Document:

Exhibit
      10.2

    

    SECOND
      AMENDED AND RESTATED

    SECURITY
      AGREEMENT

    

    THIS
      SECURITY AGREEMENT (this “Agreement”)
      is
      dated as of December 10, 2001, and amended and restated as of October 25, 2006
      (the “Restatement
      Date”),
      by
      and between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Borrower”),
      and
      PHARMABIO DEVELOPMENT INC., a North Carolina corporation, d/b/a NovaQuest
      (“Lender”).

    

    WHEREAS,
      Borrower and Lender previously entered into that certain Security Agreement
      dated as of December 10, 2001 (the “Original
      Security Agreement”),
      and
      amended and restated by the Amended and Restated Security Agreement dated as
      of
      November 3, 2004 (the “Amended
      and Restated Security Agreement”);

    

    WHEREAS,
      Borrower and Lender wish to amend and restate the Amended and Restated Agreement
      in its entirety as set forth in this Agreement;

    

    WHEREAS,
      Borrower and Lender are parties to the Loan Agreement dated as of December
      10,
      2001, as amended and restated as of November 3, 2004, and further amended and
      restated as of the date hereof (as amended, modified or supplemented from time
      to time, the “Loan
      Agreement”),
      pursuant to which, among other things, Borrower is delivering to Lender the
      Note
      (as defined in the Loan Agreement); and

    

    WHEREAS,
      it is a condition precedent to the performance of Lender under the Loan
      Agreement that Borrower enter into this Agreement; 

    

    NOW,
      THEREFORE, in consideration of the benefits to Borrower, and for other good
      and
      valuable consideration, the receipt and legal sufficiency of which are hereby
      acknowledged, the parties hereby amend and restate the Amended and Restated
      Security Agreement in its entirety and hereby agree as follows:

    

    1. Definitions.
      The
      following terms, as used in this Agreement, shall have the following
      meanings:

    

    “Cash
      Proceeds”; “Certificated Securities”; “Chattel Paper”; “Consumer Goods”;
“Commercial Tort Claims”; “Commodity Accounts”; “Commodity Contracts”; “Deposit
      Accounts”; “Documents”; “Electronic Chattel Paper”; “Equipment”; “Financial
      Assets”; “Fixtures”; “General Intangibles”; “Goods”; “Instruments”; “Inventory”;
“Investment Property”; “Letter-of-Credit Rights”; “Letters-of-Credit”;
“Negotiable Instruments”; “Noncash Proceeds”; “Payment Intangibles”; Promissory
      Notes”; Securities”; Securities Accounts”; “Securities Entitlements”; Software”;
“Tangible Chattel Paper” and “Uncertificated Securities” shall each have the
      meaning set forth in the UCC.

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Collateral”
      shall mean all right, title and interest of Borrower in, to and under any and
      all of the following, whether now existing or hereafter existing or acquired
      from time to time: (i) any and all Certificated Securities, Chattel Paper,
      Consumer Goods, Contracts, Contract Rights, Commercial Tort Claims, Commodity
      Accounts, Commodity Contracts, Data, Deposit Accounts, Documents, Electronic
      Chattel Paper, Equipment, Financial Assets, Fixtures, General Intangibles,
      Goods, Instruments, Intellectual Property, Inventory, Investment Property,
      Letter-of-Credit Rights, Letters-of-Credit, Marketing Materials, monies,
      Negotiable Instruments, Payment Intangibles, Promissory Notes, Product
      Registrations, Receivables, Records, Securities, Securities Accounts, Securities
      Entitlements, Software, Tangible Chattel Paper and Uncertificated Securities;
      (ii) to the extent not covered by clause (i) of this definition, all other
      personal property, whether tangible or intangible, and (iii) any and all
      Proceeds, including Cash Proceeds and Noncash Proceeds, of any and all of the
      foregoing;
      provided,
      however,
      for the
      purposes of this Agreement, the term “Collateral” shall not include, and
      Borrower shall not be deemed to have granted a security interest in, any of
      Borrower’s rights or interests in (i) any property or equipment acquired by
      Borrower pursuant to transactions described in Sections 6.04(d) and 6.04(e)
      of
      the Loan Agreement; provided, that immediately upon the lapse or termination
      of
      any Permitted Lien on such property or equipment, the Collateral shall include,
      and Borrower shall be deemed to have granted a security interest in, all such
      property and equipment, or (ii) any license Contract or agreement to which
      Borrower is a party or any of its rights or interests thereunder to the extent,
      but only to the extent, that such a grant would, under the terms of such
      license, Contract or agreement or otherwise, result in a breach of the terms
      of,
      or constitute a default under any license, Contract or agreement to which
      Borrower is a party (other than to the extent that any such term would be
      rendered ineffective pursuant to the UCC or any other applicable law (including
      the Bankruptcy Code, 11 U.S.C. Sec. 362(a)) or principles of equity); provided,
      that immediately upon the ineffectiveness, lapse or termination of any such
      provision, the Collateral shall include, and Borrower shall be deemed to have
      granted a security interest in, all such rights and interests as if such
      provision had never been in effect.

    

    “Contracts”
      shall mean all contracts, agreements, commitments, understandings and
      arrangements (including without limitation the Sublicense and any other license
      agreement) between Borrower and one or more other parties, or under or with
      respect to which Borrower has rights, including, without limitation, those
      listed on Schedule
      3(e)(ii)
      and
Schedule
      3(e)(iii)
      attached
      hereto.

    

    “Contract
      Rights” shall mean all rights of Borrower (including, without limitation, all
      rights to payment or property) under any Contract.

    

    “Copyrights”
      shall mean, collectively, all copyrights (whether such copyrights are statutory
      or common law, whether established or registered in the United States or any
      other country or any political subdivision thereof, whether registered or
      unregistered and whether published or unpublished) and all copyright
      registrations and applications, and in each case, whether now owned or hereafter
      created or acquired, together with any and all (i) rights and privileges
      arising under applicable law with respect to the use of such copyrights,
      (ii) reissues, renewals, continuations and extensions thereof, (iii)
      income, fees, royalties, damages, claims and payments now or hereafter due
      or
      payable with respect thereto, including, without limitation, damages and
      payments for past, present or future infringements thereof, (iv) rights
      corresponding thereto throughout the world and (v) rights to sue for past,
      present or future infringements thereof.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Data”
      shall mean any and all preclinical, clinical and manufacturing data or results
      and other similar data.

    

    “Governmental
      Authority” means any federal, state, local or foreign court or governmental
      agency, authority, instrumentality or regulatory body, including any central
      bank.

