Document:

EXHIBIT 10.36

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 23,
2001, by and between UNIGENE  LABORATORIES,  INC. a Delaware  corporation,  (the
"Company"), and FUSION CAPITAL FUND II, LLC (together with it permitted assigns,
the "Buyer").  Capitalized  terms used herein and not otherwise  defined  herein
shall  have the  respective  meanings  set forth in the  Common  Stock  Purchase
Agreement by and between the parties hereto dated as of May 9, 2001 (as amended,
restated,  supplemented  or otherwise  modified from time to time, the "Purchase
Agreement").

                                    WHEREAS:

         A. The Company has agreed, upon the terms and subject to the conditions
of the  Purchase  Agreement,  to issue to the  Buyer up to  Twenty  One  Million
Dollars  ($21,000,000)  of the Company's  common stock, par value $.01 per share
(the "Common Stock") (the "Purchase Shares") and

         B. In connecton with the Purchase Agreement,  the Company has issued to
the Buyer (i) 2,000,000 shares of its Common Stock (the "Commitment Shares") and
(ii) a common  stock  purchase  warrant (the  "Warrant")  granting the Buyer the
right to  purchase  from the  Company  1,000,000  shares  of Common  Stock  (the
"Warrant Shares"); and

         C. To  induce  the  Buyer to enter  into the  Purchase  Agreement,  the
Company has agreed to provide certain  registration  rights under the Securities
Act of 1933,  as  amended,  and the rules  and  regulations  thereunder,  or any
similar successor statute  (collectively,  the "1933 Act"), and applicable state
securities laws.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Buyer hereby agree as follows:

         1.       DEFINITIONS.
                  -----------

         As used in this Agreement, the following terms shall have the following
meanings:

         a. "Investor"  means the Buyer,  any transferee or assignee  thereof to
whom a Buyer  assigns its rights under this  Agreement  and who agrees to become
bound by the provisions of this  Agreement in accordance  with Section 9 and any
transferee  or assignee  thereof to whom a  transferee  or assignee  assigns its
rights under this  Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

         b. "Person"  means any person or entity  including any  corporation,  a
limited liability company,  an association,  a partnership,  an organization,  a
business,  an individual,  a governmental or political  subdivision thereof or a
governmental agency.

<PAGE>

         c. "Register," "registered," and "registration" refer to a registration
effected by  preparing  and filing one or more  registration  statements  of the
Company in compliance  with the 1933 Act and pursuant to Rule 415 under the 1933
Act or any  successor  rule  providing  for offering  securities on a continuous
basis ("Rule 415"),  and the  declaration or ordering of  effectiveness  of such
registration   statement(s)  by  the  United  States   Securities  and  Exchange
Commission (the "SEC").

         d.  "Registrable  Securities"  means (1) the Purchase Shares which have
been, or which may from time to time be,  issued or issuable  upon  purchases of
the  Available  Amount  under  the  Purchase  Agreement  (without  regard to any
limitation or restriction on purchases), (2) the Warrant Shares which have been,
or which may,  from time to time,  be issued or  issuable  upon  exercise of the
Warrant  (without regard to any limitation or restriction on exercise),  and (3)
the Commitment Shares issued to the Investor at or prior to the Commencement and
any shares of capital  stock  issued or issuable  with  respect to the  Purchase
Shares, the Warrant, the Commitment Shares or the Purchase Agreement as a result
of any stock split, stock dividend, recapitalization,  exchange or similar event
or otherwise,  without regard to any limitation on purchases  under the Purchase
Agreement or under the Warrant.

         e.  "Registration  Statement" means the  registration  statement of the
Company  which the  Company has agreed to file  pursuant to Section  4(a) of the
Purchase Agreement with respect to the sale of the Registrable Securities.

         2.       REGISTRATION.

         a. Mandatory  Registration.  The Company shall use best efforts to keep
the Registration  Statement effective pursuant to Rule 415 promulgated under the
1933 Act and  available  for sales of all of the  Registrable  Securities at all
times until the earlier of (i) the date as of which the Investor may sell all of
the  Registrable   Securities  without  restriction   pursuant  to  Rule  144(k)
promulgated under the 1933 Act (or successor  thereto) or (ii) the date on which
(A) the Investor shall have sold all the Registrable Securities and no Available
Amount remains under the Purchase  Agreement (the  "Registration  Period").  The
Registration  Statement  (including any  amendments or  supplements  thereto and
prospectuses  contained  therein)  shall not contain any untrue  statement  of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

         b. Rule 424  Prospectus.  The Company shall,  as required by applicable
securities  regulations,  from time to time file with the SEC,  pursuant to Rule
424 promulgated  under the 1933 Act, the prospectus and prospectus  supplements,
if any, to be used in connection with sales of the Registrable  Securities under
the Registration Statement. The Investor and its counsel shall have a reasonable
opportunity to review and comment upon such prospectus  prior to its filing with
the SEC. The Investor shall use its reasonable best efforts to comment upon such
prospectus  within one (1) Trading Day from the date the  Investor  receives the
final version of such prospectus.

<PAGE>

         c. Sufficient Number of Shares  Registered.  In the event the number of
shares available under the  Registration  Statement is insufficient to cover all
of  the  Registrable  Securities,  the  Company  shall  amend  the  Registration
Statement or file a new registration statement (a "New Registration Statement"),
so as to cover all of such Registrable Securities as soon as practicable, but in
any event not later  than ten (10)  Trading  Days after the  necessity  therefor
arises. The Company shall use it best efforts to cause such amendment and/or New
Registration  Statement to become effective as soon as practicable following the
filing thereof. The Investor and its counsel shall have a reasonable opportunity
to review and comment upon any such amendment and/or New Registration  Statement
prior to its filing with the SEC. The  Investor  shall use its  reasonable  best
efforts to comment upon any such  amendment  and/or New  Registration  Statement
within  two (2)  Trading  Days  from the date the  Investor  receives  the final
version of any such amendment and/or New Registration Statement.

         3.       RELATED OBLIGATIONS.

         With respect to the Registration Statement and whenever any Registrable
Securities  are to be  registered  pursuant  to Section 2  including  on any New
Registration  Statement,  the Company shall use its  reasonable  best efforts to
effect the  registration  of the  Registrable  Securities in accordance with the
intended method of disposition thereof and, pursuant thereto,  the Company shall
have the following obligations:

         a. The  Company  shall  prepare  and file with the SEC such  amendments
(including  post-effective  amendments)  and  supplements  to  any  registration
statement  and  the  prospectus  used  in  connection  with  such   registration
statement,  which  prospectus  is to be filed  pursuant to Rule 424  promulgated
under the 1933 Act, as may be  necessary to keep the  Registration  Statement or
any New  Registration  Statement  effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable  Securities of the Company covered
by the Registration  Statement or any New Registration Statement until such time
as all of such Registrable  Securities shall have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such registration statement.

         b. The Company shall permit the Investor to review and comment upon the
Registration  Statement or any New Registration Statement and all amendments and
supplements thereto at least two (2) Trading Days prior to their filing with the
SEC, and not file any document in a form to which Investor  reasonably  objects.
The  Investor  shall  use its  reasonable  best  efforts  to  comment  upon  the
Registration  Statement or any New Registration  Statement and any amendments or
supplements  thereto  within  two (2)  Trading  Days from the date the  Investor
receives the final version  thereof.  The Company shall furnish to the Investor,
without  charge any  correspondence  from the SEC or the staff of the SEC to the
Company or its representatives relating to the Registration Statement or any New
Registration Statement.

