Document:

GREAT
      LAKES BANCORP, INC.

     

    RESTATED
      2002 STOCK OPTION PLAN 

     

     

    Under
      an
      Agreement and Plan of Reorganization dated as of February 10, 2003 (the “Plan of
      Reorganization”), between Greater Buffalo Savings Bank (the “Bank”) and Great
      Lakes Bancorp, Inc. (the “Corporation”), it was agreed that the Corporation
      would become a holding corporation for the Bank and the sole holder of all
      issued and outstanding shares of its common stock, and that each whole or
      fractional share of Bank common stock issued and outstanding immediately prior
      to the reorganization would automatically be converted into the same number
      and
      class of shares of the common stock of the Corporation.

     

    Section
      5
      of the Plan of Reorganization provided that, at the effective date defined
      in
      the Plan of Reorganization (the “Effective Time”), the Greater Buffalo Savings
      Bank 2002 Stock Option Plan (the “2002 GBSB Plan”) would be transferred to and
      would be continued as a stock option plan of the Corporation

     

    The
      2002
      GBSB Plan was approved by the shareholders of the Bank on April 30, 2002.
      Pursuant to regulations applicable to the Bank, the Superintendent of Banks
      of
      the New York State Banking Department (the “Superintendent”) also approved the
      2002 GBSB Plan. The shareholders of the Bank and the Superintendent approved
      the
      Plan of Reorganization on April 29, 2003 and April 17, 2003, respectively,
      providing for the transfer of the 2002 GBSB Plan to the Corporation. As of
      the
      Effective Time, the Board of Directors of the Corporation approved the amendment
      of the 2002 GBSB Plan to reflect its transfer and continuation and directed
      the
      appropriate officers to amend the plan accordingly. 

     

    Therefore,
      the Corporation hereby amends and restates the former 2002 GBSB Plan to reflect
      its transfer and continuation as the Great Lakes Bancorp, Inc. Restated 2002
      Stock Option Plan (the “Plan”). 

     

    1.
      Purposes
      of Plan.
      The
      purposes of this Plan are to provide for stock options (“Options”) as incentives
      for key employees, titled assistants, officers and/or directors of the
      Corporation and its Subsidiary Corporations, as hereinafter defined and in
      certain instances to compensate founding directors for their efforts in founding
      the Bank or directors for attending meetings of the Corporation’s Board of
      Directors or committees of the Corporation’s Board of Directors, through
      acquisition or increased ownership of the Corporation’s common stock, par value
      $5.00 per share (“Common Stock”), and where appropriate to encourage such
      individuals to put forth maximum efforts for the success of the Corporation’s
      business. It is intended that Options granted to employees under the Plan will
      constitute incentive stock options (“ISOs”) within the meaning of Section 422 of
      the Internal Revenue Code of 1986, as amended (the “Code”). It is also intended
      that Options granted to non-employee officers and directors pursuant to this
      Plan shall be non-qualified options (“NQSOs”) for purposes of the
      Code.

     

    2.
      Definitions.
      As used
      in the Plan, the following words and phrases shall have the meanings
      indicated:

     

    (a)
      Board of Directors
      shall
      mean the Board of Directors of the Corporation.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

     

    (b)
      Disability
      shall
      mean a mental or physical condition which in the opinion of a majority of the
      Option Committee renders an individual unable or incompetent to properly carry
      out the responsibilities attendant to the individual’s employment. The decision
      of the Option Committee shall be conclusive and binding on all
      parties.

     

    (c)
      Disinterested
      Director
      shall
      mean a director of the Corporation who is not an employee or officer of the
      Corporation and is not under consideration for a grant of Options at the time
      the Option Committee acts with respect to such grants.

