Document:

Unassociated Document

    EXECUTION
COPY

     

    EMPLOYMENT
AGREEMENT

     

    This
Amended and Restated Employment Agreement (the “Agreement") is made
as of this 12th day of June, 2006, by and between DISCOVERY LABORATORIES, INC.,
a Delaware corporation (the "Company"), and THOMAS
MILLER, PH.D. (the "Executive").

     

    WHEREAS,
the Company and Executive desire that Executive be employed by the Company to
act as the Company’s Senior Vice President, Commercialization and Corporate
Development, and that the terms and conditions of such employment be
defined.

     

    NOW,
THEREFORE, in consideration of the covenants contained herein, and for other
valuable consideration, the Company and the Executive hereby agree as
follows:

     

    1.           Certain
Definitions.  Certain definitions used herein shall have the
meanings set forth on Exhibit A attached hereto.

     

    2.           Term of the
Agreement.  The term (“Term”) of this
Agreement shall commence on the date first above written and shall continue
through December 31, 2007; provided, however, that commencing on January 1,
2008, and on each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year, unless at least 90 days prior
to such January1st date, the Company or the Executive shall have given notice
that it does not wish to extend this Agreement.  Upon the occurrence
of a Change of Control during the term of this Agreement, including any
extensions thereof, this Agreement shall automatically be extended until the end
of the Effective Period if the end of the Effective Period is after the then
current expiration date of the Term.  Notwithstanding the foregoing,
this Agreement shall terminate prior to the scheduled expiration date of the
Term on the Date of Termination.

     

    3.           Executive's Duties and
Obligations.

     

    (a)           Duties.  The
Executive shall continue to serve as the Company's Senior Vice President,
Commercialization and Corporate Development.  The Executive shall be
responsible for all duties customarily associated with this
title.  The Executive shall at all times report directly to the
Company’s Chief Executive Officer.

     

    (b)           Location of
Employment.  The Executive's principal place of business shall
continue to be at the Company's headquarters to be located within thirty (30)
miles of Doylestown, Pennsylvania; provided, that the Executive acknowledges and
agrees that the performance by the Executive of his duties shall require
frequent travel including, without limitation, overseas travel from time to
time.

     

    (c)           Proprietary Information and
Inventions Matters.  In consideration of the covenants
contained herein, the Executive hereby agrees to execute the Company's standard
form of Proprietary Information and Inventions Agreement (the "Confidentiality
Agreement"), a copy of which is attached to this Agreement as Exhibit
B.  The Executive shall comply at all times with the terms and
conditions of the Confidentiality Agreement and all other reasonable policies of
the Company governing its confidential and proprietary
information.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.           Devotion of Time to
Company's Business.

     

    (a)           Full-Time
Efforts.  During his employment with the Company, the Executive
shall devote substantially all of his time, attention and efforts to the proper
performance of his implicit and explicit duties and obligations hereunder to the
reasonable satisfaction of the Company.

     

    (b)           No Other
Employment.  During his employment with the Company, the
Executive shall not, except as otherwise provided herein, directly or
indirectly, render any services of a commercial or professional nature to any
other person or organization, whether for compensation or otherwise, without the
prior written consent of the Executive Committee or the Board.

     

    (c)           Non-Competition During and
After Employment.  During the Term and for 12 months from the
Date of Termination, the Executive shall not, directly or indirectly, without
the prior written consent of the Company, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or in any other individual or representative capacity (X) compete with the
Company in the business of developing or commercializing pulmonary surfactants
or any other category of compounds which forms the basis of the Company's
material products or any material products under development on the Date of
Termination, or (Y) solicit, encourage, induce or endeavor to entice away from
the Company, or otherwise interfere with the relationship of the Company with,
any person who is employed or engaged by the Company as an employee, consultant
or independent contractor or who was so employed or engaged at any time during
the preceding six (6) months; provided, that
nothing herein shall prevent the Executive from engaging in discussions
regarding employment, or employing, any such employee, consultant or independent
contractor (i) if such person shall voluntarily initiate such discussions
without any such solicitation, encouragement, enticement or inducement prior
thereto on the part of the Executive or (ii) if such discussions shall be held
as a result of or employment be the result of the response by any such person to
a written employment advertisement placed in a publication of general
circulation, general solicitation conducted by executive search firms,
employment agencies or other general employment services, not directed
specifically at any such employee, consultant or independent
contractor.

