Exhibit 4.1
 

    
      Execution
copy

    

     

    WARRANT

     

    THE
SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.

     

    December
12, 2008

     

    Warrant
to Purchase up to 675,000 shares of Common Stock of Discovery Laboratories, Inc.
(the “Company”).

     

    In
consideration for Kingsbridge Capital Limited (the “Investor”) agreeing
to enter into that certain Common Stock Purchase Agreement, dated as of the date
hereof, between the Investor and the Company (the “Agreement”), the
Company hereby agrees that the Investor or any other Warrant Holder (as defined
below) is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period (as defined below) up to
675,000 fully paid and non-assessable shares of common stock, par value $0.001
per share, of the Company (the “Common Stock”) at the
Exercise Price (as defined below), as the same may be adjusted from time to time
pursuant to Section 6 hereof.  The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights
Agreement.  Capitalized terms used herein and not otherwise defined
shall have the meanings given them in the Agreement.

     

    Section
1.              Definitions.

     

    “Affiliate” shall mean
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under direct or indirect common control with
any other Person.  For the purposes of this definition, “control,” when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the term “controls” and “controlled” have
meanings correlative to the foregoing.

     

    “Closing Price” as of
any particular day shall mean the closing price per share of the Company’s
Common Stock as reported by the Principal Market on such day.

     

    “Exercise Period”
shall mean that period beginning six months after the date of this Warrant and
continuing until the earlier of (i) the expiration of the five-year period
thereafter or (ii) a Funding Default, subject in each case to earlier
termination in accordance with Section 6 hereof.

     

    “Exercise Price” as of
the date hereof shall mean $1.5132.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Funding Default”
shall mean a failure by Investor to accept a Draw Down Notice made by the
Company and to acquire and pay for the Shares in accordance therewith within
three (3) Trading Days following the delivery of such Shares to the Investor,
provided such Draw Down Notice was made in accordance with the terms and
conditions of the Agreement (including the satisfaction or waiver of the
conditions to the obligation of the Investor to accept a Draw Down set forth in
Article VII of the Agreement), provided further, that such failure was
reasonably within the control of the Investor.

     

    “Per Share Warrant
Value” shall mean the difference resulting from subtracting the Exercise
Price from the Closing Price on the Trading Day immediately preceding the
Exercise Date.

     

    “Person” shall mean an
individual, a corporation, a partnership, a limited liability company, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

     

    “Principal Market”
shall mean the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.

     

    “SEC” shall mean the
United States Securities and Exchange Commission.

     

    “Trading Day” shall
mean any day other than a Saturday or a Sunday on which the Principal Market is
open for trading in equity securities.

     

    “Warrant Holder” shall
mean the Investor or any permitted assignee or permitted transferee of all or
any portion of this Warrant.

     

    “Warrant Shares” shall
mean those shares of Common Stock received or to be received upon exercise of
this Warrant.

     

    Section
2.              Exercise.

     

    (a)           Method of
Exercise.  This Warrant may be exercised in whole or in part
(but not as to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period, by the Warrant Holder by surrender of this
Warrant, with the form of exercise attached hereto as Exhibit A
completed and duly executed by the Warrant Holder (the “Exercise Notice”), to
the Company at the address set forth in Section 10.4 of the Agreement,
accompanied by payment of the Exercise Price multiplied by the number of shares
of Common Stock for which this Warrant is being exercised (the “Aggregate Exercise
Price”).  The later of the date on which an Exercise Notice or
payment of the Exercise Price (unless this Warrant is exercised in accordance
with Section 2(c) below) is received by the Company in accordance with this
clause (a) shall be deemed an “Exercise
Date.”

     

    (b)           Payment of Aggregate
Exercise Price.  Subject to paragraph (c) below, payment
of the Aggregate Exercise Price shall be made by wire transfer of immediately
available funds to an account designated by the Company.  If the
amount of the payment received by the Company is less than the Aggregate
Exercise Price, the Warrant Holder will be notified of the deficiency and shall
make payment in that amount within three (3) Trading Days.  In the
event the payment exceeds the Aggregate Exercise Price, the Company will refund
the excess to the Warrant Holder within five (5) Trading Days of
receipt.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (c)           Cashless
Exercise.  In the event that the Warrant Shares to be received
by the Warrant Holder upon exercise of the Warrant may not be resold pursuant to
an effective registration statement or an exemption to the registration
requirements of the Securities Act of 1933, as amended (“Securities Act”), and
applicable state laws, the Warrant Holder may, as an alternative to payment of
the Aggregate Exercise Price upon exercise in accordance with paragraph
(b) above, elect to effect a cashless exercise by so indicating on the
Exercise Notice and including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
“Cashless
Exercise”).  If a registration statement on Form S-3 under the
Securities Act or such other form as deemed appropriate by counsel to the
Company for the registration of the resale by the Warrant Holder of (x) the
shares of Common Stock of the Company that may be purchased under the Agreement,
(y) the Warrant Shares, or (z) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise, has been declared effective by the SEC and
remains effective, the Company may, in its sole discretion, require the Warrant
Holder to pay the Exercise Price of the Warrant Shares being purchased by the
Warrant Holder under this Warrant.  The Company may, in its sole
discretion, permit the Warrant Holder to effect a Cashless Exercise at any
time.  In the event of a Cashless Exercise, the Warrant Holder shall
receive that number of shares of Common Stock determined by (i) multiplying
the number of Warrant Shares for which this Warrant is being exercised by the
Per Share Warrant Value and (ii) dividing the product by the average
Closing Price of the Common Stock during the five (5) Trading Days immediately
preceding the Exercise Date, rounded to the nearest whole share.  The
Company shall cancel the total number of Warrant Shares equal to the excess of
the number of the Warrant Shares for which this Warrant is being exercised over
the number of Warrant Shares to be received by the Warrant Holder pursuant to
such Cashless Exercise.