     

    (d)
      Fair
      Market Value
      per
      share as of a particular date shall mean (i) if the shares of Common Stock
      are
      then traded in the over-the-counter market, the average of the closing bid
      and
      asked prices for the shares of Common Stock in the over-the-counter market
      on
      the latest date prior to such date for which such prices are available; or
      (ii)
      if the shares of Common Stock are then listed on an established national
      securities exchange, the average of the opening and closing prices on such
      exchange on the latest date prior to such date for which such prices are
      available, or (iii) if the shares of Common Stock are not then traded in the
      over-the-counter market or listed on an established national securities
      exchange, such value as the Option Committee shall determine based on a
      reasonable method selected by the Option Committee in its discretion, such
      method to include such factors as (a) the market value of shares of comparable
      banks and (b) the trend of the bank’s earnings. The Fair Market Value of stock
      is to be determined without regard to any restriction, other than a restriction
      which, by its terms, will never lapse.

     

    (e)
      Option
      Committee
      shall
      mean the committee responsible for administering the Plan as described in
      Section 3 hereof.

     

    (f)
      Optionee
      shall
      mean an employee, officer or director of the Corporation or a Subsidiary
      Corporation to whom an Option has been granted under the Plan.

     

    (g)
      Retirement
      shall
      mean either (i) the termination, retirement or resignation of an Optionee at
      a
      time when the Optionee is eligible for immediate commencement of pension
      benefits under the provisions of any retirement plan for employees of the Bank
      or the Corporation or any Subsidiary Corporation as then in effect, or (ii)
      any
      other voluntary or involuntary termination of employment by an Optionee which
      the Board of Directors designates as a retirement for the purposes of this
      Plan.

     

    (h)
      Subsidiary
      Corporation
      shall
      mean any corporation (other than the Corporation) in an unbroken chain of
      corporations beginning with the Corporation if, at the time of granting an
      Option, each of the corporations other than the last corporation in the unbroken
      chain owns stock possessing fifty percent (50%) or more of the total combined
      voting power of all classes of stock in one of the other corporations in such
      chain.

     

    3.
      Administration.
      The Plan
      shall be administered by the Option Committee, which shall have the authority
      to
      administer the Plan and to exercise all the powers and authority either
      specifically granted to it under the Plan or necessary or advisable in the
      administration of the Plan, including, without limitation, the authority to
      grant Options; to determine the Option purchase price of the shares of Common
      Stock subject to an Option; to determine the individuals to whom, and the times
      at which, Options shall be granted; to determine the number of shares to be
      covered by each Option and the terms and conditions of each Option; to interpret
      the Plan; to prescribe, amend and rescind rules and regulations relating to
      the
      Plan; to determine the terms and provisions of the Option Agreements provided
      for in Section 6(j) hereof to be entered into in connection with Options granted
      under the Plan; and to make all other determinations deemed necessary or
      advisable for the administration of the Plan. All determinations and
      interpretations made by the Option Committee shall be final, conclusive and
      binding on all persons, including Optionees and their legal representatives,
      successors in interest and beneficiaries. The Option Committee may delegate
      to
      one or more of its members or to one or more agents administrative or record
      keeping duties as it may deem advisable.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

     

    The
      Option Committee shall consist of those directors elected from time to time
      by
      the Board of Directors, except that only Disinterested Directors shall be
      permitted to serve on the Option Committee. The Board of Directors shall
      designate one of the members of the Option Committee as its chairman, and the
      Option Committee may appoint a secretary (who need not be a member of the Option
      Committee). The Option Committee shall hold its meetings at such times and
      places as it may determine. A majority of its members, present in person or
      all
      of its members by conference telephone, shall constitute a quorum. All
      determinations of the Option Committee at a meeting thereof in person or by
      conference telephone call shall be made by a majority of its members
      participating in such a meeting. The Option Committee may make any decision
      or
      determination by the unanimous written consent of all its members. The Board
      of
      Directors shall fill any vacancy in the Option Committee. No member of the
      Option Committee shall be liable for any act or omission with respect to his
      or
      her service on the Option Committee, if he or she acts in good faith and in
      a
      manner he or she reasonably believes to be in or not opposed to the best
      interests of the Corporation. 