     

    (d)           Injunctive
Relief.  In the event that the Executive breaches any
provisions of Section 4(c) or of the Confidentiality Agreement or there is a
threatened breach thereof, then, in addition to any other rights which the
Company may have, the Company shall be entitled, without the posting of a bond
or other security, to injunctive relief to enforce the restrictions contained
therein.  In the event that an actual proceeding is brought in equity
to enforce the provisions of Section 4(c) or the Confidentiality Agreement, the
Executive shall not urge as a defense that there is an adequate remedy at law
nor shall the Company be prevented from seeking any other remedies which may be
available.

     

    (e)           Reformation.  To
the extent that the restrictions imposed by Section 4(c) are interpreted by any
court to be unreasonable in geographic and/or temporal scope, such restrictions
shall be deemed automatically reduced to the extent necessary to coincide with
the maximum geographic and/or temporal restrictions deemed by such court not to
be unreasonable.

    
      
         

      

      
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    5.           Compensation and
Benefits.

     

    (a)           Base
Compensation.  During the Term, the Company shall pay to the
Executive (i) base annual compensation ("Base Salary") of at
least $220,000, payable in accordance with the Company's regular payroll
practices and less all required withholdings and (ii) additional compensation,
if any, and benefits as hereinafter set forth in this Section 5.  The
Base Salary shall be reviewed at least annually for the purposes of determining
increases, if any, based on the Executive's performance, the performance of the
Company, inflation, the then prevailing salary scales for comparable positions
and other relevant factors; provided, however, that any
such increase in Base Salary shall be solely within the discretion of the
Company.

     

    (b)           Bonuses.  During
the Term, the Executive shall be eligible for such year-end bonus, which may be
paid in either cash or equity, or both, as is awarded solely at the discretion
of the Compensation Committee of the Board after consultation with the Company’s
Chief Executive Officer, provided, that the
Company shall be under no obligation whatsoever to pay such discretionary
year-end bonus for any year.  Any such equity bonus shall contain such
rights and features as are typically afforded to other Company employees of
similar level in connection with comparable equity bonuses awarded by the
Company.

     

    (c)           Benefits.  During
the Term, the Executive shall be entitled to participate in all employee benefit
plans, programs and arrangements made available generally to the Company's
senior executives or to its employees on substantially the same basis that such
benefits are provided to such executives or employees (including, without
limitation profit-sharing, savings and other retirement plans (e.g., a 401(k)
plan) or programs, medical, dental, hospitalization, vision, short-term and
long-term disability and life insurance plans or programs, accidental death and
dismemberment protection, travel accident insurance, and any other employee
welfare benefit plans or programs that may be sponsored by the Company from time
to time, including any plans or programs that supplement the above-listed types
of plans or programs, whether funded or unfunded); provided, however, that nothing
in this Agreement shall be construed to require the Company to establish or
maintain any such plans, programs or arrangements.  Anything contained
herein to the contrary notwithstanding, throughout the Term, Executive shall be
entitled to receive life insurance on behalf of Executive’s named beneficiaries
in the amount of two times the Executive’s then current annual salary for the
Term of this Agreement at no cost to the Executive, except the Company shall
have no liability whatsoever for any taxes (whether based on income or
otherwise) imposed upon or incurred by Executive in connection with any such
insurance.

     

    (d)           Vacations.  During
the Term, the Executive shall be entitled to 20 days paid vacation per year, to
be earned ratably throughout the year, 5 days of which may be carried over from
year to year (provided, that in no
event shall the aggregate number of such vacation days carried over to any
succeeding year exceed 10 days).

     

    (e)           Reimbursement of Business
Expenses.  The Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement
and the Company shall reimburse him for all such expenses, in accordance with
reasonable policies of the Company.

    
      
         

      

      
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    6.           Change of Control
Benefits.

     

    (a)           Bonus. 
 The Executive shall be awarded an annual cash bonus for each fiscal year
of the Company ending during the Effective Period at least equal to the Highest
Annual Bonus.