     

    (d)           Replacement
Warrant.  In the event that the Warrant is not exercised in
full, the number of Warrant Shares shall be reduced by the number of such
Warrant Shares for which this Warrant is exercised, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of the Warrant
Holder a new Warrant of like tenor in the name of the Warrant Holder, reflecting
such adjusted number of Warrant Shares.

     

    Section
3.              
Ten Percent
Limitation.  The Warrant Holder may not exercise this Warrant
such that the number of Warrant Shares to be received pursuant to such exercise
aggregated with all other shares of Common Stock that are then beneficially
owned or deemed to be beneficially owned by the Warrant Holder would result in
(i) the Warrant Holder owning more than 9.9% of all of such Common Stock as
would be outstanding on such Exercise Date, as determined in accordance with
Section 13(d) of the Exchange Act or (ii) the Company being required to
file any notification or report forms under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Section
4.              Delivery of Warrant
Shares.

     

    (a)           Subject
to the terms and conditions of this Warrant, as soon as practicable after the
exercise of this Warrant in full or in part, and in any event within ten (10)
Trading Days thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Warrant Holder, or as the Warrant
Holder may lawfully direct, a certificate or certificates for, or make deposit
with the Depositary Trust Company via book-entry of, the number of validly
issued, fully paid and non-assessable Warrant Shares to which the Warrant Holder
shall be entitled on such exercise, together with any other stock or other
securities or property (including cash, where applicable) to which the Warrant
Holder is entitled upon such exercise in accordance with the provisions
hereof.

     

    (b)           This
Warrant may not be exercised as to fractional shares of Common
Stock.  In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall receive the number of shares rounded to
the nearest whole share.

     

    Section
5.              Representations, Warranties
and Covenants of the Company.

     

    (a)           The
Warrant Shares, when issued in accordance with the terms hereof, will be duly
authorized and, when paid for or issued in accordance with the terms hereof,
shall be validly issued, fully paid and non-assessable.

     

    (b)           The
Company shall take all commercially reasonable action and proceedings as may be
required and permitted by applicable law, rule and regulation for the legal and
valid issuance of this Warrant and the Warrant Shares to the Warrant
Holder.

     

    (c)           The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.  The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant
Shares.

     

    (d)           From
the date hereof through the last date on which this Warrant is exercisable, the
Company shall take all steps commercially reasonable to ensure that the Common
Stock remains listed or quoted on the Principal Market.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Section
6.              Adjustment of the Exercise
Price.  The Exercise Price and, accordingly, the number of
Warrant Shares issuable upon exercise of the Warrant, shall be subject to
adjustment from time to time upon the happening of certain events as
follows:

     

    (a)           Reclassification,
Consolidation, Merger, Mandatory Share Exchange, Sale or
Transfer.

     

    (i)           Upon
occurrence of any of the events specified in subsection (a)(ii) below (the
“Adjustment
Events”) while this Warrant is unexpired and not exercised in full, the
Warrant Holder may in its sole discretion require the Company, or any successor
or purchasing corporation, as the case may be, without payment of any additional
consideration therefor, upon surrender by the Warrant Holder of the Warrant to
be replaced, to execute and deliver to the Warrant Holder a new Warrant
providing that the Warrant Holder shall have the right to exercise such new
Warrant (upon terms not less favorable to the Warrant Holder than those then
applicable to this Warrant) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money or property
receivable upon such Adjustment Event by the holder of one share of Common Stock
issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to such Adjustment Event.  Such new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.