<PAGE>

         c. The Company shall furnish to the  Investor,  (i) promptly  after the
same is prepared and filed with the SEC, at least one copy of such  registration
statement and any  amendment(s)  thereto,  including  financial  statements  and
schedules,  all  documents  incorporated  therein by reference and all exhibits,
(ii) upon the  effectiveness of any registration  statement,  ten (10) copies of
the prospectus  included in such  registration  statement and all amendments and
supplements  thereto  (or such  other  number  of  copies  as the  Investor  may
reasonably  request)  and (iii) such other  documents,  including  copies of any
preliminary or final  prospectus,  as the Investor may  reasonably  request from
time  to  time  in  order  to  facilitate  the  disposition  of the  Registrable
Securities owned by the Investor.

         d. The Company  shall use  reasonable  best efforts to (i) register and
qualify the  Registrable  Securities  covered by a registration  statement under
such other  securities  or "blue sky" laws of such  jurisdictions  in the United
States as the  Investor  reasonably  requests,  (ii)  prepare  and file in those
jurisdictions,   such  amendments  (including  post-effective   amendments)  and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof during the Registration  Period,  (iii) take
such other  actions as may be  necessary  to  maintain  such  registrations  and
qualifications in effect at all times during the Registration  Period,  and (iv)
take all  other  actions  reasonably  necessary  or  advisable  to  qualify  the
Registrable Securities for sale in such jurisdictions;  provided,  however, that
the  Company  shall not be required in  connection  therewith  or as a condition
thereto to (x)  qualify to do business  in any  jurisdiction  where it would not
otherwise be required to qualify but for this Section 3(d),  (y) subject  itself
to general taxation in any such  jurisdiction,  or (z) file a general consent to
service of process in any such  jurisdiction.  The Company shall promptly notify
the Investor who holds  Registrable  Securities of the receipt by the Company of
any  notification  with  respect  to  the  suspension  of  the  registration  or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any  jurisdiction  in the United  States or its receipt of
actual  notice of the  initiation  or  threatening  of any  proceeding  for such
purpose.

         e. As promptly as  practicable  after  becoming  aware of such event or
facts,  the Company shall notify the Investor in writing of the happening of any
event or existence of such facts as a result of which the prospectus included in
any registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made,  not  misleading,  and promptly  prepare a  supplement  or
amendment to such  registration  statement  to correct such untrue  statement or
omission,  and deliver ten (10) copies of such  supplement  or  amendment to the
Investor  (or such  other  number  of  copies  as the  Investor  may  reasonably
request).  The Company  shall also  promptly  notify the Investor in writing (i)
when a prospectus or any prospectus  supplement or post-effective  amendment has
been filed, and when a registration  statement or any  post-effective  amendment
has become effective  (notification of such effectiveness  shall be delivered to
the Investor by facsimile on the same day of such effectiveness and by overnight
mail),  (ii) of any  request by the SEC for  amendments  or  supplements  to any
registration  statement or related prospectus or related information,  and (iii)
of the Company's reasonable  determination that a post-effective  amendment to a
registration statement would be appropriate.

         f. The Company  shall use its  reasonable  best  efforts to prevent the
issuance  of  any  stop  order  or  other  suspension  of  effectiveness  of any
registration   statement,   or  the  suspension  of  the  qualification  of  any
Registrable  Securities  for sale in any  jurisdiction  and, if such an order or
suspension  is issued,  to obtain the  withdrawal of such order or suspension at
the earliest  possible moment and to notify the Investor of the issuance of such
order  and the  resolution  thereof  or its  receipt  of  actual  notice  of the
initiation or threat of any proceeding for such purpose.

<PAGE>

         g. The Company  shall (i) cause all the  Registrable  Securities  to be
listed on each securities  exchange or trading system on which securities of the
same class or series  issued by the  Company  are then  listed,  if any,  if the
listing of such Registrable Securities is then permitted under the rules of such
exchange,  or (ii)  secure  designation  and  quotation  of all the  Registrable
Securities on the Principal Market.  The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section.

         h. The Company  shall  cooperate  with the Investor to  facilitate  the
timely  preparation  and delivery of  certificates  (not bearing any restrictive
legend)  representing  the Registrable  Securities to be offered pursuant to any
registration  statement and enable such certificates to be in such denominations
or amounts as the Investor may  reasonably  request and registered in such names
as the Investor may request.

         i.  The  Company  shall at all  times  provide  a  transfer  agent  and
registrar with respect to its Common Stock.

         j. If  reasonably  requested  by the  Investor,  the Company  shall (i)
immediately  incorporate in a prospectus supplement or post-effective  amendment
such information as the Investor believes should be included therein relating to
the  sale  and  distribution  of  Registrable  Securities,   including,  without
limitation,  information  with respect to the number of  Registrable  Securities
being sold,  the purchase  price being paid  therefor and any other terms of the
offering of the Registrable  Securities;  (ii) make all required filings of such
prospectus  supplement  or  post-effective  amendment as soon as notified of the
matters to be  incorporated  in such  prospectus  supplement  or  post-effective
amendment;   and  (iii)  supplement  or  make  amendments  to  any  registration
statement.

         k. The  Company  shall use its  reasonable  best  efforts  to cause the
Registrable  Securities  covered by any registration  statement to be registered
with or approved by such other  governmental  agencies or  authorities as may be
necessary to consummate the disposition of such Registrable Securities.

         l. Within one (1) Trading Day after any  registration  statement  which
includes the Registrable Securities is ordered effective by the SEC, the Company
shall deliver,  and shall cause legal counsel for the Company to deliver, to the
transfer  agent for such  Registrable  Securities  (with copies to the Investor)
confirmation that such registration statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

         m. The  Company  shall  take all other  reasonable  actions  reasonably
requested by the Investor to expedite and facilitate disposition by the Investor
of Registrable Securities pursuant to any registration statement.

         4.       OBLIGATIONS OF THE INVESTOR.

         a. The Company shall notify the Investor in writing of the  information
the  Company  reasonably  requires  from the  Investor  in  connection  with any
registration statement hereunder. The Investor shall furnish to the Company such
information  regarding  itself,  the  Registrable  Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such  documents in connection  with such  registration  as the
Company may reasonably request.

<PAGE>

         b. The  Investor  agrees to  cooperate  with the Company as  reasonably
requested by the Company in connection  with the  preparation  and filing of any
registration statement hereunder.

         c. The  Investor  agrees  that,  upon  receipt of any  notice  from the
Company  of the  happening  of any  event  or  existence  of  facts  of the kind
described  in Section  3(f) or the first  sentence of 3(e),  the  Investor  will
immediately  discontinue  disposition of Registrable  Securities pursuant to any
registration   statement(s)  covering  such  Registrable  Securities  until  the
Investor's  receipt of the  copies of the  supplemented  or  amended  prospectus
contemplated  by Section  3(f) or the first  sentence  of 3(e).  Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to promptly
deliver shares of Common Stock without any restrictive legend in accordance with
the terms of the Purchase  Agreement in connection  with any sale of Registrable
Securities  with  respect to which an Investor  has entered  into a contract for
sale  prior to the  Investor's  receipt  of a notice  from  the  Company  of the
happening  of any  event of the kind  described  in  Section  3(f) or the  first
sentence of 3(e) and for which the Investor has not yet settled.

         5.       EXPENSES OF REGISTRATION.

         All reasonable expenses,  other than sales or brokerage commissions and
legal fees and disbursements of counsel to the Investor,  incurred in connection
with  registrations,  filings or  qualifications  pursuant  to Sections 2 and 3,
including,  without  limitation,  all registration,  listing and  qualifications
fees,  printers and accounting  fees, and fees and  disbursements of counsel for
the Company, shall be paid by the Company.