     

    (b)           Options. Notwithstanding
any provision to the contrary in the Company’s Amended and Restated 1998 Stock
Incentive Plan or any stock option or restricted stock agreement between the
Company and the Executive, all shares of stock and all options to acquire
Company stock held by the Executive shall accelerate and become fully vested
and, with respect to restricted stock, all restrictions shall be lifted upon the
Change of Control Date.  In the case of any Change of Control in which
the Company’s common stockholders receive cash, securities or other
consideration in exchange for, or in respect of, their Company common stock, (i)
the Executive shall be permitted to exercise his options at a time and in a
fashion that will entitle him to receive, in exchange for any shares acquired
pursuant to any such exercise, the same per share consideration as is received
by the other holders of the Company’s common stock, and (ii) if the Executive
shall elect not to exercise all or any portion of such options, any such
unexercised options shall terminate and cease to be outstanding following such
Change of Control, except to the extent assumed by a successor corporation (or
its parent) or otherwise expressly continued in full force and effect pursuant
to the terms of such Change of Control.

     

    7.           Termination of
Employment.

     

    (a)           Termination by the Company
for Cause or Termination by the Executive without Good Reason, Death or
Disability.

     

    (i)             In
the event of a termination of the Executive’s employment by the Company for
Cause, a termination by the Executive without Good Reason, or in the event this
Agreement terminates by reason of the death or Disability of the Executive, the
Executive shall be entitled to any unpaid compensation accrued through the last
day of the Executive's employment, a lump sum payment in respect of all accrued
but unused vacation days (provided, that in no
event shall the aggregate number of such accrued vacation days exceed 10 days)
at his Base Salary in effect on the date such vacation was earned, and payment
of any other amounts owing to the Executive but not yet paid.  The
Executive shall not be entitled to receive any other compensation or benefits
from the Company whatsoever (except as and to the extent the continuation of
certain benefits is required by law).

     

    (ii)            In
the case of a termination due to death or disability, notwithstanding any
provision to the contrary in any stock option or restricted stock agreement
between the Company and the Executive, all shares of stock and all options to
acquire Company stock held by the Executive shall accelerate and become fully
vested upon the Date of Termination (and all options shall thereupon become
fully exercisable), and all stock options shall continue to be exercisable for
the remainder of their stated terms.

     

    (b)           Termination by the Company
without Cause or by the Executive for Good Reason.  If (x) the
Executive’s employment is terminated by the Company other than for Cause, death
or Disability (i.e., without Cause) or (y) the Executive terminates employment
with Good Reason, then the Executive shall be entitled to receive the following
from the Company:

     

    (i)             The
amounts set forth in Section 7(a)(i);

    
      
         

      

      
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    (ii)            Within
10 days after the Date of Termination, a lump sum cash payment equal to the
Highest Annual Bonus multiplied by the fraction obtained by dividing the number
of days in the year through the Date of Termination by 365;

     

    (iii)           Within
10 days after the Date of Termination, a lump sum cash payment in an amount
equal to the sum of (A) the Executive’s Base Salary then in effect (determined
without regard to any reduction in such Base Salary constituting Good Reason)
and (B) the Highest Annual Bonus;

     

    (iv)           For
one year from the Date of Termination, the Company shall either (A) arrange to
provide the Executive and his dependents, at the Company’s cost (except to the
extent such cost was borne by the Executive prior to the Date of Termination,
and further, to the extent that such post-termination coverages are available
under the Company’s plans), with life, disability, medical and dental coverage,
whether insured or not insured, providing substantially similar benefits to
those which the Executive and his dependents were receiving immediately prior to
the Date of Termination, or (B) in lieu of providing such coverage, pay to the
Executive no less frequently than quarterly in advance an amount which, after
taxes, is sufficient for the Executive to purchase equivalent benefits coverage
referred to in clause (A); provided, however, that the
Company’s obligation under this Section 7(b)(iv) shall be reduced to the extent
that substantially similar coverages (determined on a benefit-by-benefit basis)
are provided by a subsequent employer;

     

    (v)            Any
other additional benefits then due or earned in accordance with applicable plans
and programs of the Company; and

     

    (vi)           The
Company will provide out-placement counseling assistance in the form of
reimbursement of the reasonable expenses incurred for such assistance within the
12-month period following the Date of Termination.  Such reimbursement
amount shall not exceed $40,000.

