Document:

EXHIBIT 10(y)

                            U.S.B. HOLDING CO., INC.

                                 SEVERANCE PLAN

SECTION 1. ESTABLISHMENT OF PLAN

U.S.B. Holding Co., Inc. (the "Company"), hereby establishes this Severance Plan
(the "Plan"). The Plan shall become effective as of October 11, 2001 (the
"Effective Date"). For purposes of this Plan, the term Company shall include all
wholly-owned subsidiaries of U.S.B. Holding Co., Inc., including but not limited
to Union State Bank and U.S.B. Financial Services, Inc.

SECTION 2. PURPOSE OF PLAN

The purposes of the Plan are to:

         (a)    attract and retain capable people;

         (b)    address the concerns of the Company's employees (as hereinafter
                defined) regarding job security; and

         (c)    help ensure that the employees receive the benefits which they
                legitimately expect in the normal course of their employment.

SECTION 3. DEFINITION OF EMPLOYEES - ELIGIBILITY

3.1      DEFINITION OF EMPLOYEES/STATUS

For purposes of this Plan, the term "Employees" shall mean all full-time exempt
and nonexempt Employees of the Company, including full time Employees currently
on an approved leave of absence. For Employees employed by more than one company
or subsidiary, Employee status shall be determined by the Company or subsidiary
for which the Employee receives the highest amount of compensation at the time
of an Activation Event (as hereinafter defined).

3.2      ELIGIBILITY

         All employees shall participate in the Plan (the "Participants"),
         provided, however, that (i) no Employee shall participate in this Plan
         while such person is covered by an Employment Agreement, which provides
         for severance payments in connection with a Change in Control (as
         hereinafter defined); (ii) no person who is not an Employee at the time
         of the occurrence of a Change in Control shall become a Participant
         thereafter; and (iii) notwithstanding clause (i), no Employees who are
         Participants at the time of the occurrence of a Change in Control shall
         cease participation without their written consent.

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SECTION 4. DEFINITION OF CHANGE IN CONTROL - ACTIVATION EVENT

4.1      CHANGE IN CONTROL

         A Change in Control of the Company ("Change in Control") shall be
         deemed to have occurred upon the happening of any of the following
         events:

         (a)    approval by the stockholders of the Company of a transaction
                that is ultimately consummated and results in the
                reorganization, merger or consolidation of the Company with one
                or more other persons other than a transaction following which:

                (i)    at least 51% of the equity ownership interests of the
                       entity resulting from such transaction are beneficially
                       owned (within the meaning of Rule l3d-3 promulgated under
                       the Securities Exchange Act of 1934 ("Exchange Act")) in
                       substantially the same relative proportions by persons
                       who, immediately prior to such transaction, beneficially
                       owned (within the meaning of Rule l3d-3 promulgated under
                       the Exchange Act) at least 51% of the outstanding equity
                       ownership interests in the Company; and

                (ii)   at least 51% of the securities entitled to vote
                       generally in the election of directors of the entity
                       resulting from such transaction are beneficially owned
                       (within the meaning of Rule l3d-3 promulgated under the
                       Exchange Act) in substantially the same relative
                       proportions by persons who, immediately prior to such
                       transaction, beneficially owned (within the meaning of
                       Rule l3d-3 promulgated under the Exchange Act) at least
                       51% of the securities entitled to vote generally in the
                       election of directors of the Company;

         (b)    the acquisition of all or substantially all of the assets of the
                Company or beneficial ownership (within the meaning of Rule
                l3d-3 promulgated under the Exchange act) of 20% or more of the
                outstanding securities of the Company entitled to vote generally
                in the election of directors by any person or by any persons
                acting in concert, or approval by the stockholders of the
                Company of any transaction which ultimately results in such an
                acquisition;

         (c)    a complete liquidation or dissolution of the Company, or
                approval by the stockholders of the Company of a plan which
                ultimately results in such liquidation or dissolution;

         (d)    the occurrence of any event if, immediately following such
                event, at least 50% of the members of the Board of Directors of
                the Company do not belong to any of the following groups:

