Unassociated Document


    Retention
Letter

     

    


    Dear Dr. Robert
Segal:

     

    You are a
highly valuable employee of Discovery Laboratories, Inc. (the “Company”). 
The Company wishes to retain you, Dr. Robert Segal (the “Executive”) as an
employee, and is therefore willing to make certain commitments in order to
induce you to remain an employee of the Company.  This letter will confirm
the agreement between the Executive and the Company (“Agreement”) in that
regard.  The Agreement is as follows:

     

    1.           Severance.  (a) In the
event that the Executive’s employment is terminated (i) by the Company for any
reason other than for Cause or (ii) by the Executive for Good Reason (including
in the event any such for Cause or Good Reason termination occurs within
twenty-four (24) months after a Change of Control), then the Company shall make
a one-time, lump-sum payment to the Executive equal to twelve (12) months of the
then current base salary, plus a prorated Bonus award on or before the tenth day
following termination conditioned upon the receipt by the Company of the
Executive’s signed release in accordance with Section 6 herein.

     

    
      	
               
      

            	
              (b)

            	
              Notwithstanding
      any other provision with respect to the timing of payments under this
      Section 1, in order to comply with the requirements of Section 409A of the
      Internal Revenue Code of 1986 (“Section 409A”), any payment or portion
      thereof, to which the Executive is entitled under this Section 1 which is
      not exempt from the application of Section 409A’s “six month delay”
      provision (in the Company’s sole discretion), shall be withheld until the
      first business day of the seventh month following the Executive’s
      termination. At such time, you shall be paid the remaining balance
      otherwise owed to the Executive under this Section 1 in a lump
      sum.

            


    

    


    2.           Definitions.  For the
purposes of this Agreement, the following definitions apply:

     

    
      	
               
      

            	
              (a)

            	
              “Cause”
      means the Executive: (i) commits an act of dishonesty, fraud or
      misrepresentation in connection with his or her employment which is
      materially and demonstrably injurious to the Company; (ii) is convicted
      of, or pleads nolo
      contendere to, a felony; (iii) breaches any material obligation
      under the Proprietary Information and Inventions Agreement or the
      Company’s Code of Business Conduct and Ethics; (iv) engages in substantial
      or continuing inattention to or neglect of the duties (including fiduciary
      duties) and responsibilities reasonably assigned by or due to the Company;
      provided such inattention or neglect remains uncured for a period of 10
      days after written notice describing the same is given to the Executive;
      or (v) engages in substantial or continuing acts to the detriment of the
      Company or inconsistent with the Company’s policies or
      practices.

            


    

     

    
      	
               
      

            	
              (b)

            	
              “Good
      Reason” means: (i) the failure of the Company to employ the Executive in
      his or her current or a substantially similar position, without regard to
      title, such that the Executive’s duties and responsibilities are
      materially diminished without consent (ii) a reduction in Executive’s
      then-current base salary without the Executive’s consent (unless such
      reduction is in connection with a proportional reduction in compensation
      to all or substantially all of the Company’s Executives); or (iii) a
      relocation of the primary place of employment more than 30 miles from the
      current site of employment without the Executive’s consent; provided
      however, if any of these conditions occur, the Executive is required to
      provide written notice of any such condition to the Company’s Chief
      Executive Officer and General Counsel within 60 days of the initial
      occurrence of the condition, and the Company will then have 20 days to
      remedy the condition, prior to the existence of such condition being
      deemed to be “Good Reason.”

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (c)

            	
              a
      “Change of Control” occurs: (i) when any person or entity other than the
      Company or one of its subsidiaries becomes the owner of more than fifty
      percent (50%) of the Company’s common stock or (ii) upon the effective
      date of an agreement of acquisition, merger, or consolidation that has
      been approved by the Company’s stockholders and that contemplates that all
      or substantially all of the business and/or assets of the Company shall be
      owned or otherwise controlled by another person or entity upon the
      effective date of such agreement.

            


    

    


    
      	
               
      

            	
               (d)

            	
              “Bonus”
      shall mean an amount equal to the greater of either (i) the current year
      target annual bonus amount or (ii) the previous year’s actual bonus; in
      either case, multiplied by the fraction obtained by dividing the number of
      days in the year through the date of termination by
  365.

            


    

     

    
      	
               
      

            	
              3.

            	
              Withholding.  All
      payments made by the Company under this Agreement shall be reduced by any
      tax or other amounts required to be withheld by the Company under
      applicable law.

            


    

     

    
      	
               
      

            	
              4.