         6.       INDEMNIFICATION

<PAGE>

         a. To the fullest  extent  permitted  by law,  the Company  shall,  and
hereby does, indemnify,  hold harmless and defend the Investor,  each Person, if
any, who controls the Investor, the members, the directors,  officers, partners,
employees, agents,  representatives of the Investor and each Person, if any, who
controls  the  Investor  within the  meaning  of the 1933 Act or the  Securities
Exchange  Act of 1934,  as  amended  (the "1934  Act")  (each,  an  "Indemnified
Person"), against any losses, claims, damages,  liabilities,  judgments,  fines,
penalties,  charges,  costs,  attorneys'  fees,  amounts paid in  settlement  or
expenses, joint or several, (collectively,  "Claims") incurred in investigating,
preparing  or  defending  any  action,   claim,   suit,   inquiry,   proceeding,
investigation  or appeal  taken  from the  foregoing  by or before  any court or
governmental,  administrative  or  other  regulatory  agency,  body or the  SEC,
whether pending or threatened,  whether or not an indemnified party is or may be
a party thereto ("Indemnified Damages"), to which any of them may become subject
insofar  as such  Claims  (or  actions  or  proceedings,  whether  commenced  or
threatened,  in respect  thereof) arise out of or are based upon: (i) any untrue
statement or alleged  untrue  statement of a material  fact in the  Registration
Statement,  any  New  Registration  Statement  or any  post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged  omission  to state a material  fact  required  to be stated  therein or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such registration
statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements  therein were made,  not  misleading,  (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  pursuant  to the  Registration  Statement  or any  New  Registration
Statement or (iv) any material  violation of this  Agreement (the matters in the
foregoing  clauses (i)  through  (iv) being,  collectively,  "Violations").  The
Company shall, subject to Section 6(d) reimburse each Indemnified Person for any
legal fees or other  expenses  reasonably  incurred by them in  connection  with
investigating  or  defending  any such  Claim.  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section 6(a):  (i) shall not apply to a Claim by an  Indemnified  Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information  furnished in writing to the Company by such Indemnified Person
expressly  for  use in  connection  with  the  preparation  of the  Registration
Statement,  any New  Registration  Statement  or any such  amendment  thereof or
supplement  thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) or Section 3(e);  (ii) with respect to any  preliminary
prospectus,  shall not inure to the benefit of any Indemnified  Person from whom
the person  asserting a Claim  purchased  the  Registrable  Securities  that are
offered for sale by the preliminary  prospectus (or to the benefit of any person
controlling  such person) if the untrue  statement or omission of material  fact
contained in the preliminary prospectus was corrected in the prospectus, as then
amended or  supplemented,  if such  prospectus  was timely made available by the
Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior to the use
giving rise to a violation and such  Indemnified  Person,  notwithstanding  such
advice,  used it; (iii) shall not be available to the extent such Claim is based
on a  failure  of the  Investor  to  deliver  or to  cause to be  delivered  the
prospectus  made  available by the Company,  if such  prospectus was timely made
available  by the Company  pursuant to Section  3(c) or Section  3(e);  and (iv)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected  without the prior written consent of the Company,  which consent shall
not be  unreasonably  withheld.  Such  indemnity  shall remain in full force and
effect regardless of any  investigation  made by or on behalf of the Indemnified
Person and shall  survive the  transfer  of the  Registrable  Securities  by the
Investor pursuant to Section 9.

<PAGE>

         b.  In  connection   with  the   Registration   Statement  or  any  New
Registration  Statement,  the Investor shall, and hereby does,  indemnify,  hold
harmless  and defend,  to the same extent and in the same manner as is set forth
in Section 6(a), the Company,  each of its  directors,  each of its officers who
signs the Registration Statement or any New Registration Statement, each Person,
if any, who controls the Company  within the meaning of the 1933 Act or the 1934
Act  (collectively  and together with an  Indemnified  Person,  an  "Indemnified
Party"),  against  any  Claim or  Indemnified  Damages  to which any of them may
become subject,  under the 1933 Act, the 1934 Act or otherwise,  insofar as such
Claim or Indemnified  Damages arise out of or are based upon any  Violation,  in
each case to the extent,  and only to the extent,  that such Violation occurs in
reliance  upon and in  conformity  with  written  information  furnished  to the
Company by the Investor  expressly for use in connection with such  registration
statement;  and,  subject to Section 6(d), the Investor will reimburse any legal
or other expenses  reasonably  incurred by them in connection with investigating
or defending any such Claim;  provided,  however,  that the indemnity  agreement
contained in this Section 6(b) and the  agreement  with respect to  contribution
contained  in Section 7 shall not apply to  amounts  paid in  settlement  of any
Claim if such  settlement is effected  without the prior written  consent of the
Investor, which consent shall not be unreasonably withheld;  provided,  further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified  Damages as does not exceed the net proceeds to
the Investor as a result of the sale of Registrable  Securities pursuant to such
registration  statement.  Such  indemnity  shall remain in full force and effect
regardless of any  investigation  made by or on behalf of such Indemnified Party
and shall  survive the transfer of the  Registrable  Securities  by the Investor
pursuant to Section 9.

         c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the  commencement  of any action or proceeding
(including  any  governmental  action or  proceeding)  involving  a Claim,  such
Indemnified  Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any  indemnifying  party under this Section 6, deliver to the
indemnifying  party  a  written  notice  of the  commencement  thereof,  and the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
similarly  noticed,  to assume  control  of the  defense  thereof  with  counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying  party, if, in
the  reasonable  opinion of counsel  retained  by the  indemnifying  party,  the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented  by such counsel in such  proceeding.  The  Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection  with any  negotiation  or defense of any such action or claim by the
indemnifying  party and shall furnish to the indemnifying  party all information
reasonably  available  to the  Indemnified  Party or  Indemnified  Person  which
relates  to such  action  or  claim.  The  indemnifying  party  shall  keep  the
Indemnified  Party or  Indemnified  Person fully apprised at all times as to the
status of the defense or any settlement  negotiations  with respect thereto.  No
indemnifying  party shall be liable for any  settlement of any action,  claim or
proceeding  effected without its written consent,  provided,  however,  that the
indemnifying  party shall not  unreasonably  withhold,  delay or  condition  its
consent.  No  indemnifying  party shall,  without the consent of the Indemnified
Party or Indemnified Person,  consent to entry of any judgment or enter into any
settlement or other compromise  which does not include as an unconditional  term
thereof the giving by the  claimant or plaintiff  to such  Indemnified  Party or
Indemnified  Person of a release from all  liability in respect to such claim or
litigation.   Following   indemnification   as  provided  for   hereunder,   the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified  Person with  respect to all third  parties,  firms or  corporations
relating to the matter for which  indemnification  has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified  Person or Indemnified  Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

         d. The  indemnification  required  by this  Section  6 shall be made by
periodic  payments of the amount thereof during the course of the  investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

<PAGE>

         e. The indemnity  agreements  contained  herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the  indemnifying  party or others,  and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

         7.       CONTRIBUTION.

         To  the  extent  any   indemnification  by  an  indemnifying  party  is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable  Securities guilty of fraudulent  misrepresentation
(within  the  meaning of Section  11(f) of the 1933 Act)  shall be  entitled  to
contribution  from any seller of  Registrable  Securities  who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds  received by
such seller from the sale of such Registrable Securities.

         8.       REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS.

         With a view to making  available  to the  Investor the benefits of Rule
144  promulgated  under the 1933 Act or any other  similar rule or regulation of
the SEC  that may at any  time  permit  the  Investor  to sell  the  Registrable
Securities to the public without  registration  ("Rule 144"), the Company agrees
to:

         a.  make and keep  public  information  available,  as those  terms are
understood and defined in Rule 144;

         b. file with the SEC in a timely manner all reports and other documents
required  of the  Company  under  the  1933  Act and the 1934 Act so long as the
Company remains subject to such  requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and

         c.  furnish to the Investor so long as the  Investor  owns  Registrable
Securities,  promptly upon request,  (i) a written statement by the Company that
it has complied with the reporting and or disclosure provisions of Rule 144, the
1933 Act and the 1934 Act,  (ii) a copy of the most recent  annual or  quarterly
report of the  Company  and such other  reports  and  documents  so filed by the
Company,  and (iii) such other  information  as may be  reasonably  requested to
permit  the  Investor  to sell  such  securities  pursuant  to Rule 144  without
registration.

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.

<PAGE>

         The  Company  shall  not  assign  this   Agreement  or  any  rights  or
obligations  hereunder  without  the  prior  written  consent  of the  Investor,
including  by merger or  consolidation.  The  Investor may not assign its rights
under this Agreement  without the written consent of the Company,  other than to
an  affiliate  of the  Investor  controlled  by  Steven  G.  Martin or Joshua B.
Scheinfeld.

         10.      AMENDMENT OF REGISTRATION RIGHTS.

         Provisions of this Agreement may be amended and the observance  thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively  or  prospectively),  only with the written consent of the Company
and the Investor.