                (i)   individuals who were members of the Board of Directors of
                      the Company on the date of this Plan; or

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                (ii)  individuals who first became members of the Board of
                      Directors of the Company after the date of this Plan
                      either;

                      (A)    upon election to serve as a member of the Board of
                             Directors of the Company by affirmative vote of
                             three-quarters of the members of such Board in
                             office at the time of such first election; or

                      (B)    upon election by the stockholders to serve as a
                             member of the Board of Directors of the Company,
                             but only if nominated for election by affirmative
                             vote of three-quarters of the members of the Board
                             of Directors of the Company, or of a nominating
                             committee hereof, in office at the time of such
                             first nomination;

                provided, however, that such individual's election or nomination
                did not result from an actual or threatened election contest
                (within the meaning of Rule 14a-11 of Regulation 14A promulgated
                under the Exchange Act) or other actual or threatened
                solicitation of proxies or consents (within the meaning of Rule
                14a-11 of Regulation 14A promulgated under the Exchange Act)
                other than by or on behalf of the Board of the Company.

         In no event, however, shall a Change of Control be deemed to have
         occurred as a result of any acquisition of securities or assets of the
         Company, by the Company or by any employee benefit plan maintained by
         the Company. For purposes of this Section 4.1, the term "person" shall
         have the meaning assigned to it under Sections 13(d)(3) or 14(d)(2) of
         the Exchange Act. The date of a Change in Control shall be the date
         upon which the transaction or event resulting in such Change in Control
         is actually consummated.

4.2      ACTIVATION EVENT

         For purposes of this Plan, the term "Activation Event" shall mean, with
         respect to a Participant, an involuntary termination of such
         Participant's employment with the Company, either actual termination or
         Constructive Termination (as hereinafter defined), within one (1) year
         after a Change in Control for any reason other than death or
         Termination for Just Cause (as hereinafter defined). The term
         "Activation Event" shall also include a termination of employment with
         the Company (whether voluntary or involuntary) within one (1) year
         after a Change in Control for any reason other than death or
         Termination for Just Cause (x) if the Change in Control occurs
         otherwise than through a transaction approved and authorized or
         consented to by the Board of Directors of the Company, as constituted
         prior to such transaction, or (y) in such other circumstance as the
         Board of Directors shall deem appropriate.

SECTION 5. SEVERANCE BENEFITS

Upon the occurrence of an Activation Event with respect to a Participant, the
following shall apply to such Participant, depending on their years of service
with the Company, or a subsidiary as defined in Section 3.1, as follows:

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-------------------------------------------------------------------------------
  YEARS OF SERVICE                    SEVERANCE BENEFIT
-------------------------------------------------------------------------------
 More than 20 years     Forty weeks of compensation as defined below
-------------------------------------------------------------------------------
 16 to 20 years         Thirty-two weeks of compensation as defined below
-------------------------------------------------------------------------------
 11 to 15 years         Twenty-four weeks of compensation as defined below
-------------------------------------------------------------------------------
 6 to 10 years          Sixteen weeks of compensation as defined below
-------------------------------------------------------------------------------
 1 to 5 years           Eight weeks of compensation as defined below
-------------------------------------------------------------------------------
 less than 1 year       Two weeks of compensation as defined below
-------------------------------------------------------------------------------

For purpose of severance payments, compensation is defined as the Participant's
annual base compensation at the time such severance payment is determined, plus,
for those in the Executive Bonus Plan, the executive bonus that would have been
paid for the year of the occurrence of a Change in Control based on actual net
income of the Company, if known, or the latest Company projection or budget.

Severance payments will be paid over the Severance Period in equal bi-weekly or
monthly installments as determined by the Company and shall be subject to all
applicable tax withholding requirements. "Severance Period" means the period
beginning on the Activation Date and continuing for the number of weeks for
which the participant is to receive compensation determined from the table
above.

The Board of Directors of the Company shall have discretion to increase benefits
of individual Participants; however, the Board of Directors may never decrease
benefits of any individual Participant.