    

    “IND”
      shall mean an “investigational new drug application,” as such term is defined
      under the FFDCA.

    

    “Intellectual
      Property” shall mean all intellectual property, proprietary rights and similar
      property or rights of every kind and nature now owned or hereafter acquired,
      including, without limitation, Patents,
      Trademarks, Copyrights, domain names, trade
      secrets and trade secret rights, inventions, designs, confidential or
      proprietary technical and business information, Know-How, show-how or other
      data
      or information, software and databases and all embodiments or fixations thereof
      and related documentation, registrations and franchises, and all additions,
      improvements and accessions to, and books and records describing or used in
      connection with, any of the foregoing; provided, however, that “Intellectual
      Property” shall not include any “shrink-wrap” or “off-the-shelf” software,
      operating programs and “office suites” used by Borrower in its internal
      operations and which is generally commercially available.

    

    “Know-How”
      shall mean all know-how and other information, including, without limitation,
      ideas, discoveries, inventions, data, techniques, specifications, processes,
      procedures, manufacturing and technical information, results from experiments
      and tests, instructions, methods, formulae, designs, plans, sketches, records,
      confidential analyses, interpretations of information, and trade secrets, or
      any
      similar items, in any media form, whether or not tangible, including, without
      limitation, any paper or electronic form.

    

    “Marketing
      Materials” shall mean marketing materials, advertising materials, training
      materials, product data, price lists, mailing lists, sales materials, market
      information (e.g., customer, sales and competitor data), promotional materials,
      artwork for the production of packaging components, and other materials, and
      in
      each case whether now existing or owned or hereafter arising or
      acquired.

    

    “Obligations”
      shall mean all indebtedness, obligations and liabilities of Borrower to Lender
      arising under or in connection with the Note (as defined in the Loan Agreement)
      and under or in connection with each of the Loan Agreement and this Agreement,
      including any amendment, modification, extension, refinancing or restructuring
      thereof.

    

    “Patents”
      shall mean all of the following whether now owned or hereafter acquired:
      (a) all patents of the United States or any other country, all
      registrations and recordings thereof, and all applications for patents of the
      United States or any other country, including registrations, recordings and
      pending applications in the United States Patent and Trademark Office or any
      other country, including, without limitation, those listed on Schedule
      3(e)(i)
      attached
      hereto, (b) all reissues, continuations, divisions, continuations-in-part,
      renewals or extensions thereof, and the inventions disclosed or claimed therein,
      including the right to make, use or sell the inventions disclosed or claimed
      therein and (c) all income, fees, royalties, damages, claims and payments now
      or
      hereafter due or payable with respect thereto, including, without limitation,
      damages and payments for past, present or future infringements
      thereof.

     

    
      
        
        

      

      
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    “Proceeds”
      shall mean, collectively, all “proceeds,” as such term is defined in the UCC,
      and in any event shall include, without limitation, any consideration received
      from the sale, exchange, license, lease or other disposition of any asset or
      property that constitutes Collateral, any value received as a consequence of
      the
      possession of any Collateral and any payment received from any insurer or other
      person or entity as a result of the destruction, loss, theft, damage or other
      involuntary conversion of whatever nature of any asset or property that
      constitutes Collateral, and shall include (a) any claim against any third
      party for (and the right to sue and recover for and the rights to damages or
      profits due or accrued arising out of or in connection with) (i) past,
      present or future infringement of any Patent now or hereafter owned,
      (ii) past, present or future infringement or dilution of any Trademark now
      or hereafter owned or injury to the goodwill associated with or symbolized
      by
      any Trademark now or hereafter owned, (iii) past, present or future infringement
      of any Copyright now or hereafter owned and (b) any and all other amounts
      from time to time paid or payable under or in connection with any of the
      Collateral.

    

    “Product”
      shall mean the product currently known as Surfaxin, as such name may change
      from
      time to time, for any and all formulations and delivery mechanisms, and for
      any
      and all indications.

    

    “Product
      Registration” means with respect to any country, the registrations, permits,
      licenses, consents, authorizations and other approvals and pending applications
      and requests therefor, required by applicable Governmental Authorities
relating
      to the
      marketing, sale, distribution, pricing and reimbursement of any products in
      such
      country, including, without limitation, INDs and NDAs, marketing authorizations,
      and any supplements or amendments to any of the foregoing, and any other
      equivalent of the foregoing, in each case whether now existing or owned or
      hereafter arising or acquired, and including all filings and files with respect
      thereto, including, without limitation, all documents referred to in the
      complete regulatory chronology for any product registration, and including,
      without limitation, those listed on Schedule
      3(e)(v)
      attached
      hereto. 

    

    “Receivable”
      shall mean any “account” as such term is defined in the UCC, and, in any event,
      shall include, but shall not be limited to, all of Borrower’s rights to payment
      for goods sold, leased or licensed or services performed by Borrower, whether
      now in existence or arising from time to time hereafter, including, without
      limitation, rights evidenced by an account, note, contract, security agreement,
      chattel paper or other evidence of indebtedness or security, together with
      (a)
      all security pledged, assigned, hypothecated or granted to or held by Borrower
      to secure the foregoing, (b) all of Borrower’s right, title and interest in and
      to any goods, the sale of which gave rise thereto, (c) all guarantees,
      endorsements and indemnifications on, or of, any of the foregoing, (d) all
      powers of attorney for the execution of any evidence of indebtedness or security
      or other writing in connection therewith, (e) all books, records, ledger cards
      and invoices relating thereto, (f) all evidences of the filing of financing
      statements and other statements and the registration of other instruments in
      connection therewith and amendments thereto, notices to other creditors or
      secured parties, and certificates from filing or other registration officers,
      (g) all credit information, reports and memoranda relating thereto and (h)
      all
      other writings related in any way to the foregoing.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Records”
      shall mean records, documents and files, including files pertaining to Product
      Registrations, Intellectual Property, drug master files, correspondence with
      the
      FDA and other Governmental Authorities, validation documents and data, market
      studies, sales histories
      and
      quality control histories, accounting records, sales records,
      suppliers
      lists, price lists, forecasts,
      market studies,
      customer service and inquiry or complaint records, laboratory notebooks, quality
      assurance/control procedures and records, product and raw material
      specifications, regulatory compliance filings and other regulatory records,
      product operation manuals and instructions, standard operating procedures and
      written medical records,
      and in
      each case whether now existing or owned or hereafter arising or acquired, in
      any
      media form, whether or not tangible, including, without limitation, any paper
      or
      electronic form; provided,
      that,
      notwithstanding any provision in this Agreement to the contrary, Borrower shall
      not deliver to Lender any Records the delivery of which would violate applicable
      patient privacy laws or contractual provisions or written policies or protocols
      governing the conduct of clinical trials.