     

    4.
      Persons
      Eligible to Receive Options.
      

     

    (a)
      In
      General.
      Options
      under the Plan may be granted in the discretion of the Option Committee to
      key
      employees, titled assistants, officers, founding directors and/or directors
      of
      the Corporation or any Subsidiary Corporation. Options may be granted to such
      eligible individuals whether or not they hold or have held Options previously
      granted under the Plan or otherwise granted by the Corporation or a Subsidiary
      Corporation, subject to any restrictions set forth in the Plan. In selecting
      individuals to whom Options shall be granted, the Option Committee shall take
      into consideration any factors it may deem relevant, including the duties of
      the
      respective individuals and such individuals’ past, present and potential
      contributions to the success of the Corporation and its Subsidiary
      Corporations.

     

    (b)
      Ten-Percent
      Stockholders.
      An
      individual who owns more than 10% of the total combined voting power of all
      classes of outstanding stock of the Corporation or any of its Subsidiary
      Corporations (as determined in accordance with Section 424(d) of the Code)
      will
      not be eligible for the grant of an ISO unless (i) the Option Price is at least
      110% of the Fair Market Value of a share of Common Stock on the date of grant
      and (ii) the Option by its terms is not exercisable after the expiration of
      5
      years from the date of grant.

     

    (c)
      Directors.
      Notwithstanding anything to the contrary contained herein, the Corporation
      shall, on or before January 30 of each year during the term of this Plan, award
      options for one thousand (1000) shares of Common Stock to each director of
      the
      Corporation, who is not a full time employee of the Corporation or any
      Subsidiary Corporation, for all meetings of the Board of Directors of the
      Corporation or any committee thereof which such director attended during the
      preceding fiscal year of the Corporation, in lieu of paying any cash
      consideration to the directors for their service as such or for attending such
      meetings. The foregoing sentence shall be inoperative if, on or before the
      first
      day of any fiscal year or the effective date of the Plan, the Board of Directors
      adopts a resolution providing for the payment of cash consideration to the
      directors for their service as such and for attending meetings of the Board
      of
      Directors and the committees thereof during the ensuing fiscal year or the
      remainder of the fiscal year during which the Plan first became
      effective.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

     

    5.
      Stock
      Available for Options.
      The
      number of shares of voting Common Stock available for Options granted under
      the
      Plan shall be 217,460. Such amount may be adjusted pursuant to Section 6(g)
      hereof. Shares of Common Stock used for purposes of the Plan shall be authorized
      and unissued shares, or issued shares designated on the Corporation’s balance
      sheet as “treasury shares.” Shares of Common Stock subject to Options which have
      terminated or expired prior to exercise shall be available for subsequent grants
      of Options under the Plan.

     

    6.
      Terms
      and Conditions of Options.
      The
      Option Committee shall prescribe the terms and conditions of the Options granted
      to each individual, which terms and conditions need not be the same in each
      case, subject to the following:

     

    (a)
      Option
      Price.
      The
      price at which each share of Common Stock subject to an Option may be purchased
      (the “Option Price”) shall be determined by the Option Committee. The Option
      Price shall be not less than the greater of $10 or one hundred percent (100%)
      of
      the Fair Market Value of the shares of Common Stock on the date of grant of
      the
      Option, or any higher percentage required by Section 4(b). The Option Price
      shall be subject to adjustment as provided in Section 6(g).

     

    (b)
      Option
      Period.
      The
      period during which an Option may be exercised shall be determined by the Option
      Committee subject to the vesting schedule in subsection (c) below, and shall
      in
      no event be more than ten (10) years from the date of grant of such Option,
      or
      any shorter period required by Section 4(b). The exercise period shall be
      subject to earlier termination as provided in Section 8 hereof. The date of
      grant of an Option shall be the date specified by the Option Committee in its
      resolution granting the Option (which date may not be earlier than the date
      of
      the resolution). 