         11.      MISCELLANEOUS.

         a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable  Securities.  If
the Company receives conflicting instructions,  notices or elections from two or
more Persons with respect to the same Registrable Securities,  the Company shall
act upon  the  basis of  instructions,  notice  or  election  received  from the
registered owner of such Registrable Securities.

         b. Any notices,  consents,  waivers or other communications required or
permitted to be given under the terms of this  Agreement  must be in writing and
will be  deemed  to have  been  delivered:  (i)  upon  receipt,  when  delivered
personally;  (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending  party);  or (iii) one (1) Trading Day after  deposit  with a nationally
recognized  overnight  delivery service,  in each case properly addressed to the
party to  receive  the  same.  The  addresses  and  facsimile  numbers  for such
communications shall be:

         If to the Company:
                  Unigene Laboratories, Inc.
                  110 Little Falls Road
                  Fairfield, New Jersey 07004
                  Telephone:        973-882-0860
                  Facsimile:        973-227-6088
                  Attention:        Warren Levy

         With a copy to:
                  Covington & Burling
                  1201 Pennsylvania Avenue, N.W.
                  Washington, D.C. 20004
                  Telephone:        202-662-5276
                  Facsimile:        202-778-5276
                  Attention:        D. Michael Lefever

         If to the Investor:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G.  Martin

or at such other address and/or facsimile number and/or to the attention of such
other person as the  recipient  party has  specified by written  notice given to
each other  party  three (3)  Trading  Days prior to the  effectiveness  of such
change.  Written  confirmation  of receipt  (A) given by the  recipient  of such
notice,   consent,   waiver  or  other   communication,   (B)   mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date,  recipient  facsimile  number  and an  image  of the  first  page  of such
transmission  or (C)  provided by a  nationally  recognized  overnight  delivery
service, shall be rebuttable evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

         c.  Failure  of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

<PAGE>

         d. Except for the corporate  laws of the State of Delaware  which shall
govern  all  issues  concerning  the  relative  rights  of the  Company  and its
stockholders,  all questions concerning the construction,  validity, enforcement
and  interpretation  of this Agreement shall be governed by the internal laws of
the State of Illinois, without giving effect to any choice of law or conflict of
law  provision  or  rule  (whether  of  the  State  of  Illinois  or  any  other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.  Each party hereby irrevocably  submits to the
exclusive  jurisdiction  of the state and  federal  courts  sitting  the City of
Chicago, for the adjudication of any dispute hereunder or in connection herewith
or with any  transaction  contemplated  hereby or discussed  herein,  and hereby
irrevocably  waives, and agrees not to assert in any suit, action or proceeding,
any claim  that it is not  personally  subject to the  jurisdiction  of any such
court, that such suit, action or proceeding is brought in an inconvenient  forum
or that the venue of such suit,  action or  proceeding  is improper.  Each party
hereby  irrevocably  waives personal  service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall  constitute  good and sufficient  service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner  permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or  unenforceability  shall not affect the  validity  or  enforceability  of the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability  of any  provision of this  Agreement in any other  jurisdiction.
EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE,  AND AGREES NOT TO
REQUEST,  A JURY  TRIAL FOR THE  ADJUDICATION  OF ANY  DISPUTE  HEREUNDER  OR IN
CONNECTION  HEREWITH  OR  ARISING  OUT OF  THIS  AGREEMENT  OR  ANY  TRANSACTION
CONTEMPLATED HEREBY.

         e. This  Agreement,  and the Purchase  Agreement  constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions,  promises, warranties or undertakings, other
than those set forth or referred to herein and therein.  This  Agreement and the
Purchase Agreement  supersede all prior agreements and understandings  among the
parties hereto with respect to the subject matter hereof and thereof.

         f. Subject to the requirements of Section 9, this Agreement shall inure
to the benefit of and be binding upon the  permitted  successors  and assigns of
each of the parties hereto.

         g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.

         h. This  Agreement may be executed in identical  counterparts,  each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto by  facsimile  transmission  of a copy of this  Agreement
bearing the signature of the party so delivering this Agreement.

         i. Each party shall do and perform,  or cause to be done and performed,
all such further acts and things,  and shall  execute and deliver all such other
agreements,  certificates,  instruments  and  documents,  as the other party may
reasonably  request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

<PAGE>

         j.  The  language  used in this  Agreement  will  be  deemed  to be the
language  chosen by the parties to express  their mutual  intent and no rules of
strict construction will be applied against any party.

         k. This Agreement is intended for the benefit of the parties hereto and
their respective  permitted  successors and assigns,  and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

                                   * * * * * *

<PAGE>

         IN WITNESS WHEREOF,  the parties have caused this  Registration  Rights
Agreement to be duly executed as of day and year first above written.

                                  THE COMPANY:

                                  UNIGENE LABORATORIES, INC.

                                  By:_______________________
                                  Name:
                                  Title:

                                  BUYER:

                                  FUSION CAPITAL FUND II, LLC
                                  BY: FUSION CAPITAL PARTNERS, LLC
                                  BY: SGM HOLDINGS CORP.

                                  By:_______________________
                                  Name: Steven G. Martin
                                  Title: PresidentEXHIBIT 10.5

                              PSB HOLDINGS, INC.

                            2001 STOCK OPTION PLAN

                               PSB HOLDINGS, INC.
                             2001 STOCK OPTION PLAN

     SECTION 1.  PURPOSE.  The Plan has been adopted to (a) enable the
 Company to attract and retain superior employees by providing incentive
 opportunities with respect to future services that are competitive with
 those of other similar companies, (b) further identify the interests of
 participating employees with those of the Company's other shareholders
 through compensation based on the performance of the Company's common
 stock and (c) promote the long-term financial interests of the Company and
 its shareholders.

     SECTION 2.  CERTAIN DEFINITIONS.  As used in this Plan, and in
 addition to any terms elsewhere defined in this Plan, the following terms,
 when capitalized, shall have the meanings set forth in this Section 2.

     Section 2.1.  "BOARD" means the Board of Directors of the Company.

     Section 2.2.  "CAUSE" means any one or more of the following on the
 part of the participant: (a) the commission of an act which results in a
 payment of a claim filed by the Company or a Subsidiary under a blanket
 banker fidelity bond or similar policy as from time to time and at any
 time maintained; (b) an intentional failure to perform assigned duties;
 (c) willful misconduct in the course of the participant's employment; (d)
 breach of a fiduciary duty involving personal profit or acts or omissions
 of personal dishonesty, including, but not limited to, commission of any
 crime of theft, embezzlement, misapplication of funds, unauthorized
 issuance of obligations, or false entries; (e) any intentional, reckless,
 or negligent act or omission to act which results in the violation by the
 participant of any policy established by the Company or a Subsidiary which
 is designed to insure compliance with applicable banking, securities,
 employment discrimination or other laws or which causes or results in the
 Company's or a Subsidiary's violation of such laws, except any act done by
 the participant in good faith, as determined in the reasonable discretion
 of the Board, or which results in a violation of such policies or law
 which is, in the reasonable sole discretion of such Board, immaterial; or
 (f) any of the foregoing which results in material loss to the Company or
 any of its Subsidiaries.  Except to the extent of the discretion granted
 to the Board in clause (e), the Committee shall have the sole discretion
 to determine whether "Cause" exists, and the Committee's determination
 shall be final.
<PAGE>
     Section 2.3.  "CHANGE IN CONTROL" has the meaning set forth in Section
 8.2.

     Section 2.4.  "CODE" means the Internal Revenue Code of 1986, as
 amended.  The reference to any specific section of the Code shall include
 any successor section or sections.
                                 -1-
     Section 2.5.  "COMMITTEE" means, subject to the provisions of Section
 4, the Option Committee of the Board.

     Section 2.6.  "COMMON STOCK" means the common stock of the Company.

     Section 2.7.  "COMPANY" means PSB Holdings, Inc., a Wisconsin
 corporation.

     Section 2.8.  "DISABILITY" means (a) a physical or mental condition
 which qualifies as a total and permanent disability under the terms of any
 plan or policy maintained by the Company or a Subsidiary and for which the
 Optionee is eligible to receive benefits under such plan or policy, or (b)
 if the Optionee does not participate in a disability plan, or is not
 covered by a disability policy, of the Company or a Subsidiary,
 "Disability" means the permanent and total inability of a participant by
 reason of mental or physical infirmity, or both, to perform the work
 customarily assigned to him or her, if a medical doctor selected or
 approved by the Board, and knowledgeable in the field of such infirmity,
 advises the Committee either that it is not possible to determine when
 such Disability will terminate or that it appears probable that such
 Disability will be permanent during the remainder of said participant's
 lifetime.

     Section 2.9.  "EFFECTIVE DATE" means February 20, 2001.

     Section 2.10.  "EMPLOYED," and any variation thereof such as
 "employment," means, as appropriate, employed by or employment with any of
 the Company or any present or future Subsidiary.

     Section 2.11.  "EXCHANGE ACT" means the Securities Exchange Act of
 1934, as amended.