    

    “Sublicense”
      shall mean the Sublicense Agreement dated October 28, 1996, between Johnson
      & Johnson and Ortho Pharmaceutical Corporation, as licensors, and Borrower
      (as successor to Acute Therapeutics, Inc.), as licensee (including any
      amendment, restatement, replacement, etc., thereof).

    

    “Trademarks”
      shall mean all of the following whether now owned or hereafter acquired:
      (a) all trademarks, service marks, trade names, corporate names, company
      names, business names, fictitious business names,
      trade
      styles, trade dress, logos, other source or business identifiers, designs and
      general intangibles of like nature, all registrations and recordings thereof,
      and all registration and recording applications filed in connection therewith,
      including registrations and registration applications in the United States
      Patent and Trademark Office, any State of the United States or any similar
      offices in any other country or any political subdivision thereof, and all
      extensions or renewals thereof, including, without limitation, those listed
      on
Schedule
      3(e)(iv)
      attached
      hereto, (b) all income, fees, royalties, damages, claims and payments now or
      hereafter due or payable with respect thereto, including, without limitation,
      damages and payments for past, present or future infringements thereof,
      (c) all goodwill associated therewith or symbolized thereby, and
      (d) all other assets, rights and interests that uniquely reflect or embody
      such goodwill.

    

    “UCC”
      shall mean the Uniform Commercial Code as in effect on the date hereof and
      as in
      effect from time to time in the State of Delaware.

    

    All
      capitalized terms not expressly defined herein shall have the meanings set
      forth
      in the Loan Agreement.

    

    2. Grant
      of Security Interests.
      As
      security for the prompt and complete payment and performance of all of the
      Obligations, Borrower does hereby pledge and hypothecate unto Lender, and does
      hereby grant to Lender a continuing security interest of first priority (except
      as otherwise provided in this Agreement and the Loan Agreement) in, all of
      the
      right, title, and interest of Borrower in, to, and under the Collateral. For
      the
      avoidance of doubt, the Collateral described in this Agreement includes the
      Collateral as defined in the Amended and Restated Security Agreement (the
“Existing
      Collateral”).
      This
      Agreement shall not constitute a novation and Borrower and Lender acknowledge
      that it is the intent of the parties that Lender maintains a continuous
      perfected first priority security interest in all Existing Collateral pursuant
      to the Original Security Agreement, the Amended and Restated Security Agreement
      and this Agreement.

    

    
      
        
        

      

      
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    3. Representations
      and Warranties of Borrower.
      Borrower represents and warrants to Lender, as of the Restatement Date, as
      follows:

    

    (a) The
      execution and delivery by Borrower of this Agreement and the financing
      statements described herein (collectively, the “Security
      Documents”),
      and
      the performance of the terms and obligations therein, are within Borrower’s
      corporate powers and have been duly authorized by all necessary corporate action
      on the part of Borrower. The Security Documents have been duly executed and
      delivered by Borrower and constitute valid and legally binding obligations
      of
      Borrower enforceable against Borrower in accordance with their terms except
      as
      such enforceability may be limited by bankruptcy, insolvency, moratorium,
      reorganization or other similar laws affecting the enforcement of creditors’
rights generally and as to limitations on the enforcement of the remedy of
      specific performance and other equitable remedies. 

     

    (b) Borrower
      is the owner or licensee of the Collateral and has good, valid and marketable
      title to the Collateral (or,
      in
      the case of leased or licensed property, sufficient rights therein to perform
      its obligations under this Agreement),
      free
      and clear of all Liens except for those in favor of Lender and Permitted
      Liens.

    

      (c) Except
      for the filing of financing statements with the State of Delaware and, only
      in
      the case of any Patent and Trademark matters, filings with the United States
      Patent and Trademark Office (“PTO”)
      and,
      only in the case of any Copyright matters, filings with the United States
      Copyright Office (“Copyright
      Office”),
      necessary to perfect the security interests created hereunder, no authorization,
      approval, or other action by, and no notice to or filing with, any U.S.
      Governmental Authority is required either for the grant by Borrower of the
      security interest hereunder or for the execution, delivery, or performance
      of
      this Agreement by Borrower or, assuming compliance by Lender with the
      requirements set forth in the UCC or imposed on Lender by the PTO or Copyright
      Office with respect to attachment and perfection of security interests, for
      the
      perfection of such security interest or the exercise by Lender of its rights
      hereunder to the Collateral located in the U.S., except for those elements
      of
      Collateral that constitute monies or Deposit Accounts. Upon the execution of
      this Agreement and the completion of such filings in compliance with all
      applicable legal requirements, Lender will have a perfected security interest
      in
      the Collateral located in the U.S. (other than those elements of Collateral
      that
      constitute monies or Deposit Accounts) prior to all other Liens except Permitted
      Liens. 

    

    (d) Neither
      the execution or delivery by Borrower of the Security Documents, nor the
      performance of their respective terms and obligations, will: (i) violate
      Borrower’s charter or bylaws; (ii) constitute a material breach or default under
      any agreement or instrument to which Borrower is a party or by which Borrower
      is
      bound; (iii) violate any applicable law, rule or regulation; or (iv) violate
      any
      order, writ, injunction, decree or judgment of any court or governmental
      authority applicable to or binding upon Borrower. 

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (e) Set
      forth
      on Schedule
      3(e)(i)
      attached
      hereto is a true and complete list of all Patents owned by Borrower (including
      patent/application number, jurisdiction, and brief description). Set forth
      on
Schedule
      3(e)(ii)
      attached
      hereto is a true and complete list of all Patents licensed by Borrower from
      any
      third party (including patent/application number, owner/licensor, jurisdiction,
      and brief description) and a brief description of the license agreement. Set
      forth on Schedule
      3(e)(iii)
      attached
      hereto is a true and complete list of any Contracts or agreements to which
      Borrower is a party and under which Borrower licenses any Patents, or other
      Intellectual Property, to or from any third party, which is not set forth on
      Schedule
      3(e)(ii).
      Set
      forth on Schedule
      3(e)(iv)
      attached
      hereto is a true and complete list of Trademarks owned by Borrower (including,
      if applicable, trademark/application number, jurisdiction, and a brief
      description). Set forth on Schedule
      3(e)(v)
      attached
      hereto is a true and complete list of all material Product Registrations. On
      each schedule prepared pursuant to this clause (e), items that constitute
      Intellectual Property relating to the Product have been clearly identified
      as
      such.

