or (ii) an acquisition of the Company, by
Business Combination or other similar transaction, that occurs during the
Severance Period and the consideration paid to stockholders of the Company, in
cash or securities, is at least $20 million.  Net proceeds shall be
calculated without taking into account any amounts received by the Company as
reimbursement for costs of development and research activities to be performed
in connection with any such transaction.

       

      (f) Additional Severance
Payments and Benefits in the Event of a Change of Control.  In
the event that, prior to the expiration of the Severance Period, the Company
consummates a Corporate Transaction that constitutes a Change of Control, as
that term is defined under the Employment Agreement, then:

       

      
        	
                1)  

              	
                the
      periodic payments under Section 2(b) shall cease and, in lieu of the
      Severance Payments provided under Section 2(e) of this Agreement, within
      10 days from the date of a Change of Control, the Company shall pay
      Executive a lump sum cash payment in an amount equal to the product of
      2.25 times the sum of (A) the Executive’s Base Salary and (B) the Highest
      Annual Bonus, reduced by the aggregate of any severance payments paid to
      Executive pursuant to Sections 2(a)(ii) and 2(b);
  and

              


      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	
                2)  

              	
                The
      Benefits Period under Section 2(c) shall be extended for a period ending
      27 months after the Resignation
Date.

              


      

       

      (g) Other Miscellaneous
Severance Matters.

       

      
        	
                1)  

              	
                Executive
      acknowledges and agrees that, from and after the date of this Agreement,
      Executive shall not be entitled to any benefits or employment rights set
      forth in his Employment Agreement, during the Severance Period or
      otherwise, other than the benefits set forth in this
      Agreement.

              


      

       

      
        	
                2)  

              	
                In
      the event of a Corporate Transaction or a Change of Control in which the
      Company’s vice-presidents shall decide or otherwise be required to accept
      a reduction in any severance payments payable in connection with such
      transaction pursuant to their respective employment agreements then in
      effect, the lump sum cash payments to be provided to Executive pursuant to
      Sections 2(e) or (f) of this Agreement shall then likewise be reduced in
      an amount and manner so as to constitute a substantially similar
      proportional adjustment as that experienced by the Company’s
      vice-presidents; provided, however, that (i) such adjustment shall be
      applied solely with respect to payments that otherwise would be paid to
      Executive under Sections 2(e) or (f) of this Agreement, (ii) the Company
      shall promptly notify Executive that such adjustment will occur and
      provide copies of the transaction documents at the time the transaction is
      publicly disclosed, and (iii) under no circumstances will Executive be
      required to return any money that has been previously paid to
      him.

              


      

       

      (h) Survival of
Obligations.  The obligations of the Company under this Section
2 shall survive the death of Executive.  Any amounts remaining due at
the time of or after Executive’s death shall be paid on the dates set forth in
this Agreement and shall be payable to his surviving spouse or his estate or
legal representative.  If the Company remains obligated to provide any
benefits after the time of Executive’s death, such benefits shall be provided to
surviving participants and/or beneficiaries under the Company’s health and
welfare and other benefit plans, in accordance with any applicable provisions of
COBRA and the provisions of such plans.

       

      (i) Acknowledgements.  All
payments made to Executive under this Agreement shall be subject to applicable
federal, state and local withholding taxes.  Executive hereby
acknowledges that, under the Employment Agreement and under the Company’s
general policies and practices, Executive is not otherwise entitled to receive
the benefits described in this Agreement unless Executive signs this
Agreement.  Executive further acknowledges that, other than the
foregoing payments described in this Section 2, he has received payment in
full for all of the compensation, wages, benefits and payments of any kind
otherwise due him from the Company, including compensation, bonuses,
commissions, lost wages, severance, expense reimbursements, payments to benefit
plans, accrued but unused vacation and personal or sick time as provided in the
Employment Agreement or otherwise.  The Parties acknowledge that the
consideration described in Section 2 represents good, valuable, and
sufficient consideration for the mutual promises and duties set forth in this
Agreement.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      3. Complete Release by
Executive; Indemnity by Company.