     

    (c)
      Vesting
      and Exercisability.
      Provided that an Optionee shall otherwise be entitled to exercise an Option
      in
      accordance with terms of this Plan, the right of an Optionee to exercise an
      Option granted under the Plan will vest as follows:

     

    
      	 	 	 	 
	 	 	
              Percent
                of

            	 
	 	 	
              Options
                That Become Vested

            	 
	
              Date

            	 	
              and
                Exercisable

            	 
	
              1
                Year After

            	 	 	 
	
              Date
                of Grant

            	 	 	
              20

            	
              %

            
	 	 	 	 	 
	
              2
                Years After

            	 	 	 	 
	
              Date
                of Grant

            	 	 	
              20

            	
              %

            
	 	 	 	 	 
	
              3
                Years After

            	 	 	 	 
	
              Date
                of Grant

            	 	 	
              20

            	
              %

            
	 	 	 	 	 
	
              4
                Years After

            	 	 	 	 
	
              Date
                of Grant

            	 	 	
              20

            	
              %

            
	 	 	 	 	 
	
              5
                Years After

            	 	 	 	 
	
              Date
                of Grant

            	 	 	
              20

            	
              %

            
	 	 	 	 	 
	
               

            	 	 	
              100

            	%

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    

    Notwithstanding
      any other provision contained herein to the contrary, Options awarded to
      individuals who served as founding directors of the Bank for services rendered
      and risk incurred in incorporating the Bank shall vest and become exercisable
      immediately upon receipt. Additionally, Options awarded to any directors of
      the
      Corporation in lieu of compensation for attending meetings of the Corporation’s
      Board of Directors or committees of the Corporation’s Board of Directors shall
      vest and become exercisable immediately upon receipt.

     

    In
      the
      event of the death, Retirement or Disability of an Optionee while employed
      by
      the Corporation or a Subsidiary Corporation, or the termination of the
      Optionee’s employment with the Corporation or a Subsidiary Corporation without
      Cause, as defined below, or the resignation, removal, or failure of an Optionee
      who is a director of the Corporation to be re-elected to the Board of Directors
      of the Corporation, all unexpired Options held by such Optionee shall be deemed
      100% vested and exercisable as of the date of such death, Retirement or
      Disability or termination of employment or expiration of service as a director
      of the Corporation. If an Optionee’s employment with the Corporation or a
      Subsidiary Corporation is terminated for Cause, all unexercised Options will
      be
      forfeited and will expire on the date of the Optionee’s termination for Cause,
      unless otherwise determined by the Option Committee in its discretion. For
      purposes of this Section 6(c) the term “Cause” shall mean any of the following:
      (i) the Optionee’s conviction of any felony offense involving monies or other
      property, or any crime of moral turpitude, or the commission of fraud or
      embezzlement; (ii) the Optionee’s breach of any of his or her fiduciary duties
      to the Corporation or any Subsidiary Corporation which breach materially
      adversely affects the business of the Corporation or any Subsidiary Corporation;
      (iii) the Optionee’s willful and continued neglect or failure, after written
      demand, to discharge his or her duties or failure to obey a specific written
      direction from the Board of Directors or Chief Executive Officer of the
      Corporation or any Subsidiary Corporation; or (iv) the Optionee’s violation of
      any non-competition or confidentiality agreement with the Corporation or any
      Subsidiary Corporation.

     

    (d)
      Exercise
      of Options and Payment.
      An
      Optionee, or transferee pursuant to Section 6(f) hereof, may exercise an Option
      as to any or all shares of Common Stock as to which the Option has become
      exercisable; provided, however, an Option may not be exercised for fewer than
      one hundred (100) shares of Common Stock, or the number of shares of Common
      Stock remaining as to which such Option is then exercisable, whichever is
      smaller. The Option shall be exercised by delivering to the Corporation written
      notice of such exercise setting forth the number of shares of Common Stock
      to be
      purchased and the name in which such shares shall be registered, together with
      a
      certified check, bank draft or money order, in the full amount of the purchase
      price therefor, in each case payable to the order of the Corporation in United
      States dollars; provided, however, that such purchase price may in the
      alternative, to the extent permitted by law, be paid by assigning and delivering
      to the Corporation shares of Common Stock having in the aggregate on the date
      of
      exercise a Fair Market Value equal to such purchase price; and provided further
      that at the election of the Option Committee, to the extent permitted by law,
      such purchase price may consist of other property, tangible or intangible,
      or
      labor or services actually received by or performed for the Corporation or
      for
      its benefit, or a combination thereof. In the absence of fraud in the
      transaction, the judgment of the Board of Directors as to the value of the
      consideration received upon the exercise of an Option shall be
      conclusive.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

     

    If
      the
      Optionee so requests, shares of Common Stock purchased upon exercise of an
      Option may be issued in the name of the Optionee or another person provided
      that
      any such shares will be subject to the restrictions contained in Section 6(k)
      hereof.