    

    (f) The
      representations and warranties contained in Article IV of the Loan Agreement
      are
      true and correct in all material respects.

    

    4. Transfer
      of Collateral and Other Liens.
      The
      provisions of Sections 6.02 and 6.04 of the Loan Agreement are hereby
      incorporated herein by reference.

    

    5. Other
      Financing Statements.
      Borrower represents and warrants with Lender that, except for the financing
      statements filed by Borrower in connection with the Original Security Agreement
      and the Amended and Restated Security Agreement and as set forth on Schedule
      5
      attached
      hereto, there exists no financing statement (or similar statement or instrument
      of registration under the law of any jurisdiction) in the United States or,
      to
      Borrower’s knowledge, outside the United States covering or purporting to cover
      any security interest of any kind in the Collateral. Borrower covenants to
      Lender that it will not execute or authorize to be filed in any public office
      any financing statement (or similar statement or instrument of registration
      under the law of any jurisdiction), or file any amendment to any financing
      statement listed on Schedule
      5
      not
      permitted by the Loan Agreement, relating to the Collateral, as applicable,
      except financing statements (or similar statements or instruments of
      registration under the law of any jurisdiction) filed or to be filed in respect
      of Permitted Liens and financing statements covering the security interests
      granted to Lender by Borrower. 

    

    6. Further
      Assurances. 

    

    (a) Borrower,
      upon reasonable request of Lender, will promptly deliver and execute or cause
      to
      be delivered and executed, in form and content satisfactory to Lender, any
      financing, continuation, termination, or security interest filing statements,
      security agreement, assignment, or other document or instrument as Lender may
      reasonably request in order to perfect, preserve, maintain, or continue the
      perfection of Lender’s security interest in the Collateral, or its priority,
      including without limitation any document or instrument necessary to record
      Lender’s security interest in any state or county of any state, the United
      States Patent and Trademark Office or the United States Copyright Office.
      Borrower will pay the reasonable costs of filing any financing, continuation,
      termination, or security interest filing statement, assignment or other document
      or instrument as well as any recordation or transfer tax required by law to
      be
      paid in connection with the filing or recording thereof. Without limiting the
      foregoing, Lender is hereby authorized to file one or more financing statements,
      continuation statements, or other documents for the purpose of perfecting or
      continuing the security interest granted by Borrower, without the signature
      of
      Borrower, and naming Borrower as debtor and Lender as secured party;
provided,
      that
      Lender shall provide copies of all such documents to Borrower. Lender
      acknowledges that it has no present intention to file or record any security
      interest financing statements or other documents or instruments in any
      jurisdiction outside the United States and agrees to discuss any action
      otherwise with Borrower prior to taking such action.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (b) Borrower
      will, at its own expense, make, execute, endorse, acknowledge, file and/or
      deliver to Lender from time to time such lists, descriptions and designations
      of
      its Collateral, documents of title, vouchers, invoices, schedules, confirmatory
      assignments, conveyances, financing statements, transfer endorsements, powers
      of
      attorney, certificates, reports and other assurances or instruments and take
      such further steps relating to the Collateral and other property or rights
      covered by the security interest hereby granted, as reasonably requested by
      Lender or which is necessary to perfect, preserve or protect its security
      interest in the Collateral.

     

    (c) (i)
      Upon
      the irrevocable payment in full of all Obligations, the security interest of
      Lender in the Collateral shall terminate. In connection with such termination,
      Lender shall, at the request and expense of Borrower, promptly, and in no event
      later than ten (10) Business Days thereafter, execute and deliver to Borrower
      all UCC termination statements and similar documents that Borrower shall
      reasonably request to evidence such termination or release,
      including without limitation any document or instrument necessary to record
      the
      termination or release of Lender’s security interest in any state or county of
      any state, the United States Patent and Trademark Office or the United States
      Copyright Office.
      Any
      execution and delivery of UCC termination statements and similar documents
      pursuant to this Section 6(c) shall be without recourse to or warranty by
      Lender. If Lender shall fail to provide such documents within ten (10) Business
      Days following payment of all Obligations, Borrower may file one or more UCC
      termination statements in accordance with the UCC or other documents required
      by
      the PTO or Copyright Office to terminate the security interest granted by
      Borrower to Lender under this Agreement, in each case naming Lender as secured
      party; provided,
      that
      Borrower shall provide copies of all such documents to Lender.

     

    (d) Borrower
      agrees that it shall use its commercially reasonable best efforts to
      negotiate terms of any future license, Contract or agreement to which it is
      a
      party, including without limitation any Collaboration Arrangement (as defined
      in
      Section 13(b)), that will not prohibit, or be breached by, the inclusion of
      such
      future license, Contract or agreement in the Collateral.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    7. Additional
      Agreements.
      

    

    (a) Insurance.
      Borrower shall maintain in full force and effect insurance with sound and
      reputable insurance companies of the types and in the amounts that Borrower
      reasonably believes is adequate for its business, including, but not limited
      to,
      insurance covering all real and personal property owned or leased by Borrower
      against all risks customarily insured against by similarly situated
      companies.

    

    (b) Ownership
      and Maintenance of the Collateral.
      Borrower shall, subject to normal wear and tear, keep all tangible Collateral,
      if any, in good condition. Borrower shall defend the Collateral against all
      claims and demands of all persons at any time claiming any interest therein
      adverse to Lender. Except for Permitted Liens, Borrower shall not make or permit
      to be made an assignment for security, pledge, or hypothecation of any of the
      Collateral or shall grant any other Lien in respect of the Collateral other
      than
      the security interest securing the Obligations. Notwithstanding the foregoing,
      Borrower
      may transfer or otherwise dispose of any of its assets or properties
in
      the
      ordinary course of business in any transaction permitted by the Loan
      Agreement.

    

    (c) Taxes.
      Borrower shall pay as and when due and payable all taxes, levies, license fees,
      assessments, and other impositions levied on the Collateral or any part thereof
      for its use and operations, except for all taxes, levies, license fees,
      assessments, and other impositions levied on the Collateral which are being
      contested by Borrower in good faith.

    

    (d) Litigation
      and Proceedings.
      Borrower shall commence and diligently prosecute in its own name, as the real
      party in interest, for its own benefit, and at its own expense, such suits,
      administrative proceedings, or other actions for infringement or other damages
      as are necessary to protect the Collateral,
      if
      failure to prosecute such proceedings would have a
      Material
      Adverse Effect. Borrower shall provide to Lender any information with respect
      thereto reasonably requested by Lender.