       

      (a) Release.  For
and in consideration of the payments and promises contemplated by Section 2
of this Agreement and for other good and valuable consideration as more fully
described herein, the receipt and adequacy of which is hereby acknowledged,
Executive hereby waives, releases and gives up any claim or cause of action that
Executive, Executive’s heirs, executors, administrators, successors and assigns
may have against the Company, its subsidiaries and affiliates and their employee
benefit plans and the trustees, fiduciaries and administrators of those plans,
and any of the foregoing present or past employees, officers, shareholders,
managers, directors, agents and contractors, and each of their predecessors,
successors and assigns (the “Released Parties”), based on any event that has
occurred before Executive signs this Agreement, or arising from or based upon
Executive’s employment with the Company and/or separation from employment and/or
termination of the Employment Agreement, including, but not limited to, any
claims for salary, bonuses, severance pay, vacation pay or any benefits under
the Employee Retirement Income Security Act of 1974, as amended; any claims of
harassment or discrimination based upon race, color, national origin, ancestry,
religion, marital status, sex, sexual orientation, harassment, retaliation,
citizenship status, pregnancy, leave of absence (including, but not limited to,
the Family Medical Leave Act or any other federal, state or local leave laws),
medical condition or disability, under Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Americans With Disabilities Act, Section
1981 of the Civil Rights Act of 1866, or any other federal, state or local law
prohibiting discrimination in employment; any claims of age discrimination under
the Age Discrimination in Employment Act, as amended by the Older Workers
Benefit Protection Act of 1990, or under any federal, state or local law
prohibiting age discrimination; the Worker Adjustment and Retraining
Notification Act; whistleblower claims; claims of breach of implied or express
contract, breach of promise, misrepresentation, negligence, fraud, estoppel,
defamation, infliction of emotional distress, violation of public policy,
wrongful or constructive discharge or any other employment-related tort; any
claim for costs, fees or other expenses, including attorneys’ fees; and all
claims under any other federal, state or local law relating to employment,
including the Sarbanes-Oxley Act of 2002.  This waiver includes a
waiver of claims that Executive may know about and claims that Executive may not
know about.  However, the foregoing waiver shall not apply to, and
Executive does not hereby waive, release or give up (i) any claim for workers’
compensation benefits, (ii) any vested benefits (if any) under the terms of any
retirement savings, insurance, or other qualified plan(s) maintained by the
Company, (iii) any right to unemployment benefits that Executive may have,
(iv) any rights that Executive may have to purchase health benefit continuation
coverage under COBRA, (v) any rights that Executive may have under this
Agreement, the Indemnification Agreement (as defined below), the Agreements
between the Company and Executive related to Executive’s Options Agreements and
Restricted Stock Agreements, and (vi) any rights of Executive under the
Company’s Certificate of Incorporation, as amended from time to time, and the
Company’s Bylaws, as amended from time to time, and any insurance policies
maintained by the Company, including directors and officers liability and
product and general liability policies.

       

      (b) Claims.  Executive
represents and warrants that Executive has not filed, commenced or lodged
against or relating to the Company, or permitted to be filed, commenced or
lodged against or relating to the Company on Executive’s behalf, any complaints,
charges, claims, actions or other proceedings of any nature or description in or
before any court, administrative agency or other forum.  Executive
hereby agrees that neither Executive, nor any non-governmental person,
organization or other entity acting on Executive’s behalf, has in the past or
will in the future file any lawsuit or arbitration asserting any claim that is
waived under Section 3(a) of this Agreement.  If Executive breaks this
promise and files a lawsuit or arbitration making any claim waived in this
Agreement, Executive shall pay for all costs, including reasonable attorneys’
fees, incurred by the Company in defending against any such
claim.  Furthermore, Executive hereby gives up any right to individual
damages in connection with any administrative, arbitration or court proceeding
with respect to Executive’s employment with and/or termination of employment
from the Company, and if Executive is awarded money damages, Executive hereby
agrees to assign to the Company all right and interest to such money
damages.  Executive affirms that he has not assigned or transferred
any claim against the Company or any of the Released Parties, nor has he
purported to do so.