SECTION 6.     U.S.B. HOLDING CO., INC. EMPLOYEE STOCK OWNERSHIP PLAN
               (WITH 401(k) PROVISION) ("RETIREMENT PLAN")

Upon the occurrence of an Activation Event, the vesting requirement applicable
to the Employee Stock Ownership portion of the Retirement Plan shall become one
(1) year of service (as defined in the Retirement Plan) to become fully (100%)
vested in the Employee Stock Ownership portion of the Retirement Plan.

SECTION 7.     MEDICAL BENEFITS AND LIFE INSURANCE

Upon the occurrence of an Activation Event with respect to a Participant, such
Participant's coverage under the Company's Medical, Dental and Life Insurance
Plans shall continue for the duration of the Severance Period at no cost to the
Participant at a benefit level equal to or greater than the current coverage. In
addition, a Participant shall be eligible for the subsidized medical/dental plan
for retirees if the participant has at least seven years of service and the
Participant's age (in full and partial years) plus service (in full and partial
years) equals at least sixty-two (62), with age and service being determined as
of the end of the Severance Period. Further, upon the occurrence of a Change in
Control, the Company's medical/dental plan applicable to retirees may not be
terminated or amended in a manner that is not also applicable to

                                Page 4 of 6

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active employees.

SECTION 8. AMENDMENT/TERMINATION OF THE PLAN

This Plan may be terminated or amended in any manner by the Board of Directors
of the Company at their sole option. Notwithstanding the foregoing, upon the
occurrence of a Change in Control, this Plan may not be amended in any respect
without the written consent of each Participant affected by such proposed
amendment.

SECTION 9. TERMINATION FOR JUST CAUSE

For purposes of this Plan, the term "Termination of for Just Cause" shall mean
termination for the commission of a wrongful action such as, but not limited to,
theft of Company property or alcohol or drug abuse.

SECTION 10. CONTRACT RIGHT OF PARTICIPANTS

The Board of Directors of the Company intends this Plan to constitute an
enforceable contract between the Company and each Participant and intends this
Plan to vest rights in such Participants as third party beneficiaries.

SECTION 11. CONSTRUCTION

Wherever any words are used herein in the masculine gender, they shall be
construed as though they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used herein in the
singular form they shall be construed as though they were also used in the
plural form in all cases where they would so apply.

SECTION 12. GOVERNING LAW

This Plan shall be governed by the law of the State of New York (regardless of
the law that might otherwise govern under applicable principles of conflict of
laws), to the extent not superseded by Federal Law.

SECTION 13. SUCCESSORS AND ASSIGNS

The Plan shall be binding upon the Company and upon any assignee or successor in
interest to the Company.

SECTION 14. CONSTRUCTIVE TERMINATION

14.1     DEFINITION

         For purposes of this Plan, the term "Constructive Termination" shall
         include, but shall not be limited to, any of the following: (i) a
         reduction in rate of base earnings, (ii) a reduction in participation
         in the Executive Incentive Bonus Plan or equivalent compensation, (iii)
         a change in job situs of more than 25 miles from the current Employee's
         work location or an increase of more than 25 miles in the distance from
         the Employee's work location to

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<PAGE>

         the Employee's primary residence, (iv) a reduction in job duties and
         responsibilities, (v) a job assignment which would require absence from
         the Participant's then principal place of employment for more than four
         (4) consecutive weeks, (vi) a reduction in benefits, (vii) a change in
         reporting relationship of an Employee with officer status that results
         in an Employee reporting to a less senior officer, or (viii) any other
         action which shall be determined by a competent authority to constitute
         a Constructive Termination.

14.2     DECLARATION PERIOD

         After the occurrence of an event described in any of clauses (i)
         through (viii) of Section 14.1 hereof, a Participant shall have a
         period of one (1) month thereafter to declare such occurrence to be a
         Constructive Termination and thereby become entitled to the payment of
         such Participant's severance and other benefits in accordance with the
         provisions of this Plan.