    

    8. Power
      of Attorney.
      Borrower hereby appoints Lender as Borrower’s true and lawful attorney, with
      full power of substitution, to do any or all of the following, in the name,
      place, and stead of Borrower, as the case may be: (a) file an abstract of this
      Agreement (or, if required by law or regulation, this Agreement) or any other
      document describing Lender’s interest in the Collateral with any appropriate
      governmental office (including, without limitation, the State of Delaware or
      any
      political subdivision thereof and the United States Patent and Trademark Office
      or the United States Copyright Office); and (b) following an Event of Default
      that has occurred and is continuing and not cured prior to the expiration of
      any
      applicable cure or grace periods set forth in the Loan Agreement, (i) endorse
      Borrower’s name on all applications, documents, papers, and instruments
      necessary for Lender to use or maintain the Collateral, as applicable; (ii)
      ask,
      demand, collect, sue for, recover, impound, receive, and give acquittance and
      receipts for money due or to become due under or in respect of any of the
      Collateral; (iii) file any claims or take any action or institute any
      proceedings that Lender may deem necessary or desirable for the collection
      of
      any of the Collateral, or otherwise enforce Lender’s rights with respect to any
      of the Collateral; (iv) assign, pledge, convey, or otherwise transfer title
      in
      or dispose of the Collateral, to any person; and (v) take any action and execute
      any instrument that Lender may deem necessary or advisable to accomplish the
      purposes of this Agreement. 

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    9. Right
      to Inspect.
      Section
      6.07(b) of the Loan Agreement is hereby incorporated by reference and made
      a
      part hereof (mutatis
      mutandis).

    

    10. Name
      of Borrower, Place of Business, and Location of Collateral.
      Borrower represents and warrants that its correct legal name is as specified
      on
      the signature lines of this Agreement, and each legal or trade name of Borrower
      for the previous seven (7) years (if different from Borrower’s current legal
      name) is as specified below the signature lines of this Agreement. Without
      the
      prior written notice to Lender of at least fifteen (15) Business Days, Borrower
      will not change its name, change its state of incorporation, dissolve, merge,
      or
      consolidate with any other person; provided,
      that
      Borrower shall not be required to make any disclosure to Lender hereunder that
      constitutes material non-public information. Borrower represents and warrants
      that its state of incorporation is as specified in the preamble to this
      Agreement and that the address of its chief executive office is as specified
      below the signature lines of this Agreement. The Collateral and all books and
      records pertaining thereto will be located at Borrower’s chief executive office
      specified below or at a location of Borrower set forth on Schedule 10. Borrower
      may establish a new location for the Collateral or any part thereof, or the
      books and records concerning the Collateral or any part thereof, only if (a)
      it
      shall have given to Lender prior written notice of its intention so to do,
      clearly describing such new location and providing such other information in
      connection therewith as Lender may reasonably request, and (b) with respect
      to
      any such new location, it shall have taken all action necessary to be taken
      by
      Borrower to maintain the security interest of Lender in the Collateral intended
      to be granted hereby at all times in full force and effect and, if such new
      location is in the United States, fully perfected; provided,
      that
      Borrower shall not be required to make any disclosure to Lender hereunder that
      constitutes material non-public information.

    

    11. Rights
      and Remedies upon Default.
      

    

    (a) Borrower
      agrees that, if any Event of Default (as defined in the Loan Agreement) shall
      have occurred and is continuing and not cured prior to the expiration of any
      applicable cure or grace periods set forth in the Loan Agreement, then and
      in
      every such case, Lender, in addition to any rights now or hereafter existing
      under applicable law, and upon written notice to Borrower, shall have all rights
      as a secured creditor under the UCC in all relevant jurisdictions and
      may:

    

    (i)
       personally,
      or by agents or attorneys, immediately take or retake possession of the
      Collateral or any part thereof; 

    

     (ii)
       instruct
      the obligor or obligors on any agreement, instrument or other obligation
      constituting the Collateral to make any payment required by the terms of such
      agreement, instrument or obligation directly to Lender; 

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (iii)
       sell,
      assign or otherwise liquidate, or direct Borrower to sell, assign or otherwise
      liquidate, any or all of the Collateral or any part thereof, and take possession
      of the proceeds of any such sale or liquidation; and

    

    (iv) take
      possession of the Collateral or any part thereof by directing Borrower in
      writing to deliver the same to Lender at any place or places designated by
      Lender; it being understood that Borrower’s obligation so to deliver the
      Collateral is of the essence of this Agreement and that, accordingly, upon
      application to a court of equity having jurisdiction, Lender shall be entitled
      to a decree requiring specific performance by Lender of said
      obligation.

    

    (b) In
      the
      event that an Event of Default has occurred and is continuing and not cured
      prior to the expiration of any applicable cure or grace periods set forth in
      the
      Loan Agreement, Borrower shall pay on demand all reasonable costs and expenses,
      including, without limitation, reasonable attorneys’ fees and expenses, incurred
      by or on behalf of Lender (i) in enforcing the Obligations, and (ii) in
      connection with the taking, holding, preparing for sale or other disposition,
      selling, managing, collecting, or otherwise disposing of the Collateral. All
      of
      such costs and expenses (collectively, the “Liquidation
      Costs”)
      together with interest thereon at the interest rate specified in the Note,
      from
      the date of payment until repaid in full, shall be paid by Borrower to Lender
      on
      demand and shall constitute and become a part of the Obligations secured hereby.
      Any proceeds of sale or other disposition of the Collateral will be applied
      by
      Lender to the payment of Liquidation Costs, and any balance of such proceeds
      will be applied by Lender to the payment of the remaining Obligations in such
      order and manner of application as Lender may determine. Borrower hereby grants
      to Lender, as security for the full and punctual payment and performance of
      the
      Obligations, a continuing security interest in and lien on all now or hereafter
      existing balances, credits, accounts, deposits, and all other sums credited
      by,
      maintained with, or due from Lender or any affiliate of Lender to Borrower;
      and
      regardless of the adequacy of any Collateral or other means of obtaining
      repayment of the Obligations, Lender may at any time and without notice to
      Borrower set off the whole or any portion or portions of any or all such
      balances, credits, accounts, deposits, and other sums against any and all of
      the
      Obligations. 

     

    (c) If
      the
      sale or other disposition of the Collateral fails to satisfy in full the
      Obligations, Borrower shall remain liable to Lender for any deficiency.