     

    The
      shares of Common Stock issued to an Optionee upon the exercise of an Option
      may
      be restricted from further transfer for any period which may be required under
      applicable securities laws, in which case the stock certificates therefor shall
      contain a reference to such restriction.

     

    (e)
      No
      Right to Continued Employment.
      Nothing
      in this Plan or in any Option granted pursuant to the Plan shall confer or
      be
      deemed to confer on any individual any right to continue in the employ of the
      Corporation or any Subsidiary Corporation or be deemed to restrict in any way
      the right of the Corporation or a Subsidiary Corporation to terminate his or
      her
      employment at any time. 

     

    (f)
      Non-Transferability
      of Options.
      During
      the lifetime of an Optionee, Options held by such Optionee shall be exercisable
      only by such Optionee or, in the event of an Optionee’s Disability, by his
      guardian or legal representative. No Option shall be assignable or transferable
      by an Optionee other than by will or applicable laws of descent and
      distribution.

     

    (g)
      Adjustments
      for Change in Stock Subject to Plan and Other Events.

     

    (1)
      In
      the event of a reorganization, recapitalization, stock split, stock dividend,
      combination of shares, merger, consolidation, rights offering, or any other
      change in the corporate structure or shares of Common Stock of the Corporation,
      the number of shares of Common Stock available for Options, the number of such
      shares covered by outstanding Options, and/or the Option Price per share shall
      be proportionately adjusted by the Board of Directors to reflect any increase
      or
      decrease in the number of issued and outstanding shares of Common Stock;
      provided, however, that any fractional shares resulting from such adjustment
      shall be eliminated by rounding down to the nearest whole number of shares.
      The
      Board of Director’s determinations of adjustments shall be final, binding and
      conclusive.

     

    (2)
      In
      connection with (i) any sale or transfer by the Corporation of all or
      substantially all its assets, or (ii) any acquisition, directly or indirectly
      (including by way of tender or exchange offer, merger or consolidation), of
      all
      or a majority of the then outstanding voting securities of the Corporation
      by
      any person or any group (within the meaning of Section 13(d)(1) of the
      Securities Exchange Act of 1934), other than the Corporation or a Subsidiary
      Corporation, all outstanding Options under the Plan shall become fully vested
      and exercisable in full, on and after (i) 15 days prior to the effective date
      of
      such sale, transfer or acquisition or (ii) the date of commencement of such
      tender or exchange offer, as the case may be. Notwithstanding the foregoing,
      in
      no event shall any Option be exercisable at or after the date of termination
      otherwise applicable to the exercise period of such Option.

     

    (3)
      In
      the event of the proposed dissolution or liquidation of the Corporation, or
      any
      consolidation or merger in which the Corporation is the surviving corporation
      and in which there is a reclassification or change of the shares of Common
      Stock
      (other than a change in par value), all outstanding Options under the Plan
      shall
      become fully vested and exercisable upon the Corporation’s adoption of the plan
      or agreement related to such event. The Option Committee may provide that the
      holder of each Option then exercisable shall have the right to exercise such
      Option (at its then Option Price) solely for the kind and amount of shares
      of
      stock and other securities, property, cash or any combination thereof that
      such
      Optionee would receive upon such dissolution, liquidation, or corporate
      consolidation or merger if the Optionee were already the holder of the number
      of
      shares of Common Stock for which such Option is exercisable; or the Option
      Committee may provide in the alternative, that each Option granted under the
      Plan shall terminate as of a date to be fixed by the Board of Directors,
      provided, however, that not less than thirty (30) days written notice of the
      date so fixed shall be given to each Optionee, who shall have the right, during
      the period of thirty (30) days preceding such termination, to exercise each
      Option as to all or any part of the shares of Common Stock subject
      thereto.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

     

    (4)
      Paragraphs (2) and (3) of this Section 6(g) shall not apply to any merger or
      consolidation in which the Corporation is the surviving corporation and shares
      of Common Stock are not converted into or exchanged for stock, securities of
      any
      other corporation, cash or any other thing of value.