     Section 2.12.  "FAIR MARKET VALUE" of a share of the Common Stock as
 of any date means an amount equal to:

          (a)  the average of the highest bid and lowest ask prices of the
 Common Stock reported on the OTC Bulletin Board, or, if prices for the
 Common Stock are not quoted on the OTC Bulletin Board, the average of the
 highest bid and lowest ask prices reported on any other bona fide over-
 the-counter stock market selected in good faith by the Committee;
 provided, however, if the date on which "Fair Market Value" is to be
 determined is not a business day, or, if there shall be no reported
 transactions for such date, such determination shall be made on the next
 preceding business day for which transactions were reported, or

          (b)  if the Committee determines that the amount determined
 pursuant to (a) is not indicative of the market value of the Common Stock
 because of limited or sporadic trading of the Common Stock and the lack of
                                 -2-
<PAGE>
 recent quotations for the Common Stock on the OTC Bulletin Board, then
 such amount as may be determined by the Committee by whatever means or
 method as the Committee, in the good faith exercise of its discretion,
 shall at such time deem appropriate and representative of the fair market
 value of the Common Stock.

     Section 2.13.  "OPTION" means an option to purchase Shares awarded
 pursuant to the provisions of Section 6 and which is intended to meet the
 requirements of an "incentive stock option" within the meaning of Section
 422 of the Code.

     Section 2.14.  "OPTION AGREEMENT" means the written document which
 evidences an award of Options, whether or not such document requires the
 signature of the Optionee.

     Section 2.15.  "OPTIONEE" means an eligible employee, as determined in
 accordance with Section 5, who has been granted an Option.

     Section 2.16.  "OPTION PRICE" means, with respect to each Option, the
 price per Share at which such Option may be exercised and the Shares
 subject to such Option purchased.

     Section 2.17.  "PLAN" means the PSB Holdings, Inc. 2001 Stock Option
 Plan as set forth herein or as hereafter amended.

     Section 2.18.  "SHARE" means a share of Common Stock.

     Section 2.19.  "SUBSIDIARY" means any corporation, partnership, or
 other entity in which the Company owns, directly or indirectly, at least a
 50% interest in the voting rights or profits.

     Section 2.20.  "TERMINATION OF EMPLOYMENT" means the termination of an
 Optionee's employment with, or performance of services for, the Company
 and any of its Subsidiaries.  An Optionee employed by, or performing
 services for, a Subsidiary shall also be deemed to incur a Termination of
 Employment if the Subsidiary ceases to be such a Subsidiary and the
 Optionee does not immediately thereafter become an employee of the Company
 or another Subsidiary.  Temporary absences from employment because of
 illness, vacation, or leave of absence and transfers among the Company and
 its Subsidiaries shall not be considered Terminations of Employment.  For
 purposes of the Plan, an Optionee's employment shall be deemed to have
 terminated at the close of business on the day preceding the first date on
 which he or she is no longer for any reason whatsoever employed by the
 Company or any of its Subsidiaries.
                                 -3-
     SECTION 3.  NUMBER OF SHARES AVAILABLE FOR OPTIONS.

     Section 3.1  SHARES SUBJECT.  The aggregate number of Shares which may
 be delivered under Options awarded pursuant to the Plan shall be 15,000.

     Section 3.2  UNDELIVERED SHARES.  To the extent any Shares subject to
 an Option are not delivered to an Optionee (or the estate or other
 transferee of such Optionee) because the Option is forfeited, expires, or
 otherwise becomes unexercisable such Shares shall be deemed not to have
 been delivered for purposes of determining the maximum number of Shares
 available for delivery under the Plan.
<PAGE>
     Section 3.3  EXERCISE USING SHARES.  If the Option Price of any Option
 awarded under the Plan is satisfied by tendering Shares to the Company
 only the number of Shares issued to the Optionee (or the estate or other
 transferee of such Optionee), net of the Shares tendered, shall be deemed
 delivered for purposes of determining the maximum number of Shares
 available for delivery under the Plan.

     Section 3.4  STOCK DIVIDENDS, ETC.   If the Company shall, after the
 Effective Date, change the Common Stock into a greater or lesser number of
 Shares through a stock dividend, stock split-up or combination of Shares,
 then (a) the number of Shares then subject to the Plan as provided for in
 Section 3.1, but which are not then subject to any outstanding Option, (b)
 the number of Shares subject to each then outstanding Option (to the
 extent not previously exercised), and (c) the price per Share payable upon
 exercise of each then outstanding Option, shall all be proportionately
 increased or decreased as of the record date for such stock dividend,
 stock split-up or combination of Shares in order to give effect thereto.
 Notwithstanding any such proportionate increase or decrease, no fraction
 of a Share shall be issued upon the exercise of an Option and the Shares
 subject to an Option shall be rounded to the nearest whole Share.

     Section 3.5  OTHER CHANGES.  If, after the Effective Date, there shall
 be any change in the Common Stock or other change in the capitalization of
 the Company other than through a stock dividend, stock split-up or
 combination of Shares, including, but not limited to, a change which
 results from a merger, consolidation, spin-off, or other distribution of
 stock or property of the Company, any reorganization (whether or not such
 reorganization is within the meaning of Section 368 of the Code), or any
 partial or complete liquidation of the Company, then if, and only if, the
 Committee shall determine that such change equitably requires an
 adjustment in (a) the number or kind of shares of stock then reserved for
 issuance under Section 3.1, (b) the number or kind of shares of stock then
 subject to an Option, (c) the Option Price with respect to an Option, or
 (d) any other limitation on the Option which may be granted to any
 participant, to the extent such adjustment does not cause any Option to
 fail to satisfy the requirements for exemption from the limitations on
 deductibility imposed by Section 162(m) of the Code that is set forth in
 Section 162(m)(4)(c) of the Code if such Option would have satisfied such
                                 -4-
 requirements immediately prior to such adjustment and if such Option, if
 then exercised, would, when added to the Optionee's estimated compensation
 from the Company and all Subsidiaries for such year, exceed the
 deductibility limits of Section 162(m) of the Code, such adjustment as the
 Committee shall determine is equitable and as shall be approved by the
 Board shall be made and shall be effective and binding for all purposes of
 such Option and the Plan.  If any member of the Committee shall, at the
 time of such approval, be an Optionee, he shall not participate in action
 in connection with such adjustment.

     SECTION 4.  ADMINISTRATION OF THE PLAN.

     Section 4.1  COMMITTEE.  The Plan shall be administered by the
 Committee.  The Committee shall, subject to the terms of the Plan, have
 the authority to, in its sole discretion, (a) select eligible employees to
 receive an award of one or more Options and to participate in the Plan,
 (b) determine the number of Shares subject to each award and the Option
<PAGE>
 Price associated therewith, (c) establish terms and conditions concerning
 the time of, and conditions precedent to, the exercisability of each
 Option (including, without limitation, conditions with respect to the
 passage of time, performance of the Company, or a Subsidiary, or the
 Optionee, restrictions on competitive employment or satisfaction of
 Company policies, and any other conditions which the Committee deems
 reasonably related to the satisfaction of the purposes of the Plan), (d)
 determine the form of each Option Agreement and all terms and conditions
 thereof with respect to each award, (e) interpret the Plan and the
 application thereof and establish such rules and regulations as it deems
 necessary or desirable for the administration of the Plan, (f) modify or
 cancel any award or Option or take such action to cause the vesting or
 exercisability of any or all outstanding Options to become exercisable in
 part or in full for any reason at any time, subject to the limitation of
 Section 8.1, and (g) exercise such other authority as is reasonably
 related to the administration of and/or the fulfillment of the purpose of
 the Plan.  All actions, interpretations, rules, regulations and conditions
 taken or established by the Committee shall be final, binding and
 conclusive upon the Company, each Subsidiary, and all Optionees.

     Section 4.2  MEMBERSHIP OF THE COMMITTEE.