     

    (c)           Termination in connection
with a Change of Control.  If the Executive’s employment is
terminated by the Company other than for Cause or by the Executive for Good
Reason during the Effective Period, then the Executive shall be entitled to
receive the following from the Company:

     

    (i)             All
amounts and benefits described in Section 7(a)(i) above;

     

    (ii)            Within
10 days after the Date of Termination, a lump sum cash payment equal to the
Highest Annual Bonus multiplied by the fraction obtained by dividing the number
of days in the year through the Date of Termination by 365;

     

    (iii)           Within
10 days after the Date of Termination, a lump sum cash payment in an amount
equal to the product of two (2) times the sum of (A) the Executive’s Base Salary
then in effect (determined without regard to any reduction in such Base Salary
constituting Good Reason) and (B) the Highest Annual Bonus;

    
      
         

      

      
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    (iv)           For
two years from the Date of Termination, the Company shall either (A) arrange to
provide the Executive and his dependents, at the Company’s cost (except to the
extent such cost was borne by the Executive prior to the Date of Termination,
and further, to the extent that such post-termination coverages are available
under the Company’s plans), with life, disability, medical and dental coverage,
whether insured or not insured, providing substantially similar benefits to
those which the Executive and his dependents were receiving immediately prior to
the Date of Termination, or (B) in lieu of providing such coverage, pay to the
Executive no less frequently than quarterly in advance an amount which, after
taxes, is sufficient for the Executive to purchase equivalent benefits coverage
referred to in clause (A); provided, however, that the
Company’s obligation under this Section 7(c)(iv) shall be reduced to the extent
that substantially similar coverages (determined on a benefit-by-benefit basis)
are provided by a subsequent employer;

     

    (v)            Notwithstanding
any provision to the contrary in any stock option or restricted stock agreement
between the Company and the Executive, all shares of stock and all options to
acquire Company stock held by the Executive shall accelerate and become fully
vested upon the Date of Termination (and all options shall thereupon become
fully exercisable), and all stock options shall continue to be exercisable for
the remainder of their stated terms;

     

    (vi)           Any
other additional benefits then due or earned in accordance with applicable plans
and programs of the Company; and

     

    (vii)          The
Company will provide out-placement counseling assistance in the form of
reimbursement of the reasonable expenses incurred for such assistance within the
12-month period following the Date of Termination.  Such reimbursement
amount shall not exceed $40,000.

     

    8.           Notice of
Termination.

     

    (a)           Any
termination of the Executive’s employment by the Company for Cause, or by the
Executive for Good Reason shall be communicated by a Notice of Termination to
the other party hereto given in accordance with Section 12.  For
purposes of this Agreement, a “Notice of Termination” means a written notice
which: (i) is given at least 10 days prior to the Date of Termination, (ii)
indicates the specific termination provision in this Agreement relied upon,
(iii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated, and (iv) specifies the employment
termination date.  The failure to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause will not waive any right of the party giving the Notice of
Termination hereunder or preclude such party from asserting such fact or
circumstance in enforcing its rights hereunder.

     

    (b)           A
Termination of Employment of the Executive will not be deemed to be for Good
Reason unless the Executive gives the Notice of Termination provided for herein
within 12 months after the Executive has actual knowledge of the act or omission
of the Company constituting such Good Reason.

     

    9.           Mitigation of
Damages.  The Executive will not be required to mitigate
damages or the amount of any payment or benefit provided for under this
Agreement by seeking other employment or otherwise.  Except as
otherwise provided in Sections 7(b)(iv) and 7(c)(iv), the amount of any payment
or benefit provided for under this Agreement will not be reduced by any
compensation or benefits earned by the Executive as the result of
self-employment or employment by another employer or otherwise.

    
      
         

      

      
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    10.         Excise Tax
Gross-Up.

     

    (a)           Anything
in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment, award, benefit or distribution (including any
acceleration) by the Company or any entity which effectuates a transaction
described in Section 280G(b)(2)(A)(i) of the Code to or for the benefit of the
Executive (whether pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
10) (a “Payment”) would be
subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred with respect to such excise tax by the
Executive (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then
the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in
an amount such that after payment by the Executive of all taxes, including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Taxes imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.  For purposes of this Section 10, the
Executive shall be deemed to pay federal, state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross Up
Payment is to be made, taking into account the maximum reduction in federal
income taxes which could be obtained from the deduction of state and local
income taxes.