     

    (h)
      Registration,
      Listing and Qualification of Shares of Stock.
      Each
      Option shall be subject to the requirement that if at any time the Board of
      Directors or the Option Committee shall determine that the registration, listing
      or qualification of the shares of Common Stock subject thereto, upon any
      securities exchange or under any federal or state law, or the consent or
      approval of any governmental regulatory body, is necessary or desirable as
      a
      condition of, or in connection with, the granting of such Option or the purchase
      of shares of Common Stock thereunder, no such Option may be exercised unless
      and
      until such registration, listing, qualification, consent or approval has been
      effected or obtained free of any conditions not acceptable to the Option
      Committee or Board of Directors. The Corporation may require that any person
      exercising an Option make such representations and agreements and furnish such
      information as the Corporation deems appropriate to assure compliance with
      the
      foregoing or any other applicable legal requirement.

     

    (i)
      Rights
      as a Stockholder.
      An
      Optionee shall have no rights as a stockholder with respect to any shares
      covered by the Option until the date of the issuance of a stock certificate
      to
      him or her for such shares. No adjustment shall be made for dividends (ordinary
      or extraordinary, whether in cash, securities or other property) or
      distributions or other rights for which the record date is prior to the date
      such stock certificate is issued, except as provided in Section 6(g)
      hereof.

     

    (j)
      Option
      Agreements.
      Each
      Option granted pursuant to the Plan shall be evidenced by a written option
      agreement (“Option Agreement”) between the Corporation and the Optionee, which
      agreement shall, subject to the terms and conditions contained in the Plan,
      state: the number of shares of Common Stock to which the Option relates, the
      Option Price, and that the terms and conditions of this Plan shall be
      incorporated therein by reference. Each Option Agreement shall contain such
      other provisions, including, without limitation, the imposition of restrictions
      upon the exercise of an Option, as the Option Committee shall deem advisable.
      Each Option Agreement also will specify whether the Option is an ISO or NQSO.
      However, if any portion of an Option does not meet the requirements to qualify
      as an ISO, that portion will be an NQSO.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

     

    

    (k)
      Sale
      of Shares.
      An
      Optionee may not sell any Common Stock which is acquired pursuant to the
      exercise of an Option hereunder for a period of six (6) months after he acquires
      such Common Stock.

     

    (l)
      Limitation
      on Amount.
      The
      aggregate Fair Market Value (determined with respect to each ISO as of the
      time
      the ISO is granted) of the shares of Common Stock with respect to which ISOs
      are
      exercisable for the first time by an Optionee during any calendar year (under
      this Plan or any other ISO plan of the Corporation or any Subsidiary
      Corporation) may not exceed $100,000.

     

    7.
      Agreement
      by Optionee Regarding Withholding Taxes.
      If the
      Option Committee shall so require, each Optionee shall agree that as a condition
      of exercise of an Option:

     

    (a)
      no
      later than the date of exercise of any Option granted hereunder, the Optionee
      will pay to the Corporation or make arrangements satisfactory to the Option
      Committee regarding payment of any federal, state or local taxes of any kind
      required by law to be withheld upon the exercise of such Option, and

     

    (b)
      the
      Corporation shall have the right to deduct from any payment of any kind
      otherwise due to the Optionee, federal, state or local taxes of any kind
      required by law to be withheld upon the exercise of such Option or to retain
      a
      sufficient number of shares to equal the amount of tax required to be withheld
      with respect to the exercise of an Option.