          (a)  MEMBERSHIP QUALIFICATIONS.  Except as provided in this
 Section 4.2, at all times the Committee shall consist of not less than
 three members designated by the Board from among those of its members who
 are not officers or employees of the Company or a Subsidiary and each of
 whom is (a) a "non-employee director" within the meaning of Rule 16b-3
 under the Exchange Act (a "Non-Employee Director") and (b) an "outside
 director" within the meaning of Section 162(m) of the Code (an "Outside
 Director"); provided, however, that in addition to the Board's general
 authority to amend the Plan as provided for in Section 9.1, the Board
 shall have the specific authority to modify or eliminate the foregoing
                                 -5-
 qualifications or adopt such other qualifications as are reasonably
 intended to result in (x) the award of Options, and transactions with
 respect to the award or exercise of such Options, satisfying an exemption
 from Section 16(b) of the Exchange Act, or any successor thereto, and (y)
 compensation recognized by Optionees qualifying as a deductible expense of
 the Company under the "performance-based compensation" exception to
 compensation deduction limits which would otherwise be imposed on the
 Company under Section 162(m) of the Code.

          (b)  APPOINTMENT OF OTHER MEMBERS.  In the event that one or more
 members of the Committee shall fail to meet the qualifications set forth
 in Section 4.2(a), the Board shall remove such member or members and
 appoint a successor or successors who satisfy such qualifications.  The
 Board shall act in a reasonably prompt manner to fill any vacancy on the
 Committee from among such of its members who are both Non-Employee
 Directors and Outside Directors.

          (c)  VALIDITY OF GRANTS.  Notwithstanding the qualifications for
 members of the Committee established in Section 4.2(a), any award of
 Options made by the Committee in good faith and without the knowledge that
 one or more of its members did not satisfy such qualifications, shall be
 valid and enforceable by the Optionee even though the members of the
 Committee did not, at the time of such award, satisfy such qualifications.
<PAGE>
     Section 4.3  ACTIONS BY THE COMMITTEE.  A majority of the members of
 the Committee shall constitute a quorum.  In the absence of specific rules
 to the contrary, action by the Committee shall require the consent of a
 majority of the members of the Committee, expressed either orally at a
 meeting of the Committee or in writing in the absence of a meeting.

     Section 4.4  ACTIONS BY THE BOARD.  Any authority granted to the
 Committee may also be exercised by the full Board, except to the extent
 that the grant or exercise of such authority would cause any Option or
 transaction to become subject to (or lose an exemption under) the short-
 swing profit recovery provisions of Section 16 of the Exchange Act or
 cause an Option not to qualify for, or to cease to qualify for, the
 exemption as "performance-based compensation" under Section 162 of the
 Code, and the regulations promulgated thereunder. To the extent that any
 permitted action taken by the Board conflicts with action taken by the
 Committee, the Board action shall control.

     Section 4.5  LIMITATION ON LIABILITY AND INDEMNIFICATION OF BOARD.  No
 member of the Board, no executive officer or other employee of the
 Company, and no other agent or representative of the Company shall be
 liable for any act, omission, interpretation, construction, or
 determination made in connection with the Plan in good faith, and all such
 persons shall be entitled to indemnification and reimbursement by the
                                 -6-
 Company in respect of any claim, loss, damage, or expense (including
 attorneys fees) arising therefrom to the full extent permitted by law,
 except as otherwise may be provided in the Company's articles of
 incorporation and/or by-laws, and under any directors' and officers'
 liability insurance that may be in effect from time to time.

     SECTION 5.  PERSONS ELIGIBLE TO BECOME OPTIONEES.  Persons who are (a)
 key salaried employees of the Company or any Subsidiary or (b) prospective
 key salaried employees who have accepted offers of employment from the
 Company or a Subsidiary shall be eligible to be selected, in the sole
 discretion of the Committee, to participate in, and receive an award of
 one or more Options pursuant to the Plan.

     SECTION 6.  AWARDING OF OPTIONS.

     Section 6.1  OPTIONEES.  Subject to the limitations of Section 5,
 Options shall be awarded to such eligible employees of the Company and its
 Subsidiaries as the Committee may, from time to time and at any time,
 select.  Membership of an employee or prospective employee in a class
 shall not, without specific Committee action, entitle such employee or
 prospective employee to receive an Option award.

     Section 6.2  OPTION AGREEMENT.  Each Option shall be evidenced by an
 Option Agreement, the terms of which may differ from other Option
 Agreements.  Each Option Agreement shall be signed on behalf of the
 Company and, if so provided by the Committee, the Optionee, and shall set
 forth with respect to the Option or Options awarded therein, the name of
 the Optionee, the date awarded, the Option Price, the number of Shares
 subject to the Option, and such other terms and conditions consistent with
 the Plan as determined by the Committee.  The Committee may at the time of
 award or at any time thereafter impose such additional terms and
 conditions on the exercise of such Option as it deems necessary or
<PAGE>
 desirable for such Option, or the exercise thereof, to be exempt under
 Section 16(b) of the Exchange Act, and the regulations promulgated
 thereunder, and to qualify as "performance-based compensation" under
 Section 162 of the Code, and the regulations promulgated thereunder.  Each
 Option Agreement shall incorporate by reference all terms, conditions and
 limitations set forth in the Plan.

     Section 6.3  TERMS AND CONDITIONS OF THE OPTIONS.  In addition to any
 other terms, conditions, and limitations specified in the Plan, each
 Option awarded hereunder shall, as to each Optionee, satisfy the following
 requirements:

          (a)  DATE OF AWARD.  Options must be awarded on or before
 February 19, 2011.

          (b)  EXPIRATION.  No Option shall be exercisable after the
 expiration of ten years from the date such Option is awarded.
                                 -7-
          (c)  PRICE.  The Option Price as to any Share subject to an
 Option may not be less than the Fair Market Value of the Share on the date
 the Option is awarded.

          (d)  LIMITATIONS ON TRANSFERABILITY.  No Option shall be
 transferable by the Optionee other than by will or the laws of descent and
 distribution, nor can it be exercised by anyone other than the Optionee
 during the Optionee's lifetime.  No Option may be sold, transferred,
 assigned, pledged, hypothecated, encumbered, or otherwise disposed of
 (whether by operation of law or otherwise), or be subject to execution,
 attachment, or similar process.  Upon any attempt to so sell, transfer,
 assign, pledge, hypothecate, encumber, or otherwise dispose of any such
 award, such award and all rights thereunder shall immediately become null
 and void.

          (e)  EXERCISE.  Except as otherwise permitted by the Committee,
 options must be exercised in accordance with the following time
 limitations:

               (i)  TERMINATION BY DEATH.  If an Optionee incurs a
 Termination of Employment by reason of death, any Option held by such
 Optionee may thereafter be exercised, to the extent then exercisable, for
 a period of one year from the date of such death or until the expiration
 of the stated term of such Option, whichever period is shorter.

               (ii)  TERMINATION BY REASON OF DISABILITY.  If an Optionee
 incurs a Termination of Employment by reason of Disability, any Option
 held by such Optionee may thereafter be exercised by the Optionee (or the
 estate of the Optionee in the event of death), to the extent it was
 exercisable at the time of such Termination of Employment, for a period of
 one year.

               (iii)  OTHER TERMINATION.  Unless otherwise determined by
 the Committee, if the Optionee incurs a Termination of Service for Cause,
 all Options then held by such Optionee shall terminate and may not be
 exercised from and after the effective date of such Termination of
 Service.  If an Optionee incurs a Termination of Service for any reason
 other than death, Disability, or Cause, any Option then held by the
<PAGE>
 Optionee, to the extent it was exercisable on the date of such Termination
 of Service, may be exercised for a period of three months from the date of
 such Termination of Service or until the expiration of the stated term of
 such Option, whichever period is shorter.

               (IV)  DEATH AFTER TERMINATION.  If the Optionee dies
 subsequent to a Termination of Service for any reason other than Cause
 (unless otherwise determined by the Committee in the event of Termination
 of Service for Cause), then, notwithstanding any other limitation on the
 exercise of the Optionee's Option set forth in subparagraphs (i), (ii) or
                                 -8-
(iii), any Option held by such Optionee on the Optionee's date of death
 may thereafter be exercised, to the extent it was exercisable on such
 date, for a period of one year from the date of death or until the
 expiration of the stated term of such Option, whichever period is shorter.

          (f)  MINIMUM HOLDING PERIOD.  No Option may be exercised before
 the date which is six months after the later of (i) the date on which the
 Plan is approved by the shareholders of the Company, or (ii) the date on
 which such Option was awarded.