     

    (b)           All
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company’s independent auditors or such other certified public accounting
firm of national standing reasonably acceptable to the Executive as may be
designated by the Company (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company.  All fees and expenses of the Accounting Firm shall be borne
solely by the Company.  Any Gross-Up Payment, as determined pursuant
to this Section 10, shall be paid by the Company to the Executive within five
days of the later of (i) the due date for the payment of any Excise Tax, and
(ii) the receipt of the Accounting Firm’s determination.  If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion to such effect, and to the
effect that failure to report the Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a
negligence or similar penalty.  Any determination by the Accounting
Firm shall be binding upon the Company and the Executive.  As a result
of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (“Underpayment”) or
Gross-up Payments are made by the Company which should not have been made
(“Overpayments”),
consistent with the calculations required to be made hereunder.  In
the event the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.  In the event the amount of Gross-up Payment
exceeds the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment shall be promptly paid by the Executive (to the extent
he has received a refund if the applicable Excise Tax has been paid to the
Internal Revenue Service) to or for the benefit of the Company.  The
Executive shall cooperate, to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.

    
      
         

      

      
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    11.         Legal
Fees.  All reasonable legal fees and related expenses
(including costs of experts, evidence and counsel) paid or incurred by the
Executive pursuant to any claim, dispute or question of interpretation relating
to this Agreement shall be paid or reimbursed by the Company if the Executive is
successful on the merits pursuant to a legal judgment or
arbitration.  Except as provided in this Section 11, each party shall
be responsible for its own legal fees and expenses in connection with any claim
or dispute relating to this Agreement.

     

    12.         Notices.  All
notices, requests, demands and other communications hereunder 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:

     

    (a)           if
to the Board or the Company:

     

    Discovery
Laboratories, Inc.

    2600
Kelly Road, Suite 100

    Warrington,
PA 18976

    Attn:  David
Lopez, Esq.

     

    (b)           if
to the Executive:

     

    Thomas
Miller

    The
address on file with the records of the Company

     

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

     

    13.         Withholding.  The
Company shall be entitled to withhold from payments due hereunder any required
federal, state or local withholding or other taxes.

     

    14.         Entire
Agreement.  This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supercedes the
Employment Agreement and all other prior agreements, written or oral, with
respect thereto.

    
      
         

      

      
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    15.         Arbitration.

     

    (a)           If
the parties are unable to resolve any dispute or claim relating directly or
indirectly to this agreement (a “Dispute”), then
either party may require the matter to be settled by final and binding
arbitration by sending written notice of such election to the other party
clearly marked "Arbitration Demand".  Thereupon such Dispute shall be
arbitrated in accordance with the terms and conditions of this Section
15.  Notwithstanding the foregoing, either party may apply to a court
of competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm.

     

    (b)           The
arbitration panel will be composed of three arbitrators, one of whom will be
chosen by the Company, one by the Executive, and the third by the two so
chosen.  If both or either of the Company or the Executive fails to
choose an arbitrator or arbitrators within 14 days after receiving notice of
commencement of arbitration, or if the two arbitrators fail to choose a third
arbitrator within 14 days after their appointment, the American Arbitration
Association shall, upon the request of both or either of the parties to the
arbitration, appoint the arbitrator or arbitrators required to complete the
panel. The arbitrators shall have reasonable experience in the matter under
dispute. The decision of the arbitrators shall be final and binding on the
parties, and specific performance giving effect to the decision of the
arbitrators may be ordered by any court of competent jurisdiction.

     

    (c)           Nothing
contained herein shall operate to prevent either party from asserting
counterclaim(s) in any arbitration commenced in accordance with this Agreement,
and any such party need not comply with the procedural provisions of this
Section 15 in order to assert such counterclaim(s).

     

    (d)           The
arbitration shall be filed with the office of the American Arbitration
Association ("AAA") located in New
York, New York or such other AAA office as the parties may agree upon (without
any obligation to so agree).  The arbitration shall be conducted
pursuant to the Commercial Arbitration Rules of AAA as in effect at the time of
the arbitration hearing, such arbitration to be completed in a 60-day period. In
addition, the following rules and procedures shall apply to the
arbitration:

     

    (i)             The
arbitrators shall have the sole authority to decide whether or not any Dispute
between the parties is arbitrable and whether the party presenting the issues to
be arbitrated has satisfied the conditions precedent to such party's right to
commence arbitration as required by this Section 15.

     

    (ii)            The
decision of the arbitrators, which shall be in writing and state the findings,
the facts and conclusions of law upon which the decision is based, shall be
final and binding upon the parties, who shall forthwith comply after receipt
thereof.  Judgment upon the award rendered by the arbitrator may be
entered by any competent court.  Each party submits itself to the
jurisdiction of any such court, but only for the entry and enforcement to
judgment with respect to the decision of the arbitrators hereunder.