    

    12. Remedies
      Cumulative.
      Each
      right, power, and remedy of Lender as provided for in this Agreement or now
      or
      hereafter existing at law or in equity or by statute or otherwise shall be
      cumulative and concurrent and shall be in addition to every other right, power,
      or remedy provided for in this Agreement or now or hereafter existing at law
      or
      in equity or by statute or otherwise, and the exercise or beginning of the
      exercise by Lender of any one or more of such rights, powers, or remedies shall
      not preclude the simultaneous or later exercise by Lender of any or all such
      other rights, powers, or remedies.

    

    13. Amendments,
      Etc.

    

    (a) No
      amendment or waiver of any provision of this Agreement, nor consent to any
      departure by Borrower herefrom, shall in any event be effective unless the
      same
      shall be in writing and signed by Borrower and Lender, and then such waiver
      or
      consent shall be effective only in the specific instance and for the specific
      purpose for which given.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (b) In
      the
      event that Borrower believes that it is necessary to amend the terms of this
      Agreement to facilitate a Collaboration Arrangement (as defined below) that
      Borrower believes is in the best interests of Borrower, then Borrower may
      present in writing to Lender for Lender’s consent (which consent shall not be
      unreasonably withheld) (i) a summary of the material terms and conditions of
      the
      proposed Collaboration Arrangement and (ii) the form of the proposed amendment.
      Lender shall respond to Borrower’s request as promptly as reasonably practicable
      but in any event within fifteen (15) Business Days. “Collaboration Arrangement”
shall mean any future contract, agreement or other arrangement between Borrower
      and any other party whereby Borrower grants or transfers any rights to such
      party with respect to development or commercialization of the
      Product,
      or any
      portion or component thereof, or any other similar, comparable, or related
      contract, agreement, or arrangement.

    

    14. Notices.
      All
      notices and other communications provided for hereunder shall be in writing,
      shall specifically refer to this Agreement, shall be addressed to the receiving
      party’s address set forth below or to such other address as a party may
      designate by notice hereunder and shall be deemed to have been sufficiently
      given for all purposes if (a) mailed by first class certified or registered
      mail, postage prepaid, (b) sent by nationally recognized overnight courier
      for
      next business day delivery, (c) personally delivered, or (d) made by telecopy
      or
      facsimile transmission with confirmed receipt. 

    

    If
      to
      Lender:

    PharmaBio
      Development Inc.

    4709
      Creekstone Drive

    Riverbirch
      Bldg., Suite 200

    Durham,
      NC 27703

    Attention:
      President

    Facsimile:
      (919) 998-2090

    

    with
      a
      copy to:

    

    Smith,
      Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.

    2500
      Wachovia Capitol Center

    Raleigh,
      NC 27601

    Attention:
      Christopher B. Capel

    Facsimile:
      (919) 821-6800

    

    If
      to
      Borrower:

    

    Discovery
      Laboratories, Inc.

    2600
      Kelly Road, Suite 100 

    Warrington,
      PA 18976

    Attn:
      Chief Executive Officer and General Counsel

    Facsimile:
      (215) 488-9301

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    with
      a
      copy to: 

    

    Dickstein
      Shapiro LLP

    1177
      Avenue of the Americas

    New
      York,
      NY 10036-2714

    Attention:
      Ira L. Kotel

    Facsimile:
      (212) 277-6501

    

    15. No
      Waiver; Remedies.
      No
      failure on the part of Lender to exercise, and no delay in exercising, any
      right
      hereunder or under the Loan Agreement or the Note shall operate as a waiver
      thereof; nor shall any single or partial exercise of any such right preclude
      any
      other or further exercise thereof or the exercise of any other right. The
      remedies herein provided are cumulative and not exclusive of any remedies
      provided by law.

    

    16. Binding
      Effect; Assignment.
       This
      Agreement shall be binding upon and inure to the benefit of Borrower and Lender
      and their respective successors and permitted assigns, provided that (i)
      Borrower may not assign or transfer any or all of its rights or obligations
      under the Security Documents, and (ii) Lender may not assign or transfer any
      or
      all of its rights or obligations under the Security Documents except in
      connection with an assignment or transfer of the Loan Agreement pursuant to
      the
      terms of the Loan Agreement. Any assignment or attempted assignment in violation
      of this Section 16 shall be null and void.

    

    17. Severability.
      To the
      extent any provision of this Agreement is prohibited by or invalid under
      applicable law, such provision shall be ineffective to the extent of such
      prohibition or invalidity, without invalidating the remainder of such provision
      or the remaining provisions of this Agreement.

    

    18. Entire
      Agreement.
      This
      Agreement and the other Loan Documents and Security Documents embody the entire
      agreement and understanding between the parties hereto and supersede all prior
      oral or written agreements and understandings relating to the subject matter
      hereof. No statement, representation, warranty, covenant or agreement of any
      kind not expressly set forth in the Loan Documents and Security Documents shall
      affect, or be used to interpret, change or restrict, the express terms and
      provisions of the Loan Documents and Security Documents.

    

    19. Further
      Action.
      Each
      party shall, without further consideration, take such further action and execute
      and deliver such further documents as may be reasonably requested by the other
      party to carry out the purposes and provisions of the Security
      Documents.

    

    20. Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed to be an original and all of which, when taken together, shall constitute
      one and the same instrument. This Agreement may be executed and delivered by
      telecopy or facsimile transmission and any execution by such means shall be
      deemed an original.

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    21. Governing
      Law.
      This
      Agreement, including, without limitation, the interpretation, performance,
      enforcement, breach or termination thereof and any remedies relating thereto,
      shall be governed by and construed in accordance with the laws of the State
      of
      Delaware, United States of America, as applied to agreements executed and
      performed entirely in the State of Delaware, without regard to conflicts of
      law
      rules. 

    

    22. Internal
      Review.
      Section
      8.14 of the Loan Agreement is hereby incorporated by reference and made a part
      hereof (mutatis
      mutandis).

    

    23. Arbitration.
      Section
      8.15 of the Loan Agreement is hereby incorporated by reference and made a part
      hereof (mutatis
      mutandis).

    

    [Rest
      of page intentionally left blank; signatures on following
      page]

     

    

 

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    [Signature
      page to
      Second Amended and Restated
      Security
      Agreement] 

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed by their respective duly authorized officers, as of the date first
      above written.

    

    

    
      	 	BORROWER:
	 	 
	 	DISCOVERY LABORATORIES, INC.
	 	 