          (g)  ADDITIONAL RESTRICTIONS RELATING TO OPTIONS.  No Option may
 be awarded (i) to the extent that the aggregate Fair Market Value
 (determined as of the time the Option is awarded) of the Shares for which
 Options are exercisable for the first time by an individual during any
 calendar year (under the Plan or any other plan of the Company or a
 Subsidiary) exceeds $100,000 (or such other individual limit as may be in
 effect under the Code on the date of award) and (ii) to an employee who,
 at the time such Option is awarded, owns stock possessing more than 10% of
 the total combined voting power of all classes of stock of the Company or
 any Subsidiary within the meaning of Section 422(b)(6) of the Code unless
 (A) at the time the Option is awarded, the Option Price is at least 110%
 of the Fair Market Value of the Shares subject to the Option, and (B) such
 Option by its terms is not exercisable after the expiration of five years
 from the date such Option is awarded.

          (h)  LIMITATION ON OPTION AWARDS.  No Optionee may be awarded
 Options under the Plan in any calendar year with respect to more than
 2,500 Shares.

     Section 6.4  TERMINATION OR LAPSE OF OPTIONS.  Each Option shall
 terminate or lapse upon the first to occur of (a) the expiration date or
 any date as of which the Option is deemed to be forfeited as set forth in
 the applicable Option Agreement, (b) the applicable date determined by
 Section 6.3(b), or (c) midnight of the last day such Option could be
 exercised under Section 6.3(e).

     SECTION 7.  EXERCISE AND PAYMENT OF OPTION PRICE.

     Section 7.1  EXERCISE OF OPTIONS.  Options shall be exercised as to
 all or a portion of the Shares subject to the Option by written notice to
 the Company setting forth the exact number of Shares as to which the
 Option is being exercised and including with such notice payment of the
 Option Price (plus the minimum required tax withholding, if any).  The
 date of exercise shall be the date such written notice and payment have
 been delivered (in cash or in such other manner as provided in Section
<PAGE>
 7.2) to the Secretary of the Company either in person or by depositing
 said notice and payment in the United States mail, postage pre-paid and
 addressed to such officer at the Company's home office.
                                 -9-
     Section 7.2  PAYMENT FOR SHARES.  Payment of the Option Price (plus
 required tax withholding, if any) may be made (a) by tendering cash (in
 the form of a check or otherwise) in such amount or (b) with the consent
 of the Committee, and if authorized in the Option Agreement, by tendering
 Shares owned by the Optionee with a Fair Market Value on the date of
 exercise equal to such amount or (c) any combination of (a) and (b);
 provided, however, that any Shares delivered in payment of the Option
 Price shall have been purchased on the open market and held by the
 Optionee for at least six months at the time of exercise of the Option.

     Section 7.3  TAX WITHHOLDING. Although the Options are intended to
 qualify as incentive stock options under Sections 422 of the Code, the
 delivery of Shares under the Plan is subject to withholding of all
 applicable taxes, and the Committee may condition the delivery of any
 Shares or other benefits on satisfaction of applicable withholding
 obligations.

     Section 7.4  ISSUANCE OF SHARES.  No Shares shall be issued until full
 payment therefor has been made.  An Optionee shall have all of the rights
 of a shareholder of the Company holding the Common Stock that is subject
 to such Option (including, if applicable, the right to vote the Shares and
 the right to receive dividends), when the Optionee has given written
 notice of exercise, has paid in full for such Shares and, if requested,
 has given the representation described in Section 11.

     SECTION 8.  CHANGE IN CONTROL.

 Section 8.1  ADJUSTMENT OF OPTIONS.

          (a)  VESTING AND CASH PAYMENT.  In the event of a Change in
 Control,

               (i)  all Options outstanding on the date on which such
 Change in Control has occurred (the "Change in Control Date") shall, to
 the extent not then exercisable or vested, immediately become exercisable
 in full, and

               (ii)  each Optionee may elect (the Optionee's "Election
 Right") with respect to each Option held by such Optionee on the Change in
 Control Date to surrender such Option for an immediate lump sum cash
 payment in an amount equal to the product of (A) the number of Shares then
 subject to the Option as to which the election is being exercised
 multiplied by (B) the excess, if any, of (1) the greater of (a) the Change
 in Control Price or (b) the highest Fair Market Value of a Share on any
 day in the 60-day period ending on the Change in Control Date, over (2)
 the Option Price of such Option.  For purposes of this Section 8.1(a), the
 "Change in Control Price" shall mean, if the Change in Control is the
 result of a tender or exchange offer or a Corporate Transaction (as
 defined in Section 8.2(c)), the highest price per Share paid in such
                                 -10-
 tender or exchange offer or Corporate Transaction, and, to the extent that
<PAGE>
 the consideration paid in any such transaction consists all or in part of
 securities or other noncash consideration, the value of such securities or
 other noncash consideration shall be determined in the sole discretion of
 the Committee.

          (b)  ELECTION.  The exercise of an Election Right must be in
 writing, specify the  Option or Options and the number of Shares as to
 which the election is being exercised, and be delivered to the Secretary
 of the Company or his successor either in person or by depositing said
 notice and payment in the United States mail, postage pre-paid and
 addressed to such officer at the home office of the Company or its
 successor on or before the 60th day following the Change in Control Date.

          (c)  PAYMENT DATE.  All payments due an Optionee pursuant to the
 provisions of this Section 8.1 shall be made by the Company or its
 successor on or before the 5th business day following the date on which
 the Optionee's election has been delivered pursuant to Section 8.1(b).

          (d)  POOLING CONSIDERATIONS.  Notwithstanding any other provision
 of this Section 8.1, if the grant or the exercise of an Optionee's
 Election Right or payment of cash provided for in this Section 8.1 would
 make a Change in Control transaction ineligible for pooling-of-interests
 accounting treatment under APB No. 16, that, but for the nature of such
 grant or exercise of Election Rights or payment of cash, would otherwise
 be eligible for such pooling-of-interests accounting treatment, the
 Committee shall have the right and authority to substitute for the cash
 payments to be made to the Optionee pursuant to Section 8.1(a), Common
 Stock with a Fair Market Value, determined as of the date of delivery of
 such Shares, equal to the cash that would otherwise be payable to such
 Optionee in connection with the exercise of an Optionee's Election Right
 hereunder or, to the extent necessary to preserve such pooling-of-
 interests accounting treatment, to otherwise modify, eliminate, or
 terminate such Election Right.

     Section 8.2  DEFINITION OF "CHANGE IN CONTROL."  For purposes of the
 Plan, a "Change in Control" means the happening of any of the following
 events:

          (a)  The acquisition by any individual, entity or group (within
 the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
 "Person") of beneficial ownership (within the meaning of Rule 13d-3
 promulgated under the Exchange Act) of 20% or more of either (i) the then
 outstanding shares of common stock of the Company (the "Outstanding
 Company Common Stock") or (ii) the combined voting power of the then
 outstanding voting securities of the Company entitled to vote generally in
 the election of directors (the "Outstanding Company Voting Securities");
 provided, however, that for purposes of this paragraph (a), the following
                                 -11-
 acquisitions shall not constitute a Change in Control: (A) any acquisition
 directly from the Company other than an acquisition by virtue of the
 exercise of a conversion privilege unless the security being so converted
 was itself acquired directly from the Company, (B) any acquisition by the
 Company, (C) any acquisition by any employee benefit plan (or related
 trust) sponsored or maintained by the Company or any entity controlled by
 the Company, and (D) any acquisition pursuant to a transaction which
 complies with clauses (i), (ii), and (iii) of paragraph (c) of this
 Section 8.2; or
<PAGE>
          (b)  A change in the composition of the Board such that the
 individuals who, as of the Effective Date, constitute the Board (such
 Board shall be hereinafter referred to as the "Incumbent Board") cease for
 any reason to constitute at least a majority of the Board; provided,
 however, for purposes of the Plan, that any individual who becomes a
 member of the Board subsequent to the Effective Date whose election, or
 nomination for election by the Company's shareholders, was approved by a
 vote of at least a majority of those individuals who are members of the
 Board and who were also members of the Incumbent Board (or deemed to be
 such pursuant to this proviso) shall be deemed to be and shall be
 considered as though such individual were a member of the Incumbent Board,
 but provided, further, that any such individual whose initial assumption
 of office occurs as a result of either an actual or threatened election
 contest (as such terms are used in Rule 14a-11 of Regulation 14A
 promulgated under the Exchange Act) or other actual or threatened
 solicitation of proxies or consents by or on behalf of a Person other than
 the Board shall not be so deemed or considered as a member of the
 Incumbent Board; or