     

    (iii)           The
arbitrators shall have the power to grant all legal and equitable remedies
(including, without limitation, specific performance) and award compensatory
damages provided by applicable law, but shall not have the power or authority to
award punitive damages.  No party shall seek punitive damages in
relation to any matter under, arising out of, or in connection with or relating
to this Agreement in any other forum.

    
      
         

      

      
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    (iv)           Except
as provided in Section 11, the parties shall bear their own costs in preparing
for and participating in the resolution of any Dispute pursuant to this Section
15, and the costs of the arbitrator(s) shall be equally divided between the
parties.

     

    (v)            Except
as provided in the last sentence of Section 15(a), the provisions of this
Section 15 shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court or before any administrative
tribunal with respect to any Dispute arising in connection with this
Agreement.  Any party commencing a lawsuit in violation of this
Section 15 shall pay the costs of the other party, including, without
limitation, reasonable attorney’s fees and defense costs.

     

    16.         Miscellaneous.

     

    (a)           Governing
Law.  This Agreement shall be interpreted, construed, governed
and enforced according to the laws of the State of New York without regard to
the application of choice of law rules.

     

    (b)           Amendments.  No
amendment or modification of the terms or conditions of this Agreement shall be
valid unless in writing and signed by the parties hereto.

     

    (c)           Severability.  If
one or more provisions of this Agreement are held to be invalid or unenforceable
under applicable law, such provisions shall be construed, if possible, so as to
be enforceable under applicable law, or such provisions shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

     

    (d)           Binding
Effect.  This Agreement shall be binding upon and inure to the
benefit of the beneficiaries, heirs and representatives of the Executive
(including the Beneficiary) and the successors and assigns of the
Company.  The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or substantially all of its
assets, by agreement in form and substance satisfactory to the Executive,
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 this Agreement
if no such succession had taken place.  Regardless whether such
agreement is executed, this Agreement shall be binding upon any successor of the
Company in accordance with the operation of law and such successor shall be
deemed the Company for purposes of this Agreement.

     

    (e)           Successors and
Assigns.  Except as provided in Section16(d) in the case of the
Company, or to the Beneficiary in the case of the death of the Executive, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.

     

    (f)           Remedies Cumulative; No
Waiver.  No remedy conferred upon either party by this
Agreement is intended to be exclusive of any other remedy, and each and every
such remedy shall be cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing at law or in equity.  No
delay or omission by either party in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by such party from
time to time and as often as may be deemed expedient or necessary by such party
in such party’s sole discretion.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (g)           Survivorship.  Notwithstanding
anything in this Agreement to the contrary, all terms and provisions of this
Agreement that by their nature extend beyond the termination of this Agreement
shall survive such termination.

     

    (h)           Entire
Agreement.  This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements, promises, covenants or arrangements, whether
oral or written, with respect thereto.

     

    (i)           Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
one document.

     

    17.         No Contract of
Employment.  Nothing contained in this Agreement will be
construed as a right of the Executive to be continued in the employment of the
Company, or as a limitation of the right of the Company to discharge the
Executive with or without Cause.

     

    18.         Executive
Acknowledgement.  The Executive hereby acknowledges that he has
read and understands the provisions of this Agreement, that he has been given
the opportunity for his legal counsel to review this Agreement, that the
provisions of this Agreement are reasonable and that he has received a copy of
this Agreement.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be
executed as of the date first above written.

     

    
      
        
          
            
              
                
                  
                    	
                            DISCOVERY
      LABORATORIES, INC.

                          	 
      
	 
      	 
      
	
                            By:

                          	/s/
      Robert J. Capetola, Ph.D.  	 
      
	 
      	
                            Name:    Robert
      J. Capetola, Ph.D.

                          	 
      
	 
      	
                            Title:    
       President and CEO

                          	 
      
	 
      	 
      
	/s/
      Thomas
      Miller, Ph.D.  	 
      
	
                            Thomas
      Miller, Ph.D.

                          	 
      

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    EXHIBIT
A

     

    (a)          “Beneficiary” means any
individual, trust or other entity named by the Executive to receive the payments
and benefits payable hereunder in the event of the death of the
Executive.  The Executive may designate a Beneficiary to receive such
payments and benefits by completing a form provided by the Company and
delivering it to the General Counsel of the Company.  The Executive
may change his designated Beneficiary at any time (without the consent of any
prior Beneficiary) by completing and delivering to the Company a new beneficiary
designation form.  If a Beneficiary has not been designated by the
Executive, or if no designated Beneficiary survives the Executive, then the
payment and benefits provided under this Agreement, if any, will be paid to the
Executive’s estate, which shall be deemed to be the Executive’s
Beneficiary.