       

      
        
          
          

        

        
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      (c) Executive
Indemnity.  The Company hereby acknowledges that the
Indemnification Agreement, effective as of September 15, 2000 (“Indemnification
Agreement”), between Executive and the Company shall survive the termination of
the Employment Agreement and any expiration of the Severance Period and remain
in full force and effect in accordance with its terms.

       

      4. Release of Executive by the
Company.

       

      (a) In
consideration of the promises by Executive under this Agreement, including the
representations, covenants and release provided under Section 3, and for other
good and valuable consideration as more fully described herein, the Company
hereby irrevocably and unconditionally releases, waives and forever discharges
Executive from known and unknown claims, promises, causes of action or similar
rights of any type that the Company may have against Executive. However, the
foregoing waiver shall not apply to, and the Company does not hereby waive,
release or give up (i) any claim arising under the terms of any health, welfare,
equity incentive or other employee benefit plan maintained by the Company,
(ii) any rights that the Company may have under this Agreement, the
Indemnification Agreement, the Agreements between the Company and Executive
related to Executive’s Options Agreements and Restricted Stock Agreements, and
(iii) any rights of the Company to recoup reimbursement or advances to Executive
under the Company’s Certificate of Incorporation, as amended from time to time,
and the Company’s Bylaws, as amended from time to time, and any insurance
policies maintained by the Company, including directors and officers liability
and product and general liability policies .

       

      (b) Claims.  The
Company represents and warrants that the Company has not filed, commenced or
lodged against or relating to Executive any complaints, charges, claims, actions
or other proceedings of any nature or description in or before any court,
administrative agency or other forum.  The Company hereby agrees that
it will not in the future file any lawsuit or arbitration asserting any claim
that is waived under Section 4(a) of this Agreement.  If the Company
breaks this promise and files a lawsuit or arbitration making any claim waived
in this Agreement, the Company shall pay for all costs, including reasonable
attorneys’ fees, incurred by Executive in defending against any such
claim.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      5. Executive’s Promises and
Representations.

       

      (a) Employment
Separation. Executive promises never to knowingly seek employment with
the Company or its affiliates.

       

      (b)  No Admission of
Liability.  Executive agrees that the payments made and other
consideration received pursuant to this Agreement are not to be construed as an
admission of legal liability by the Company and that no person or entity shall
utilize this Agreement or the consideration received pursuant to this Agreement
as evidence of any admission of liability since the Company expressly denies
liability.  Executive agrees not to assert that this Agreement is an
admission of guilt or wrongdoing and acknowledges that the Released Parties do
not believe or admit that any of them has done anything
wrong.  Similarly, the Company agrees that the terms of this Agreement
are not to be construed as an admission of legal liability by Executive and that
no person or entity shall utilize this Agreement or the consideration received
pursuant to this Agreement as evidence of any admission of liability since
Executive expressly denies liability.  The Company agrees not to
assert that this Agreement is an admission of guilt or wrongdoing and
acknowledges that Executive does not believe or admit that he has done anything
wrong.

       

      (c) Other
Confidentiality.   Executive acknowledges that,
as a company in a highly competitive industry, the Company follows a
policy intended to fully protect its trade secrets and confi­dential
information (collectively, "Confidential
Information").  In the course of Executive’s employment,
Executive has had access to Confidential Information, the use or disclosure of
which would be seriously damaging to the Company.  Such Confidential
Informa­tion is the Company's property and is not readily ascertainable
from public sources.  Executive’s access to Confidential Information
has been essential to the performance of Executive’s duties for
the Company.  Executive represents and warrants that (i) he is in
compliance with all obligations of Executive as set forth in the Proprietary
Information and Inventions Agreement, (ii) he has timely made all disclosures
required to be made by him under the Proprietary Information and Inventions
Agreement, and (iii) he has executed and delivered all documents and assignments
contemplated by the Proprietary Information and Inventions
Agreement.  Executive covenants that he will comply with all
obligations that arise under the Proprietary Information and Inventions
Agreement that arise as a result of or in connection with the termination of his
employment with the Company.  The Company acknowledges that Executive
has signed all documents related to the Proprietary Information and Inventions
Agreement that the Company has requested him to sign.  At the
Company's reasonable request, Executive agrees to promptly make all disclosures
and execute all documents appropriate to preserve the confidentiality of,
and/or otherwise protect, the Company’s interest in, any Confidential
Information and Inventions, including with respect to trade secrets, inventor
disclosure statements and patent prosecution.  Executive will promptly
surrender to the Company all documents, computer disks and hard drives, all
notes and memoranda relating to or containing Confidential
Information.