     

    8.
      Term,
      Amendment and Termination of the Plan.
      Options
      may be granted pursuant to the Plan from time to time within a ten-year period
      from the date the Plan is adopted by the Board of Directors; provided, however,
      that the Board of Directors may at any time prior to the end of the 10-year
      period terminate the Plan. The Board of Directors may at any time suspend,
      amend
      or modify the Plan subject to the approval of the Superintendent to be obtained
      in accordance with applicable law; provided, that no amendment or modification
      to the Plan which eliminates or adversely affects a right or privilege of an
      Optionee shall have any retroactive effect unless required by law. In addition,
      the approval of the holders of a majority of the Corporation’s outstanding
      Common Stock shall be required to any amendment, other than an adjustment made
      pursuant to Section 6(g) hereof, which would (i) increase the number of shares
      of Common Stock as to which Options may be granted, (ii) change the number
      of
      shares of Common Stock which may be optioned to any single individual, (iii)
      decrease an Option Price, (iv) extend the term of the Plan or of an Option,
      or
      (v) change the persons or categories of persons eligible to be granted Options.
      No termination of the Plan may, without the consent of an Optionee, adversely
      affect the rights of such Optionee under any Option held by such
      Optionee.

     

    9.
      Approval
      of Stockholders.
      This
      Plan is subject to approval by the holders of a majority of the outstanding
      shares of the capital stock of the Corporation within 12 months of its adoption,
      and no Option granted hereunder shall be effective or exercisable prior to
      such
      approval. If the Plan is not approved as provided above, the Plan and all
      Options granted hereunder shall be null and void and of no force and
      effect.

     

    10.
      Other
      Actions.
      Nothing
      contained in the Plan shall be construed to limit the authority of the
      Corporation to exercise its corporate rights and powers, including but not
      by
      way of limitation, the right of the Corporation to grant options for proper
      corporate purposes other than under the Plan with respect to any director,
      employee or other person, firm, corporation or association.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

     

    11.
      No
      Obligation to Exercise Option.
      The
      granting of an Option shall impose no obligation upon the Optionee to exercise
      such Option.

     

    12.
      Investment
      Purpose.
      Each
      Option under the Plan shall be granted on the condition that the purchase of
      Common Stock thereunder shall be for investment purposes, and not with a view
      to
      resale or distribution.

     

    13.
      Applicable
      Law.
      The Plan
      and all Options granted under it will be construed and interpreted in accordance
      with, and governed by, the laws of the State of New York, other than its laws
      regarding choice of law.

     

    14.
      Effective
      Date.
      The
      effective date of the 2002 GBSB Plan is April 29, 2002, which is the date final
      approval is given to the GBSB Plan by the Superintendent. The effective date
      of
      the Plan is April 29, 2003, which is the Effective Time of the Plan of
      Reorganization.

     

    15.
      Execution.
      To
      record the amendment and restatement of the Plan by the Board of Directors,
      the
      Corporation has caused its authorized officer to execute it.

     

    

     

    
      	 	
              GREAT
                LAKES BANCORP, INC.

            
	 	 	 
	 	
              By:

            	
              /s/
                Andrew W. Dorn, Jr. 

            
	 	 	
              Andrew
                W. Dorn, Jr.

            
	 	 	
              President
                and Chief Executive Officer

            

    

    

     

    
       

      
        
           

        

        
          9Exhibit
      10.31

    

      EXECUTION
        COPY

    

     

    EMPLOYMENT
      AGREEMENT

     

    This
      Amended and Restated Employment Agreement (the “Agreement")
      is
      made as of this 4th day of May, 2006, by and between DISCOVERY LABORATORIES,
      INC., a Delaware corporation (the "Company"),
      and
      CHARLES KATZER (the "Executive").

     

    WHEREAS,
      the Executive is currently employed by the Company as its Senior Vice President,
      Manufacturing Operations pursuant to that certain revised and amended employment
      agreement dated as of January 3, 2006, by and between the Company and the
      Executive (the “Employment
      Agreement”);
      and

     

    WHEREAS,
      the Company and the Executive desire to amend and restate the Employment
      Agreement in its entirety as set forth herein.