     

    (b)          “Cause” means: (i) the
Executive’s willful and continued neglect of the Executive’s duties with the
Company (other than as a result of the Executive’s incapacity due to physical or
mental illness), after a written demand for substantial performance is delivered
to the Executive by the Company which specifically identifies the manner in
which the Company believes that the Executive has neglected his duties; (ii) the
final conviction of the Executive of, or an entering of a guilty plea or a plea
of no contest by the Executive to, a felony; or (iii) the Executive’s willful
engagement in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.

     

    For purposes of this definition, no act
or failure to act on the part of the Executive shall be considered “willful”
unless it is done, or omitted to be done, by the Executive in bad faith or
without a reasonable belief that the action or omission was in the best
interests of the Company.  Any act, or failure to act, based on
authority given pursuant to a resolution duly adopted by the Board of Directors
of the Company (the “Board”), or the
advice of counsel to the Company, will be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.

     

    (c)          “Change of Control” means the
occurrence of any one of the following events:

     

    (i)             any
“person” (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 (the “Exchange
Act”)), other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, an underwriter
temporarily holding securities pursuant to an offering of such securities or any
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
directly or indirectly acquires “beneficial ownership” (as defined in Rule 13d-3
under the Exchange Act) of securities representing 35% of the combined voting
power of the Company’s then outstanding securities;

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (ii)            persons
who, as of the date of this Agreement constitute the Board (the “Incumbent Directors”)
cease for any reason, including without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at least a
majority thereof; provided, that any
person becoming a director of the Company subsequent to the date of this
Agreement shall be considered an Incumbent Director if such person’s election or
nomination for election was approved by a vote of at least two-thirds (2/3) of
the Incumbent Directors in an action taken by the Board or a Committee thereof;
provided, further, that any
such person whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of members of the Board
or other actual or threatened solicitation of proxies or consents by or on
behalf of a “person” (as defined in Section 13(d) and 14(d) of the Exchange
Act) other than the Board, including by reason of agreement intended to avoid or
settle any such actual or threatened contest or solicitation, shall not be
considered an Incumbent Director;

     

    (iii)           the
consummation of a reorganization, merger, statutory share exchange,
consolidation or similar corporate transaction (each, a “Business
Combination”) other than a Business Combination in which all or
substantially all of the individuals and entities who were the beneficial owners
of the Company’s voting securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the voting securities of the entity resulting from such
Business Combination (including, without limitation, an entity which as a result
of the Business Combination owns the Company or all or substantially all of the
Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership of the Company’s voting
securities immediately prior to such Business Combination; or

     

    (iv)           the
Company consummates a sale of all or substantially all of the assets of the
Company or the stockholders of the Company approve a plan of complete
liquidation of the Company.

     

    (d)          “Change of Control Date” means
any date after the date hereof on which a Change of Control occurs; provided,
however, that if a Change of Control occurs and if the Executive’s employment
with the Company is terminated or an event constituting Good Reason (as defined
below) occurs prior to the Change of Control, and if it is reasonably
demonstrated by the Executive that such termination or event (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control, or (ii) otherwise arose in connection with or in anticipation
of the Change of Control then, for all purposes of this Agreement, the Change of
Control Date shall mean the date immediately prior to the date of such
termination or event.

     

    (e)          “Code” means the Internal
Revenue Code of 1986, as amended and the regulations promulgated
thereunder.

     

    (f)          “Date of Termination” means
the date specified in a Notice of Termination pursuant to Section 8 hereof, or
the Executive’s last date as an active employee of the Company before a
termination of employment due to death, Disability or other reason, as the case
may be.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (g)          “Disability” means a mental or
physical condition that renders the Executive substantially incapable of
performing his duties and obligations under this Agreement, after taking into
account provisions for reasonable accommodation, as determined by a medical
doctor (such doctor to be mutually determined in good faith by the parties) for
three or more consecutive months or for a total of six months during any 12
consecutive months; provided, that during
such period the Company shall give the Executive at least 30 days’ written
notice that it considers the time period for disability to be
running.

     

    (h)          “Effective Period” means the
period beginning on the Change of Control Date and ending 24 months after the
date of the related Change of Control.