SECTION 15. NOTICE OF TERMINATION

During the one (1) year period after the occurrence of a Change in Control, the
employment of a Participant may not be terminated, except in the event of
Termination for Just Cause, unless the Participant has received one (1) month
advance notice of the termination in a letter written to such Participant, which
letter shall specify (i) the effective date of termination (which date shall not
be sooner than one (1) month after receipt of such letter by the Participant),
(ii) the reason for the termination, and (iii) a commitment to honor this Plan,
and to pay to the Participant all amounts to which the Participant is entitled
thereunder.

Approved by the Board of Directors of the Company on January 30, 2002.

ATTEST:                                  U.S.B. HOLDING CO., INC.

/s/ Michael H. Fury                      /s/ Thomas E. Hales
--------------------------------         ------------------------------------
Michael H. Fury                          Thomas E. Hales
Secretary of the Board                   Chairman of the Board, President and
                                         Chief Executive Officer

                                   Page 6 of 6Exhibit 10.15

                              EMPLOYMENT AGREEMENT

            This Employment Agreement ( "Agreement") shall be effective as of
June 16, 2001, by and between DISCOVERY LABORATORIES, INC., a Delaware
corporation (the "Company"), and CHRISTOPHER J. SCHABER ("Executive").

            WHEREAS, the Company and Executive desire that Executive be employed
by the Company and that the terms and conditions of such employment be defined.

            NOW, THEREFORE, in consideration of the employment of Executive by
the Company, the Company and Executive agree as follows:

            1. Terms of the Agreement. The Company shall employ Executive and
Executive shall accept employment for a period of three (3) years commencing on
June 16, 2001, (the "Commencement Date") and continuing until June 15, 2004,
subject, however, to prior termination as hereinafter provided in Section 5
(such term is hereinafter referred to as the "Employment Period").

            2. Executive's Duties and Obligations.

                  a. Duties. Executive shall serve as Executive Vice President,
Drug Development and Regulatory Compliance and Chief Operating Officer,
reporting directly to the Chief Executive Officer of the Company. Executive
shall be responsible for all duties customarily associated with his title.

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

                  c. Proprietary Information and Inventions Agreement. Upon
execution of this Agreement, Executive shall execute the Company's standard form
of Intellectual Property and Confidential Information Agreement (the
"Confidentiality Agreement") a copy of which is attached to this Agreement as
Exhibit A. 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.

            3. Devotion of Time to Company's Business

                  a. Full-Time Efforts. During his employment with the Company,
Executive shall devote substantially all of his business time, attention and
efforts to the proper

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                                                                               2

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, 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 either the Company's Chief Executive Officer, Executive
Committee or Board of Directors.

                  c. Non-Competition During Employment During the Employment
Period and for the post-termination period set forth in Sections 3(c)(i), (ii)
or (iii), as applicable, 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,
cystic fibrosis treatments or any other category of compounds which forms the
basis of the Company's products or products under active development(1), or (Y)
directly or indirectly solicit or induce any employee of the Company to leave
the employ of the Company:

                  (i) twelve (12) months in the event Executive's employment
      with the Company is terminated pursuant to the terms set forth in Section
      6; or

                  (ii) six (6) months in the event Executive's employment with
      the Company is terminated pursuant to the terms set forth in Section 5.b.;
      or

                  (iii) eighteen (18) months in all other cases.

                  d. In the event that Executive breaches any provisions of this
Section 3.d. or there is a threatened breach, 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 herein. In the event that an actual proceeding is brought
in equity to enforce the provisions of this Section 3.d., 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. To the extent that the restrictions imposed by this Section
3.e 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.