          (c)  Consummation of a reorganization, merger or consolidation,
 or sale or other disposition of all or substantially all of the assets of
 the Company or the acquisition of the assets or securities of any other
 entity (a "Corporate Transaction"); excluding, however, such a Corporate
 Transaction pursuant to which (i) all or substantially all of the
 individuals and entities who are the beneficial owners, respectively, of
 the Outstanding Company Common Stock and Outstanding Company Voting
 Securities immediately prior to such Corporate Transaction will
 beneficially own, directly or indirectly, more than 60% of, respectively,
 the outstanding shares of common stock and the combined voting power of
 the then outstanding voting securities entitled to vote generally in the
 election of directors, as the case may be, of the corporation resulting
 from such Corporate Transaction (including, without limitation, a
 corporation which as a result of such transaction owns the Company or all
 or substantially all of the Company's assets either directly or through
 one or more subsidiaries) (the "Resulting Company") in substantially the
 same proportions as their ownership, immediately prior to such Corporate
 Transaction, of the Outstanding Company Common Stock and Outstanding
 Company Voting Securities, as the case may be, (ii) no Person (other than
 the Company, any employee benefit plan (or related trust) of the Company)
 will beneficially own, directly or indirectly, 20% or more of,
                                 -12-
 respectively, the outstanding shares of common stock of the Resulting
 Company or the combined voting power of the then outstanding voting
 securities of such Resulting Company entitled to vote generally in the
 election of directors except to the extent that such ownership existed
 with respect to the Company prior to the Corporate Transaction, and (iii)
 individuals who were members of the Incumbent Board will constitute at
 least a majority of the members of the board of directors of the Resulting
 Company; or

          (d)  The approval by the shareholders of the Company of a
 complete liquidation or dissolution of the Company.

     SECTION 9.  AMENDMENT AND TERMINATION OF PLAN.

     Section 9.1  AMENDMENT OF PLAN.  The Board may amend the Plan from
 time to time and at any time; provided, however, that (a) except as
<PAGE>
 specifically provide herein, no amendment shall, in the absence of written
 consent to the change by an affected Optionee, adversely affect such
 Optionee's rights under any Option which has been awarded prior to the
 amendment except to the extent such amendment is, in the sole opinion of
 the Committee, required to comply with any stock exchange or over-the-
 counter market listing rules, accounting rules, or laws applicable to the
 Company or the Plan, (b) no amendment with respect to the maximum number
 of Shares which may be issued pursuant to Options under the Plan or to any
 individual in any calendar year made be made unless approved by a majority
 of the Shares entitled to vote at a meeting of the shareholders if such
 amendment would, in the absence of such approval and in the sole opinion
 of the Committee, have an adverse effect on the Company under applicable
 tax or securities laws or accounting rules, and (c) no amendment shall be
 made without the approval of the Company's shareholders to the extent such
 approval is required by applicable law or stock exchange or over-the-
 counter market listing rules.

     Section 9.2  TERMINATION OF PLAN.  The Plan shall terminate on the
 first to occur of (a) February 19, 2011 or (b) the date specified by the
 Board as the effective date of Plan termination; provided, however, that
 the termination of the Plan shall not limit or otherwise affect any
 Options outstanding on the date of termination.

     SECTION 10.  EFFECTIVE DATE.  Notwithstanding any provision of this
 Plan to the contrary, the Plan shall not be effective, and any Options
 awarded under the Plan shall be null and void, unless the adoption of the
 Plan is approved at the annual meeting of the Company's shareholders next
 following the Effective Date by the majority of the shares entitled to
 vote at such meeting.

     SECTION 11.  INVESTMENT INTENT.  The Committee may require each person
 purchasing or receiving Shares pursuant to an Option to represent to and
 agree with the Company in writing that such person is acquiring the Shares
                                 -13-
 without a view to the distribution thereof.  The certificates for such
 Shares may include any legend which the Committee deems appropriate to
 reflect any restrictions on transfer imposed in connection with the
 Company's compliance with any securities law.

     SECTION 12.  AVAILABILITY OF INFORMATION.  If the Shares subject to an
 Option are not registered or to be registered under the Securities Act of
 1933 as amended, the Company shall furnish each Optionee with (a) a copy
 of the Plan and the Company's most recent annual report to its
 shareholders at the time the Option Agreement is delivered to the Optionee
 and (b) a copy of each subsequent annual report and proxy statement, on or
 about the same date as such report shall be made available to shareholders
 of the Company.  The Company will furnish, upon written request addressed
 to the Secretary of the Company, but at no charge to the Optionee or any
 duly authorized representative of the Optionee, copies of all reports
 filed by the Company with the Securities and Exchange Commission,
 including, but not limited to, the Company's annual reports on Form 10-K,
 its quarterly reports on Form 10-Q, and its proxy statements.
 Notwithstanding the foregoing provisions of this Section 12, the Company
 shall not be required to furnish any such report or statement if a copy of
 such report is otherwise provided to the Optionee in connection with
 another plan maintained by the Company or such Optionee's status as a
 shareholder of the Company or if, by virtue of such Optionee's employment
<PAGE>
 or office with the Company or a Subsidiary, the Optionee has received such
 report or statement.

     SECTION 13.  LIMITATION OF RIGHTS.

          (a)  CONDITIONS OF EMPLOYMENT.  The Plan shall not constitute a
 contract of employment, and participation in or eligibility for
 participation in the Plan shall not confer upon any employee the right to
 be continued as an employee of the Company or any present or future
 Subsidiary and the Company and each Subsidiary hereby expressly reserves
 the right to terminate the employment of any employee, with or without
 cause, as if the Plan and any Options awarded pursuant to it were not in
 effect.

          (b)  COMPANY ASSETS.  Neither an Optionee nor any other person
 shall, by reason of receiving an award of an Option under the Plan acquire
 any right, title, or interest in any assets of the Company or any
 Subsidiary by reason of such Option or the Plan.  To the extent an
 Optionee or any other person shall acquire a right to receive payments
 from the Company pursuant to an Option Agreement or the Plan, such right
 shall be no greater than the right of any unsecured general creditor of
 the Company.

          (c)  ISSUANCE OF SHARES.  Notwithstanding any other provision of
 the Plan or agreements made pursuant thereto, the Company shall not be
 required to issue or deliver any certificate or certificates for Shares
                                 -14-
 under the Plan prior to fulfillment of all of the following conditions:

               (i)  Listing or approval for listing upon notice of
 issuance, of such Shares on the exchange or over-the-counter market as may
 at the time be the principal market for the Common Stock;

               (ii)  Any registration or other qualification of the Shares
 under any state or federal law or regulation, or the maintaining in effect
 of any such registration or other qualification which the Committee shall,
 in its absolute discretion upon the advice of counsel, deem necessary or
 advisable; and

               (iii)  Obtaining any other consent, approval, or permit from
 any state or federal governmental agency which the Committee shall, in its
 absolute discretion after receiving the advice of counsel, determine to be
 necessary or advisable.

     SECTION 14.  COMPLIANCE WITH APPLICABLE LAWS.  If at any time the
 Company shall be advised by its counsel that the exercise of any Option or
 the delivery of Shares upon the exercise of an Option is required to be
 approved, listed, registered or qualified under any securities law, that
 certain actions must be taken under the rules of any stock exchange or
 over-the-counter market, that such exercise or delivery must be
 accompanied or preceded by a prospectus or similar circular meeting the
 requirements of any applicable law, or that some other action is required
 to be taken by the Company in compliance with applicable law, the Company
 will use reasonable efforts to take all actions required within a
 reasonable time, but exercise of the Options or delivery by the Company of
 certificates for Shares may be deferred until the Company shall be in
 compliance with all such requirements.
<PAGE>
     SECTION 15.  GOVERNING LAW.  The Plan, each Option and related Option
 Agreement and all determinations made and actions taken pursuant thereto,
 to the extent not otherwise governed by the Code or the laws of the United
 States, shall be governed by the internal laws of the State of Wisconsin
 and construed in accordance therewith without giving effect to the
 principles of conflicts of laws applied by any state.

     IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
 its duly authorized officers as of March 19, 2001.

                                   PSB HOLDINGS, INC.

                                   By:  DAVID K. KOPPERUD
                                        David K. Kopperud
                                        President
                                 -15-

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