	 	 
	 	By: /s/ John G Cooper
	 	Name: John G Cooper
	 	Title: Executive Vice President and
              Chief
              Financial Officer

    

     

     

    

    Address
      of chief executive office of Borrower

    

    Discovery
      Laboratories, Inc.

    2600
      Kelly Road, Suite 100 

    Warrington,
      PA 18976

    Attn:
      Chief Executive Officer and General Counsel

    

     

    
      

      
        	 	LENDER
	 	 
	 	PHARMABIO DEVELOPMENT INC.
	 	d/b/a NOVAQUEST
	 	 
	 	 
	 	By: /s/ Tom Perkins
	 	Name: Tom Perkins 
	 	Title: Senior Vice President, Corporate
                Development

      

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    
 

    

    Schedules

    

     

    

    

    

    
      
        
        

      

      
        16Exhibit
      10.3

    
 

    EXECUTION
      COPY

     

    AMENDMENT
      NO. 005 AND CONSENT

    

    THIS
      AMENDMENT NO. 005 AND CONSENT (“Amendment”) is made as of this 25th
      day of October, 2006, between General Electric Capital Corporation (“Secured
      Party”) and Discovery Laboratories, Inc. (“Debtor”), to that certain Master
      Security Agreement dated as of December 20, 2002 (as
      amended, modified, restated, supplemented or replaced from time to time, and
      together with any schedules thereto, collectively, the “Agreement”).
      The terms of this Amendment No. 005 are hereby incorporated into the Agreement
      as though fully set forth therein.
      Secured
      Party and Debtor mutually desire to amend the Agreement as set forth below.
      Section references below refer to the section numbers of the Agreement. Unless
      otherwise defined herein, all capitalized terms herein shall have the respective
      meanings assigned to such terms in the Agreement.

    

    Background

    

    The
      Agreement requires that Debtor abide by certain covenants and warranties as
      more
      particularly set forth therein. Section 2 of the Agreement prohibits Debtor
      from, among other things, granting any liens on the Collateral or its
      Intellectual Property, except for Permitted Liens.

    

    Prior
      to
      the date hereof, Debtor entered into a financing transaction with PharmaBio
      Development Inc. dba NovaQuest (“ParmaBio”), pursuant to that certain Amended
      and Restated Security Agreement dated December 10, 2001 (as amended and restated
      as of November 3, 2004, the PharmaBio Agreement”). In connection with a
      restructuring of its obligations under the PharmaBio Agreement, Debtor has
      requested that Secured Party (i) consent to its providing PharmaBio additional
      collateral, including a security interest in Debtor’s Intellectual Property,
      (ii) agree to certain amendments to the Agreement, and (iii) enter into a
subordination
      agreement with PharmaBio (the events set forth in the foregoing clauses (i),
      (ii), and (iii) are, collectively, the “Event”). Secured
      Party has agreed to consent to the Event on the terms and subject to the
      conditions set forth herein. 

    

    In
      consideration of the foregoing, the terms and conditions set forth in this
      Amendment, and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, Debtor and Secured Party hereby
      agree as follows:

    

    I.    Consent.

     

    Debtor
      has requested that Secured Party consent to the Event and Secured Party hereby
      consents (the “Consent”) to the Event subject to the terms and conditions
      described herein. Except for the Consent and the amendments to the Agreement
      expressly set forth and referred to in this Amendment, the Agreement shall
      remain unchanged and in full force and effect, and the Consent shall be limited
      precisely and expressly as drafted and shall not be construed as a consent
      to
      the modification, amendment or supplementation of any other terms or provisions
      of the Agreement. Nothing in the Consent is intended, or shall be construed,
      to
      constitute a novation or an accord and satisfaction of any of Debtor’s
      indebtedness under or in connection with the Agreement or any other indebtedness
      to Secured Party.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    II.    Amendments
      to Agreement.

    

    A.    Creation
      of Security Interest. Section
      1
      of the Agreement is hereby amended and restated in its entirety to read as
      follows:

    

    “(a) Debtor
      hereby grants to Secured Party, its successors and assigns, a security interest
      in and against all property listed on any collateral schedule now, previously
      or
      in the future annexed to or made a part of this Agreement (collectively,
"Collateral
      Schedule"),
      and in and against all additions, attachments, accessories and accessions to
      such property, whether
      now owned or hereafter acquired or arising, all
      substitutions, replacements or exchanges therefor, and all insurance and/or
      other proceeds thereof (all such property is individually and collectively
      called the "Collateral").
      This security interest is given to secure the payment and performance of all
      debts, obligations and liabilities of any kind whatsoever of Debtor to Secured
      Party, now existing or arising in the future, including but not limited to
      the
      payment and performance of certain Promissory Notes from time to time identified
      on any Collateral Schedule (collectively "Notes"
      and each a "Note"),
      and any renewals, extensions and modifications of such debts, obligations and
      liabilities (such Notes, debts, obligations and liabilities are called the
      "Indebtedness").

     

    (b) On
      and as
      of October 23, 2006, Debtor further grants to Secured Party, its successors
      and
      assigns, a security interest in and against all property, and
      in and against all additions, attachments, accessories and accessions to such
      property, whether
      now owned or hereafter acquired or arising, all
      substitutions, replacements or exchanges therefor, and all insurance and/or
      other proceeds thereof, listed
      on
      Collateral Schedule No. 0001(the “Additional
      Supplemental Collateral”)
      and
      made a part hereof. The Additional Supplemental Collateral shall for all
      purposes constitute “Collateral” under the terms of the Agreement. This
      security interest in the Additional Supplemental Collateral is given to secure
      the payment and performance of all Indebtedness. In the event that PharmaBio
      consents to Debtor entering into the licensing, sublicensing, partnering, or
      other similar agreements, strategic alliances and collaborations for the
      development, marketing and commercialization of the Product, or any portion
      or
      component thereof (a “Permitted
      Event”),
      Secured Party shall be deemed to have consented thereto to the extent of
      PharmaBio’s consent, subject to the terms and conditions thereof and provided
      that Secured Party’s security interest in and lien on the Additional
      Supplemental Collateral shall continue to be in full force and effect. For
      the
      sake of clarity, Permitted Event shall not include any amendments to the
      definition of Additional Supplemental Collateral or other modifications to
      what
      assets constitute Additional Supplemental Collateral (“Collateral
      Modification”).
      In the event that Debtor requests that Secured Party consent (not to be
      unreasonably withheld) to a Collateral Modification, Debtor shall provide prior
      written notice (“Notice”)
      to Secured Lender of such Collateral Modification together with a description
      thereof in reasonable detail. Secured Lender shall have five (5) business days
      after Secured Party’s receipt of such Notice to object to such Collateral
      Modification. In the event that Secured Lender fails to timely object in writing
      to the Collateral Modification, Secured Party shall be deemed to have consented
      to the Collateral Modification.
      Subject to the foregoing and Section 3(g) of this Agreement, Secured Party’s
      security interest in and lien on the Additional Supplemental Collateral shall
      continue to be in full force and effect until the earlier of (i) Secured Party’s
      consent under the terms hereof to the release thereof and (ii) all obligations
      of Debtor to Secured Party, including, without limitation, the Indebtedness,
      are
      paid in full and all obligations of Secured Party under this Agreement are
      terminated. In the event that Secured
      Party consents to a release of its lien on any property that constitutes
      Additional Supplemental Collateral or all
      obligations of Debtor to Secured Party are paid in full
      in
      accordance with the terms hereof, Secured Party hereby agrees that it will,
      at
      Debtor’s expense (and in any event within 15 business days), file termination
      statements and execute such other documents and acknowledgments that Debtor
      may
      reasonably request to effect such release. “Product”
      shall mean the product currently known as Surfaxin, as such name may change
      from
      time to time, for any and all formulations and delivery mechanisms, and for
      any
      and all indications.”