       

      (d) Non-Disparagement.  The
Parties agree that at no time will either Party disparage the other Party or
make uncomplimentary statements or remarks about the other Party (including,
with respect to the Company, any of its present or past employees, officers,
managers, and directors), to any person or entity, whether orally, in writing or
by any other means of communication.  Except as may be required by
law, Executive also agrees not to at any time discuss the Company or its
business with, or comment on the Company or its business, to any employee or
other representative of any federal, state or local government or administrative
agency, self-regulatory organization, investment banking firm, newspaper,
magazine or television or radio station, or any Internet site, or any reporter,
writer or other person or entity, whether orally, in writing or by any other
means of communication.  The Company agrees that it will not respond
to inquiries about Executive, except to confirm his dates of employment and
title.  Notwithstanding the foregoing, the Parties shall not be
prevented from providing information in connection with, or testifying in (i) a
judicial, arbitration or other proceeding in connection with this Agreement or
under any other agreement related to the exceptions set forth in Sections 3(a)
or 4(a), or (ii) as may be required by any applicable statute, law, ordinance,
regulation, order, or rule of any federal, state, local or other governmental
agency or body, including without limitation, any securities exchange, having
jurisdiction over the Parties and the business and research and development
activities of the Company.

       

      
        
          
          

        

        
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      (e) Non-Competition During and
After Employment.  Clause (X) of Section 4(c) of the Employment
Agreement is hereby amended in its entirety to read:

       

      (X)
compete with the Company in the business of developing or commercializing
pulmonary surfactants, including aerosolization technologies intended for use
therewith, or any other category of compounds which forms the basis of the
Company's material products on the Resignation Date or any material products
under development on the Resignation Date,

       

      (f) Enforcement.  Executive
acknowledges that a breach or threatened breach of Section 5 (d) of this
Agree­ment will constitute a material breach of this Agreement and
cause the Company irreparable injury and damage.  Executive therefore
agrees that, in addition to any other remedies that may be available to the
Company at law, the Company will be entitled to an injunction and/or other
equitable relief (without the requirement of posting a bond or other security)
to prevent a breach or threatened breach of such provisions and
to secure their enforcement.

       

      (g) Return of Company
Property.  Promptly after execution of this Agreement, but in
no event later than the close of business on August 24, 2009, Executive shall
return to the Company all originals and copies of all files, memoranda,
documents, records, credit cards; keys, electronically or optically stored data,
and any other property of the Company, the Company’s clients or its affiliates
in his possession, custody or control including, but not limited to, the
Company’s records, office equipment, such as computers and related equipment,
telephones, pagers, etc.  At such time, at the request of the Company,
Executive shall certify that he has no property of the Company, the Company’s
clients or its affiliates in his possession or under his control.  The
Company acknowledges that Executive owns the cell phone that he has used for
business purposes.  After the date of this Agreement, Executive shall
be solely responsible for all expenses related to his cell phone.

       

      (h) Cooperation and Transition
of Duties.  Executive agrees to reasonably cooperate in the
transition of his duties and responsibilities as reasonably requested by the
Company including, if required, executing such customary and reasonable
documents and certifications that relate to matters arising prior to his
resignation.  Executive agrees to fully cooperate with the Company and
participate in the preparation for, response to, prosecution of and/or defense
of any pending, actual or threatened litigation involving the Company, its
clients, vendors and/or its affiliates.  The Company will reimburse
Executive for all reasonable out-of-pocket expenses incurred by Executive as a
result of such cooperation.

       

      
        
          
          

        

        
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      6. Termination.