----------
(1) For the avoidance of doubt, the parties hereby acknowledge and agree the
that the term "cystic fibrosis treatments or any other category of compounds
which forms the basis of the Company's products or products under active
development" shall be construed narrowly so as to prohibit only that activity
that directly competes with the Company.
<PAGE>
                                                                               3

            4. Compensation and Benefits.

                  a. Base Compensation. During the Employment Period, the
Company shall pay to Executive (i) base annual compensation ("Base Salary") of
Two Hundred Ten Thousand Dollars ($210,000), 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 4. Base Salary shall be reviewed at least annually (the "Annual Review")
for the purposes of determining increases, if any, based on Executive's
performance, the performance of the Company, inflation, the then prevailing
salary scales for comparable positions and other relevant factors, provided that
any such increases in Base Salary shall be solely within the discretion of the
Company. It is the Company's intention that the first of any such Annual Reviews
shall occur on or about January 2002.

                  b. Bonuses. 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 of Directors of the
Company after consultation with the Company's Chief Executive Officer. 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 Employment Period, 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 Employment Period, Executive shall be entitled
to receive life insurance on behalf of Executive's named beneficiaries in the
amount of $500,000, 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 Employment Period, Executive shall be
entitled to 15 days paid vacation per year or such other greater number of days
as provided by the Company's policies and procedures then in effect with respect
to the Company's senior executives or employees, 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).

<PAGE>
                                                                               4

                  e. Reimbursement of Business Expenses. 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.

                  f. Tuition Reimbursement. Executive shall be entitled to
receive a payment of $4,700 within 30 days of execution of this Agreement to
cover the cost of tuition, fees, books and other materials related to doctoral
courses taken by Executive (collectively, "Tuition Costs"). In addition,
Executive shall be entitled to receive an additional reimbursement equal to the
lesser of (i) $9,300 or (ii) the remaining unpaid balance of Tuition Costs
incurred from the date hereof; provided, however, that such reimbursement shall
be conditioned upon Executive completing all material requirements for a
doctorate and incurring any such Tuition Costs by no later then June 16, 2002.
Any and all reimbursements to be provided pursuant to this Section 4(f) shall be
subject to documentation in accordance with reasonable policies of the Company.

            5. Termination of Employment.

                  a. Termination for Good Cause. The Company may terminate
Executive's employment at any time for Good Cause, as such term is hereinafter
defined. For the purposes of this Agreement, "Good Cause" means gross
misconduct, gross neglect of duties, conviction of a felony involving moral
turpitude, material breach by Executive of this Agreement or the Confidentiality
Agreement or any act or omission involving fraud or embezzlement against the
Company, or appropriation of any property or proprietary information of the
Company by Executive resulting, in either case, in material economic harm to the
Company, which is not cured by Executive within fifteen (15) days after receipt
of written notice from the Company. If terminated for Good Cause in accordance
with the provisions of this Section 5.a., Executive shall be entitled to any
unpaid amounts set forth in Section 5.b.1; provided, however, that in the event
of termination under this Section 5.a, that the number of accrued but unused
vacation days for which Executive shall be entitled to a lump sum payment shall
be limited to a total of 10 days (inclusive of amounts accrued and unpaid in
past service years as well as the present service year, if any). 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).

                  b. Termination without Good Cause. If Executive's employment
is terminated by the Company without Good Cause the following provisions shall
apply:

                        (1) Executive shall be entitled to any unpaid
compensation accrued through the last day of Executive's employment, a lump sum
payment in respect of all accrued but unused vacation days attributable to past
service years and the present service year (provided, that in no event shall the
aggregate number of such accrued vacation days that are attributable to past
service years exceed 10 days) at his Base Salary in effect on the date such
vacation was earned, and payment of any other amounts earned, accrued or owing
to Executive but not yet paid; and

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                                                                               5

                        (2) Executive shall be entitled to receive severance
payments equal to his Base Salary in effect on the date of his termination,
payable on normal Company payroll dates, for a six (6) month period, subject to
setoff, for other employment or consulting income received by Executive; and

                  c. Death or Disability. This Agreement shall terminate if
Executive dies or is mentally or physically Disabled as herein defined. For the
purposes of this Agreement, "Disabled" shall mean a mental or physical condition
that renders 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 (3) or more
consecutive months or for a total of six (6) months during any twelve (12)
consecutive months; provided, that during such period the Company shall give
Executive at least thirty (30) days' written notice that it considers the time
period for disability to be running. If this Agreement is terminated under this
Section 5.c., Executive, his heirs, legal representatives or his estate shall be
entitled to any unpaid amounts set forth in Section 5.b.1. through the last day
of Executive's employment but shall not be entitled to any severance benefits.

                  d. Termination by Executive. If Executive, upon 30 days prior
notice to the Company, voluntarily resigns, Executive shall be entitled to any
unpaid amounts set forth in Section 5.b.1. through the last day of Executive's
employment but shall not be entitled to any severance benefits.