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    B.    Amendment
      to Section 3.
      Section 3 is hereby
      amended to add a new Subsection 3(g) thereto immediately following Subsection
      3(f) which shall read as follows:

     

    “(g)
      Upon
      the occurrence of (i) receipt by Debtor of regulatory approval by the United
      States Food and Drug Administration for the indication
      of respiratory distress syndrome in
      premature infants for the
      Product, or (ii) such other events or conditions mutually acceptable to Secured
      Lender and Debtor (collectively, “Milestones”),
      and,
      in
      each case, provided that no default or event of default has occurred and is
      continuing, Secured Party shall terminate its lien in the Supplemental
      Collateral and Additional Supplemental Collateral (collectively, the
“Released
      Collateral”).
      In
      the
      event that (x) Secured Party and Debtor are unable to agree on mutually
      acceptable Milestones and (y) Debtor elects to prepay all of the outstanding
      Indebtedness while Secured Party holds a perfected security interest in the
      Released Collateral, Debtor shall be entitled to prepay all of the outstanding
      Indebtedness in full without prepayment penalty. Secured Party agrees that
      any
      waiver fee assessed in connection with determining the Milestones hereunder
      shall not exceed $5,000. Secured Party hereby agrees that it will, upon (A)
      satisfaction of the provisions set forth in Subsections (i) or (ii) hereof
      or
      (B) prepayment in full of the outstanding Indebtedness in accordance with this
      Section 3(g), and at Debtor’s expense, promptly file (and in any event within 15
      business days) termination statements and execute such other documents and
      acknowledgments that Debtor may reasonably request to effect the termination
      of
      its lien on the Released Collateral.”

    

    
      
        III.    Acknowledgement
          of Outstanding Indebtedness; Payment of Obligations; Limitation of
          Availability.

      

    

     

    
      	 	
              (a)

            	
              Debtor
                hereby acknowledges, confirms and agrees that, as of the close of
                business
                on the date hereof, Debtor is indebted to Secured Party in respect
                of the
                Indebtedness in the principal amount of $4,701,912, plus interest
                accrued
                and accruing thereon, fees, costs, expenses and other charges now
                or
                hereafter payable under the Agreement.

            

    

     

    
      	 	
              (b)

            	
              Debtor
                understands, acknowledges and agrees that it shall continue to make
                all
                payments when and as due under the terms and conditions of the
                Agreement.

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	 	
              Debtor
                hereby acknowledges and agrees that Secured Party has no obligation
                to
                make any advances under the Agreement
                or otherwise in
                excess of $400,000 in the aggregate on or after the date of this
                Amendment,
                and that any
                such advances shall be made at the sole discretion of Secured Party.
                

            

    

    

    
      	
              IV.

            	
              Reaffirmation
                of Grants of Security Interests; Additional Supplemental Collateral
                Schedule.

            

    

    

    
      	 	
              (a)

            	
              Debtor
                hereby acknowledges, reaffirms and confirms its grants of security
                interests in the Collateral under the Agreement or otherwise in favor
                of
                Secured Party, including without limitation, the Supplemental Collateral,
                any Additional Collateral, and all equipment and other property
                constituting Collateral, including all
                substitutions, replacements or exchanges therefor, and all insurance
                and/or other proceeds thereof, and
                agrees that, notwithstanding the effectiveness of this Amendment
                and the
                consummation of the transactions contemplated hereby, such grants
                of
                security interests shall continue to be in full force and effect
                and shall
                accrue to the benefit of the Secured Party.

            

    

    

    
      	 	
              (b)

            	
              Collateral
                Schedule No. 0001 attached hereto as Exhibit A is hereby annexed
                to and
                made a part of the Agreement and describes the Additional Supplemental
                Collateral in which Debtor has granted Secured Party a security interest
                in connection with the Indebtedness. The Additional Supplemental
                Collateral shall for all purposes constitute “Collateral” under the terms
                of the Agreement.

            

    

    

    
      V.    Fee

       

    

    In
      consideration of Secured Party’s agreement to grant the Consent and enter into
      this Amendment, Debtor unconditionally agrees to pay to Secured Party a fee
      (the
“Fee”)
      equal
      to Ten Thousand and No/100 Dollars ($10,000.00), which Fee shall (a) be deemed
      earned and payable by Debtor on the date of the execution and delivery of this
      Amendment by Debtor, and (b) constitute a portion of the Indebtedness secured
      by
      the Agreement. 

    

    EXCEPT
      AS
      EXPRESSLY AMENDED HEREBY, THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
      IF THERE IS ANY CONFLICT BETWEEN THE PROVISIONS OF THE AGREEMENT AND THIS
      AMENDMENT NO. 005, THEN THIS AMENDMENT NO. 005 SHALL CONTROL.

    
 

    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the parties hereto have executed this Amendment No.005 by signature of their
      respective authorized representative set forth below.

     

    
      	General Electric Capital
              Corporation 	 	Discovery
              Laboratories, Inc.
	 	 	 
	By:
              /s/ Diane Earle 	 	By:
              /s/ John G. Cooper 
	 	 	 
	Name: Diane
              Earle  	 	Name: John
              G. Cooper
	 	 	 
	Title: Duly
              Authorized Signatory    	 	
              Title: Executive
                Vice President and

                   Chief
                Financial Officer

            

    

     

    
      
        
        

      

      5

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