       

      (a) This
Agreement shall terminate upon (i) the occurrence of a Corporate Transaction or
Change of Control (whichever occurs later), effective on the closing date of
such Corporate Transaction or Change of Control, or, if the Corporate
Transaction consists of more than one transaction, the closing date of the last
of such transactions, and payment to Executive of all amounts owed to him under
this Agreement as a result of such Corporate Transaction or Change of
Control.

       

      (b) This
Agreement may be terminated by the Company, on written notice to Executive
(stating in reasonable detail the reasons for such termination) only if
Executive materially breaches the material terms and conditions of Sections
5(c), (d) and (h) of this Agreement, Section 4(c) of the Employment Agreement
and the Proprietary Information and Inventions Agreement.  Unless and
until such breach occurs, the Company shall provide to Executive the
consideration described in Section 2 of this Agreement.

       

      
        	
                1)  

              	
                In
      the event that the Company terminates the Agreement in accordance with
      this Section 6(b), the Company agrees that it shall not object to the
      Executive, in his sole discretion (and Executive agrees that, if he shall
      challenge the Company’s termination, he shall only do so by), moving for
      expedited relief under the Commercial Rules of the AAA for a determination
      as to whether or not a material breach under this Agreement has
      occurred.  In such event, the Company agrees that it shall
      continue to make the payments, as and when due, that otherwise would have
      been payable to Executive under this Agreement, and all such payments
      shall be deposited into an escrow account held by
  AAA.

              


      

       

      
        	
                2)  

              	
                If
      it shall be determined by an arbitrator under the Commercial Rules of the
      AAA, or a court of competent jurisdiction, that such a material breach has
      occurred, in addition to and not in substitution for any other remedies
      that the Company may have, in law or in equity, the Company shall be
      entitled to recoup any payments or benefits that have been paid or
      afforded to Executive under this Agreement, as well as all amounts held in
      escrow by AAA.

              


      

       

      
        	
                3)  

              	
                In
      the event that the arbitrator determines that the Executive’s conduct did
      not constitute a material breach of this Agreement, this Agreement shall
      be deemed re-instated and all funds then held in the AAA escrow account
      shall be paid to Executive (less any withholdings, which shall be returned
      to the Company), and Company shall pay to Executive, within five (5) days
      of the Arbitrator’s determination, interest on the amounts deposited in
      the escrow account held by AAA, from the original due date until paid,
      calculated at a rate of ten percent (10%) per annum.  In
      addition, Executive shall be entitled to the benefits set forth in Section
      11 of the Employment Agreement.

              


      

       

      
        
          
          

        

        
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      7. Consideration of
Agreement.  Both Parties acknowledge that, before signing this
Agreement, they have carefully read this Agreement; they fully understood
it; it is written in a manner that is understandable to both of them; and they
are entering into it knowingly and voluntarily.

       

      8. Miscellaneous.

       

      (a) Entire
Agreement.  This Agreement is the entire agreement between
Executive and the Company with respect to his resignation and the termination of
his employment with the Company.  This Agreement may not be modified
or canceled in any manner except by a writing signed by both Executive and an
authorized officer of the Company.  In deciding to sign this
Agreement, Executive has not relied on any statement by anyone associated with
the Company that is not contained in this Agreement.  Executive
acknowledges that the Company has made no promises, assurances, or
representations of any kind to Executive with respect to his resignation and the
termination of his employment with the Company, other than those explicitly
contained in this Agreement.

       

      (b) Binding Effect; Successors
and Assigns.  This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the Parties and their respective
successors, assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company), spouses, heirs and personal and legal
representatives.  The Company shall require and cause any successor
(whether direct or indirect, and whether by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business or
assets of the Company expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place.

       

      (c) Notices.  All
notices, requests, demands and other communications under this Agreement shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed within the continental United States by first class certified mail,
return receipt requested, postage prepaid, addressed as follows:

       

       (i)
if to the Company:

      


      Discovery
Laboratories, Inc.

      2600
Kelly Road, Suite 100

      Warrington,
PA 18976

      Attn:
General Counsel

      


      (ii) if
to the Executive:

      


      Robert J.
Capetola, Ph.D.

      6097
Hidden Valley Dr.

      Doylestown,
PA 18902

      


      Addresses
may be changed by written notice sent to the other party at the last recorded
address of that party.