            6. Severance in Connection with Change of Control.

                  a. In the event that (i) Executive's employment is terminated
by Company without Good Cause or (ii) Executive resigns for Good Reason (as such
term is hereinafter defined); within twelve months of a Change of Control (as
such term is hereinafter defined), Executive shall be entitled to receive, in
addition to the payments set forth in Section 5.b.1. and in lieu of the payments
set forth in Section 5.b.2., severance payments equal to his Base Salary in
effect on the date of his termination, payable on normal Company payroll dates,
for a twelve (12) month period, subject to setoff, for other full-time
employment or full-time consulting income received by Executive.

                  b. Good Reason. For purposes of this Agreement, "Good Reason"
shall mean Executive experiences (X) an involuntary reduction of $20,000 or
greater in his then current Base Salary or (Y) a failure of the Company to
provide the Executive with a position, authority or duties at least equivalent
to the position held by Executive on the day immediately preceding the date of
the Change of Control if such circumstance is not remedied within five business
days after written notice from Executive to the Company.

                  c. Change of Control. For purposes of this Agreement, a
"Change of Control" shall mean the occurrence of any of the following events:

<PAGE>
                                                                               6

                        (i) Any "person", as such term is currently used in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"),
other than any employee benefit plan of the Company, becomes a "beneficial
owner" (as such term is currently used in Rule 13d-3 promulgated under the Act)
of 50% or more of the number of shares of the Company's voting stock;

                        (ii) The Board adopts any plan of liquidation providing
for the distribution of all or substantially all of the Company's assets;

                        (iii) All or substantially all of the assets or business
of the Company is disposed of pursuant to a sale, merger, consolidation or other
transaction, unless the shareholders of the Company immediately prior to such
transaction beneficially own (within the meaning of Rule 13d-3 promulgated under
the 1934 Act), as a result of their ownership of stock in the Company, at least
50% of the number of shares of voting stock or other voting equity of the entity
or entities that succeed to the business of the Company; or

                        (iv) The Company combines with another company and is
the surviving corporation but, immediately after the combination, the
shareholders of the Company immediately before such transaction beneficially own
(within the meaning of Rule 13d-3 promulgated under the 1934 Act), as a result
of their ownership of stock in the Company immediately prior to such
combination, less than 50% of the number of shares of voting stock of the
combined company.

            7. Miscellaneous.

                  a. Governing Law. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the Commonwealth of
Pennsylvania as applied to agreements among Pennsylvania residents entered into
and to be performed entirely within Pennsylvania without regards 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 unenforceable under applicable law, such provision shall be
construed, if possible, so as to be enforceable under applicable law, else, such
provision 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. Successors and Assigns. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. Executive shall not be entitled
to assign any of his rights or obligations under this Agreement.

<PAGE>
                                                                               7

                  e. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery, on the date of scheduled delivery by a nationally recognized overnight
service or two (2) days after deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other party at
the address shown below such party's signature, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 7.e.

                  f. Entire Agreement. This Agreement, including the exhibits
attached hereto, constitutes the entire agreement between the parties with
respect to the employment of Executive.

            IN WITNESS THEREOF, the parties have executed this Agreement as of
the date set forth above.

                                          DISCOVERY LABORATORIES, INC.

                                          /s/ Robert J. Capetola
                                          --------------------------------------
                                          By:   Robert J. Capetola, Ph.D.
                                          Its:  President and CEO

                        Address:          350 South Main Street, Suite 307
                                          Doylestown, PA  18901

                                          EXECUTIVE, Christopher J. Schaber

                                          /s/ Christopher J. Schaber
                                          --------------------------------------

                        Address:          40 South Hockey Drive
                                          Columbus, NJ 08022

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