     

    NOW,
      THEREFORE, in consideration of the covenants contained herein, and for other
      valuable consideration, the Company and the Executive hereby agree to amend
      and
      restate the Employment Agreement in its entirety to read as
      follows:

     

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

     

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

     

    3.  Executive's
      Duties and Obligations.

     

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

     

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

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

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

     

    4.  Devotion
      of Time to Company's Business.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

    5.  Compensation
      and Benefits.

     

    (a)  Base
      Compensation.
      During
      the Term, the Company shall pay to the Executive (i) base annual compensation
      ("Base
      Salary")
      of at
      least $215,000, payable in accordance with the Company's regular payroll
      practices and less all required withholdings and (ii) additional compensation,
      if any, and benefits as hereinafter set forth in this Section 5. The Base Salary
      shall be reviewed at least annually for the purposes of determining increases,
      if any, based on the Executive's performance, the performance of the Company,
      inflation, the then prevailing salary scales for comparable positions and other
      relevant factors; provided,
      however,
      that
      any such increase in Base Salary shall be solely within the discretion of the
      Company.

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

    6.  Change
      of Control Benefits.

     

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

     

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

     

    7.  Termination
      of Employment.

     

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

     

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

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (iii)
        Within
      10
      days after the Date of Termination, a lump sum cash payment in an amount equal
      to fifty percent (50%) of the sum of (A) the Executive’s Base Salary then in
      effect (determined without regard to any reduction in such Base Salary
      constituting Good Reason) and (B) the Highest Annual Bonus;

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    8.  Notice
      of Termination.
      

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

    10.  Excise
      Tax Gross-Up.

     

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

     

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

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

    12.  Notices.
      All
      notices, requests, demands and other communications hereunder shall be in
      writing and shall be deemed to have been duly given if delivered by hand or
      mailed within the continental United States by first class certified mail,
      return receipt requested, postage prepaid, addressed as follows:

     

    

    (a) if
      to the
      Board or the Company:

     

    Discovery
      Laboratories, Inc. 

    2600
      Kelly Road, Suite 100 

    Warrington,
      PA 18976 

    Attn:
      David Lopez, Esq.

     

    (b) if
      to the
      Executive:

     

    Charles
      Katzer 

    The
      address on file with the records of the Company

     

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

     

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

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    15.  Arbitration.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    16.  Miscellaneous.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

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

     

    

    DISCOVERY
      LABORATORIES, INC. 

     

    

    By:  /s/
      Robert Capetola____________

    Name:
      Robert J. Capetola, Ph.D.

    Title:
      President and CEO

     

    

    /s/
      Charles Katzer   

    Charles
      Katzer

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    (i)  “Good
      Reason”
      means,
      unless the Executive has consented in writing thereto, the occurrence of any
      of
      the following: (i) the assignment to the Executive of any duties inconsistent
      with the Executive’s position, including any change in status, title, authority,
      duties or responsibilities or any other action which results in a material
      diminution in such status, title, authority, duties or responsibilities; (ii)
      a
      reduction in the Executive’s Base Salary by the Company; (iii) the relocation of
      the Executive’s office to a location more than 30 miles from Doylestown,
      Pennsylvania; (iv) the failure of the Company to comply with the provisions
      of
      Section 6(a); (v) following a Change of Control, unless a plan providing a
      substantially similar compensation or benefit is substituted, (A) the failure
      by
      the Company to continue in effect any material fringe benefit or compensation
      plan, retirement plan, life insurance plan, health and accident plan or
      disability plan in which the Executive was participating prior to the Change
      of
      Control, or (B) the taking of any action by the Company which would adversely
      affect the Executive’s participation in or materially reduce his benefits under
      any of such plans or deprive him of any material fringe benefit; or (vi) the
      failure of the Company to obtain the assumption in writing of the Company’s
      obligation to perform this Agreement by any successor to all or substantially
      all of the assets of the Company within 15 days after a Business Combination
      or
      a sale or other disposition of all or substantially all of the assets of the
      Company.

     

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

     

     

     

    15

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