     

    (i)          “Good Reason” means, unless
the Executive has consented in writing thereto, the occurrence of any of the
following:  (i) the assignment to the Executive of duties inconsistent with
the Executive’s position, including any change in status, level of authority or
responsibility or any other action which results in a material diminution in
such status, level of authority or responsibility (for the sake of clarity, a
change resulting in an interdepartmental re-assignment of the Executive that is
substantively consistent with Executive’s prior status and level of authority
shall not constitute Good Reason); provided, that the Executive shall faithfully
and competently perform such duties as the Chief Executive Officer may from time
to time reasonably direct, taking into account the Executive’s position and the
needs of the Company; (ii) a reduction in the Executive’s Base Salary by the
Company; (iii) the relocation of the Executive’s office to a location more than
30 miles from Doylestown, Pennsylvania; (iv) the failure of the Company to
comply with the provisions of Section 6(a); (v) following a Change of
Control, unless a plan providing a substantially similar position, compensation
or benefit is substituted, (A) the failure by the Company to continue the
Executive in the position that the Executive occupied prior to the Change of
Control, with substantially similar status, and level of authority and
responsibility, or (B) the failure by the Company to continue in effect any
material fringe benefit or compensation plan, retirement plan, life insurance
plan, health and accident plan or disability plan in which the Executive was
participating prior to the Change of Control, or (C) the taking of any action by
the Company which would adversely affect the Executive’s participation in or
materially reduce his benefits under any of such plans or deprive him of any
material fringe benefit; or (vi) the failure of the Company to obtain the
assumption in writing of the Company’s obligation to perform this Agreement by
any successor to all or substantially all of the assets of the Company within 15
days after a Business Combination or a sale or other disposition of all or
substantially all of the assets of the Company.

     

    (j)          “Highest Annual Bonus” means
the largest annual cash bonus paid to the Executive by the Company with respect
to the three fiscal years of the Company immediately preceding the year
containing the Change of Control Date or the Date of Termination, as applicable
(annualized for any fiscal year consisting of less than 12 full months);
provided, however, that, solely in the event of a Change of Control occurring
prior to Executive’s receipt of an annual cash bonus paid to the Executive by
the Company, the Highest Annual Bonus shall mean that amount which is equal to
25% of Executive’s then current base salary.

     

    
      
         

      

      
        15Unassociated Document

    July 15,
2008

    

    Thomas
Miller, Ph.D.

    c/o
Discovery Laboratories, Inc.

    2600
Kelly Road

    Suite
100

    Warrington,
PA 18976

    

    Re:         Amendment
to Amended and Restated Employment Agreement

    

    Dear Dr.
Miller:

    

    This
amendment is attached to and made part of the Amended and Restated Employment
Agreement dated as of June 12, 2006 between you and Discovery Laboratories, Inc.
(as it may have been previously amended, the “Agreement”).  Effective
as of the date hereof the parties hereby agree that certain provisions of the
Agreement are revised as set forth below.  Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Agreement.

    

    The first
sentence of Section 2 of the Agreement is hereby amended to provide (i) that the
current Term of the Agreement shall continue through December 31, 2009, and (ii)
that, commencing on January 1, 2010, and on each January 1 thereafter, the Term
of the Agreement shall automatically be extended for one additional year, except
in the event of notice as provided for therein.

    

    Except as
herein provided, the remaining terms and conditions of the Agreement shall
remain in full force and effect.  This addendum confirms an agreement
between you and the Company with respect to the subject matter hereof and is a
material part of the consideration stated in the Agreement and mutual promises
made in connection therewith.  Please indicate your acceptance of the
terms contained herein by signing both copies of this amendment, retaining one
copy for your records, and forwarding the remaining copy to the
Company.

    

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                DISCOVERY
      LABORATORIES, INC.

                              	 
      
	 
      	 
      
	
                                By:

                              	/s/
      David
      L. Lopez  	 
      
	
                                Name:

                              	
                                David
      L. Lopez

                              	 
      
	
                                Title:

                              	
                                Executive
      Vice President and General Counsel

                              	 
      
	 
      	 
      
	
                                Accepted
      and Agreed to:

                              	 
      
	 
      	 
      	 
      
	 
      	/s/
      Thomas
      Miller, Ph.D.  	 
      
	
                                Name:

                              	
                                Thomas
      Miller, Ph.D.

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