            	
              Medical and Dental
      Benefits.  In the event that the Executive’s employment is
      terminated (i) by the Company for any reason other than for Cause or (ii)
      by the Executive for Good Reason (including in the event any such for
      Cause or Good Reason termination occurs within twenty-four (24) months
      after a Change of Control), then the Company will maintain the Executive’s
      medical and dental insurance coverage, providing substantially similar
      benefits to those which the Executive and his dependents were receiving
      immediately prior to the termination of employment, for a period of up to
      twelve (12) months after the month in which employment
      terminates.  Provided, however, that Executive shall elect such
      coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985
      (COBRA) to the extent that COBRA benefits are available and that in any
      event the Executive shall pay the employee portion for such coverage
      (whether through COBRA or otherwise) by making a payment to the Company
      during the first five (5) days of any month in which the continuation of
      such coverage is elected and, provided further, that the Company’s
      obligation to continue benefits shall be reduced to the extent that
      substantially similar coverages (determined on a benefit-by-benefit basis)
      are provided by a subsequent employer.  The “qualifying event”
      which triggers the Executive’s right to continue health insurance post
      employment under COBRA shall be deemed to have occurred on the termination
      date.

            


    

     

    
      	
               
      

            	
              5.

            	
              No Contract of
      Employment.  This Agreement is not a contract of employment
      for a specific term, and employment is “At Will” and may be terminated by
      the Company at any time, subject to the terms of this
    letter.

            


    

     

    
      	
               
      

            	
              6.

            	
              Employee Release. 
      Any obligation of the Company to provide the Executive with severance
      payments or other benefits under this Agreement is expressly conditioned
      upon the Executive reviewing and signing (and not revoking during any
      applicable revocation period) a general release of claims in a form
      reasonably satisfactory to the Company within the time period specified in
      such release.  The Company shall provide the Executive with the
      general release promptly after the date on which the Executive gives or
      receives, as the case may be, notice of termination of
      employment.

            


    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              7.

            	
              Assignment.  The
      Executive shall not make any assignment of this Agreement or any interest
      in it, by operation of law or otherwise, without the prior written consent
      of the Company.  The Company may assign its rights and obligations
      under this Agreement without consent. This Agreement shall inure to the
      benefit of and be binding upon the Executive and the Company, and each of
      our respective successors, executors, administrators, heirs and permitted
      assigns, including any organization involved in a Change of
      Control.

            


    

     

    
      	
               
      

            	
              8.

            	
              Severability.  If
      any portion or provision of this Agreement shall to any extent be declared
      illegal or unenforceable by a court of competent jurisdiction, then the
      remainder of this Agreement, or the application of such portion or
      provision in circumstances other than those as to which it is so declared
      illegal or unenforceable, shall not be affected thereby, and each portion
      and provision hereof shall be valid and enforceable to the fullest extent
      permitted by law.

            


    

     

    
      	
               
      

            	
              9.

            	
              Miscellaneous. 
      This Agreement will commence on the date hereof and will expire on
      December 31, 2011, unless the Company experiences a Change of Control
      prior to the expiration of the term of this Agreement, in which case this
      Agreement will expire on the later of: (a) December 31, 2011, or (b) two
      (2) years from the date of the closing of such Change of Control. 
      This Agreement sets forth the entire agreement between the Executive and
      the Company in connection with the subject matter hereof, and replaces all
      prior and contemporaneous communications, agreements and understandings,
      written or oral, with respect to the subject matter hereof, other than any
      obligations set forth in your employee confidentiality agreement with the
      Company, which obligations shall remain in full force and effect.  In
      consideration of the benefits provided to the Executive hereunder, it is
      agreed that, in the event of the Executive’s termination from the Company,
      such benefits shall be in complete satisfaction of any and all obligations
      that the Company may have to you.  This Agreement may not be modified
      or amended, and no breach shall be deemed to be waived, unless agreed to
      in writing by the Executive and an expressly authorized representative of
      the Company.  This Agreement may be executed in two counterparts,
      each of which shall be an original and all of which together shall
      constitute one and the same instrument.  This Agreement shall be
      governed by the laws of the Commonwealth of Pennsylvania, without regard
      to its conflicts of laws principles, and all disputes hereunder shall be
      adjudicated in the courts of the Commonwealth of Pennsylvania, to whose
      personal jurisdiction the Executive hereby consents
  to.

            


    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    If the
foregoing is acceptable to you, please sign both copies of this letter in the
space provided, at which time this letter will take effect as a binding
agreement between the Executive and the Company.  Please keep one original
for your records and return one original to me.

     

    
      	 
      	
              Discovery
      Laboratories, Inc.

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:

            	
               /s/
      Kathryn A.
      Cole                            5/4/2010

            
	 
      	 
      	
              Kathryn
      A.
      Cole                                      Date

            
	 
      	 
      


    

     

    Accepted
and Agreed:

     

    
      	
              By:

            	
              /s/
      Robert
      Segal                                  5/4/2010

            	 
      
	
                     Dr.
      Robert
      Segal                                          Date