      


      
        
          
          

        

        
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      (d) Consideration
Period.  Executive acknowledges that the Company has advised
him to consult with an attorney prior to executing this
Agreement.  Executive also acknowledges that he has been given a
period of at least 21 days within which to consider the
Agreement.  For a period of seven days following the execution of this
Agreement, Executive may revoke this Agreement, and this Agreement shall not
become effective or enforceable until the revocation period has expired, such
date being the “Effective Date” under this Agreement.  If Executive
wishes to revoke this Agreement, he shall provide written notice to the Company,
attention Corporate Secretary, no later than 5:00 p.m. on August 20,
2009.  Executive acknowledges and agrees that, for the purpose of this
Section 8(d), time is of the essence and that, should he fail to deliver a
revocation notice no later than 5:00 p.m. on August 20, 2009, he shall have
waived his right to revoke this Agreement.

       

      (e) Severability.  The
provisions of this Agreement shall be severable in the event that any of the
provisions hereof (including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction or arbitrator to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by
law.  Furthermore, to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.  Notwithstanding the foregoing, if any of Executive’s
release, representations or covenants contained in Section 3 of this Agreement
are declared to be invalid, illegal, unenforceable or barred for any reason
whatsoever, the Company shall have the right to consider its obligations under
this Agreement to be nullified and, in such case, the Company may cease
providing any payments or benefits that otherwise may be due under this
Agreement.  In such event, however, Executive shall not be obligated
to return any payments or benefits received prior to the date of such
declaration.

       

      (f) Interpretation and Governing
Law.  This Agreement shall be construed as a whole according to
its fair meaning.  It shall not be construed strictly for or against
Executive or the Company.  This Agreement shall be governed by the
statutes and common law of the Commonwealth of Pennsylvania, excluding its
choice of law statutes and common law.

       

      (g) Negotiation;
Arbitration.  If the Parties are unable to resolve any
controversy, claim or dispute of whatever nature between Executive and the
Company arising out of or related to this Agreement or the construction
interpretation, performance, breach, termination, enforceability or validity of
this Agreement (herein a “Dispute”) then the Dispute shall be settled by final
and binding arbitration in accordance with the provisions of Section 15 of the
Employment Agreement.  The provisions of Section 11 of the Employment
Agreement shall not be applicable to any such proceeding.

       

      (h) Company
Representations.  The Company represents and warrants as
follows: (a) it is a corporation validly existing and in good standing
under the laws of the State of Delaware, (b) it has full corporate power to
enter into and perform its obligations under this Agreement and has obtained all
necessary consents related thereto, and (c) this Agreement has been
duly executed and delivered by it and is binding and enforceable against it in
accordance with its terms.

       

      
        
          
          

        

        
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      (i) Headings.  The
headings to the Sections of this Agree­ment are for convenience of reference
only and shall not be given any effect in the construction or interpretation of
this Agreement.

       

      (j) Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be taken to be an original, but such counterparts
shall together constitute but one and the same document.  One or more
counterparts of this Agreement may be delivered by via telecopy or other
electronic means, with the intention that they shall have the same effect as an
original counterpart of this Agreement.

       

       

      EXECUTIVE
IS ADVISED TO  READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS
PROVISIONS BEFORE SIGNING IT.  IT INCLUDES A RELEASE OF KNOWN AND
UNKNOWN CLAIMS.

       

       

      


       

       

      


       

       

      


       

       

      


       

       

      [Signatures
appear on the next page.]

       

      
        
          
          

        

        
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      IN
WITNESS WHEREOF and intending to be legally bound, Executive and the Company
have executed this Agreement on the dates indicated below:

       

       

      


       

      
        	
                EXECUTIVE

                 

              	 
      
	 	 
	Robert
      J. Capetola, Ph.D. 	 
      
	 
      	 
      	 
      
	 	 
	 
      	 
      
	
                DISCOVERY
      LABORATORIES, INC.

                 

                 

              	 
      
	
                By:  

              	
                W.
      Thomas Amick,

                Chairman
      of the Board

              	 
      


      

      


      
        
          
          

        

        
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