Document:

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-SECOND LEASE MODIFICATION AGREEMENT 

SECOND LEASE MODIFICATION AGREEMENT (the “Modification Agreement”) made as of the _____ day of December, 2007, by and between 59 MAIDEN LANE ASSOCIATES, LLC, a New York limited liability company, having and address at c/o AmTrust Realty Corp., 250 Broadway, New York, New York 10007 (the `Landlord`), and AMTRUST FINANCIAL SERVICES, INC., a New York corporation having an office at 59 Maiden Lane, New York, New York 10038 (the `Tenant`). 

WITNESSETH: 

WHEREAS, by Standard Form of Office Lease, The Real Estate Board of New York, Inc. 8/99, with Rider of even date therewith attached thereto, dated June 28, 2002, as modified by First Lease Modification Agreement dated February 1, 2005 (collectively the `Lease`), Landlord demised to Tenant certain premises on the 6th Floor (the `Existing Premises`) in the building known as 59 Maiden Lane, New York; and 

WHEREAS, the Existing Premises consist of approximately 8,807 rentable square feet and Tenant seeks to have the Existing Premises increased by approximately 6,000 rentable square so that thereafter it shall consist of approximately 14,807 rentable square feet (the “New Premises”); and 

WHEREAS, Landlord has agreed to modify and increase the Existing Premises to create the New Premises subject to the terms and conditions hereinafter set forth (the New Premises is herein, as of January 1, 2008, the “Premises”). 

NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant do hereby agree that the Lease shall be and hereby is modified and amended as follows: 

Commencing on January 1, 2008: 

1. The Premises are set forth on `Exhibit “A” attached to this Modification Agreement. 

2. That portion of the first page of the Lease which reads “8,807 rentable square feet” is hereby modified and amended to read “14,807 rentable square feet”. 

3. That portion of the first page of the Lease which reads “for the period running from August 1, 2005, through July 31, 2008,” is hereby deleted and the following inserted in its place and stead for the period running from August 1, 2005 through December 31, 2007, “$621,894.00 for the period running from January 1, 2008, and ending December 31, 2012, and then $666,315.00 for the period running from January 1, 2013, through December 31, 2017,”. 

4. Subparagraph 51(2)(a) of the Lease is hereby deleted in its entirety and the following inserted in its place and stead: 

(a) base annual rent (herein called “Base Annual Rent”) for the Demised Premises at the following rates during the following periods: 

(i) Three Hundred Eight Thousand Two Hundred Forty-Five and 00/100 ($308,245.00) Dollars per annum during the period commencing on August 1, 2005 and ending on and including December 31, 2007; 

(ii) During that portion of the term of the Lease beginning with January 1, 2008 and ending on December 31, 2012, Tenant shall pay to Landlord Base Annual Rent of Six Hundred Twenty-One Thousand Eight Hundred Ninety-Four and 00/100 ($621,894.00) per annum, payable in equal monthly installments of Fifty One Thousand Eight Hundred Twenty Four and 50/100 ($51,824.50) Dollars in advance, on the first day of each month commencing January 1, 2008 to and including December 1, 2012. 

(iii) During that portion of the term of the Lease beginning with January 1, 2013 and ending on December 31, 2017, Tenant shall pay to Landlord Base Annual Rent of Six Hundred Sixty Six Thousand Three Hundred Fifteen and 00/100 ($666,315.00) per annum, payable in equal monthly 

1

installments of Fifty Five Thousand Five Hundred Twenty Six and 25/100 ($55,526.25) Dollars in advance, on the first day of each month commencing January 1, 2012 to and including December 1, 2017. 

5. Subparagraph 52(1)(j) of the Lease is hereby modified and amended by deleting “.88” in the first line thereof, and “8,807” in the second line thereof and substituting “1.48” and “14,807” respectively, in their place and stead. 

6. Landlord agrees, at its sole cost and expense, to modify the Existing Premises to create the New Premises (as of January 1, 2008, the “Premises”) in accordance with the plan attached hereto as Exhibit B (the “Landlord’s Work”). In no event shall Landlord’s cost exceed $500,000.00. Any and all costs in excess of $500,000.00 shall paid by Tenant. 

7. Tenant represents and warrants that it has not consulted or negotiated with any broker in connection with this Modification Agreement and Tenant hereby agrees to indemnify, hold harmless and defend Landlord from any claim or liability for commissions or fees arising from related to or connected with any person, firm or corporation claiming to have dealt with Tenant in connection with this Modification Agreement. 

8. Except to the extent herein amended and modified, the Lease shall remain unamended and full force and effect. 

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written. 

59 MAIDEN LANE ASSOCIATES, LLC
 Landlord 

		By: 
  	Nathan Aber, Manager 

AMTRUST FINANCIAL SERVICES, INC.
 Tenant 

		By:  
  	Name: Barry Zyskind
 Title: President 

2

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