     

    (ii)           The
Adjustment Events shall be (1) any reclassification or change of Common Stock
(other than a change in par value, as a result of a subdivision or combination
of Common Stock or in connection with an Excluded Merger or Sale) and (2) any
consolidation, merger or mandatory share exchange of the Company with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change other than a change in par
value or as a result of a subdivision or combination of Common Stock), other
than (each of the following referred to as an “Excluded Merger or
Sale”) a transaction involving (A) sale of all or substantially all
of the assets of the Company or (B) any merger, consolidation or similar
transaction where the consideration payable to the stockholders of the Company
by the acquiring Person consists substantially of cash or publicly traded
securities, or a combination thereof, or where the acquiring Person does not
agree to assume the obligations of the Company under outstanding warrants
(including this Warrant).  In the event of an Excluded Merger or Sale,
the Company shall deliver a notice to the Warrant Holder at least 10 days before
the consummation of such Excluded Merger or Sale, the Warrant Holder may
exercise this Warrant at any time before the consummation of such Excluded
Merger or Sale (and such exercise may be made contingent upon the consummation
of such Excluded Merger or Sale), and any portion of this Warrant that has not
been exercised before consummation of such Excluded Merger or Sale shall
terminate and expire, and shall no longer be outstanding.

     

    (b)           Subdivision or Combination
of Shares.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall subdivide its Common Stock, the
Exercise Price shall be proportionately reduced as of the effective date of such
subdivision, or, if the Company shall take a record of holders of its Common
Stock for the purpose of so subdividing its Common Stock, as of such record
date, whichever is earlier.  If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining its Common Stock, as of such record
date, whichever is earlier.

     

    (c)           Stock
Dividends.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall pay a stock dividend or other
distribution in shares of Common Stock to all holders of Common Stock, then the
Exercise Price shall be adjusted, as of the date the Company shall take a record
of the holders of its Common Stock for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction: (i) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such dividend or
distribution.  The provisions of this subsection (c) shall not
apply under any of the circumstances for which an adjustment is provided in
subsections (a) or (b).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (d)           Liquidating Dividends,
Etc.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, makes a distribution of its assets or
evidences of indebtedness to the holders of its Common Stock as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Company’s assets (other than under the circumstances
provided for in the foregoing subsections (a) through (c)), then the
Warrant Holder shall be entitled to receive upon exercise of this Warrant in
addition to the Warrant Shares receivable in connection therewith, and without
payment of any consideration other than the Exercise Price, the kind and amount
of such distribution per share of Common Stock multiplied by the number of
Warrant Shares that, on the record date for such distribution, are issuable upon
such exercise of the Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution.  The value of a distribution that is paid in other
than cash shall be determined in good faith by the Board of Directors of the
Company.  Notwithstanding the foregoing, in the event of a proposed
dividend in liquidation or distribution to the stockholders made in respect of
the sale of all or substantially all of the Company’s assets, the Company shall
deliver a notice to the Warrant Holder at least 10 days before the date on which
the Company shall take a record of the holders of its Common Stock for the
purpose of receiving such dividend or other distribution (or if no such record
is taken, at least 10 days before the date of such payment or other
distribution), the Warrant Holder may exercise this Warrant at any time before
such record date or the date of such payment or other distribution, as
applicable, (and such exercise may be made contingent upon such payment or other
distribution), and any portion of this Warrant that has not been exercised
before such record date or the date of such payment or other distribution, as
applicable, shall terminate and expire, and shall no longer be
outstanding.

     

    (e)           Adjustment for Spin
Off.  If, for any reason, prior to the exercise of this Warrant
in full, the Company spins off or otherwise divests itself of a part of its
business or  operations or disposes all or a part of its assets in a
transaction (a “Spin
Off”) in which the Company does not receive compensation for such
business, operations or assets, but causes securities of another entity (“Spin Off Securities”)
to be issued to all or substantially all holders of Common Stock, then the
Company shall cause (i) to be reserved Spin Off Securities equal to the number
thereof  which would have been issued to the Warrant Holder in the
event that the entire unexercised portion of this Warrant outstanding on the
record date (the “Record Date”) for
determining the number of Spin Off Securities to be issued to holders of Common
Stock had been exercised by the Warrant Holder as of the close of business on
the Trading Day immediately prior to the Record Date (the “Reserved Spin Off
Shares”), and (ii) to be issued to the Warrant Holder on the exercise of
all or any unexercised portion of this Warrant, such amount of the Reserved Spin
Off  Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the  numerator is the unexercised portion
of this Warrant then being exercised, and (II) the  denominator is the
aggregate amount of the unexercised portion of this Warrant.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
7.              Notice of
Adjustments.  Whenever the Exercise Price or number of Warrant
Shares shall be adjusted pursuant to Section 6 hereof, the Company shall
promptly prepare a certificate signed by its Chief Executive Officer or Chief
Financial Officer setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company’s
Board of Directors made any determination hereunder), and the Exercise Price and
number of Warrant Shares purchasable at that Exercise Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
delivered to the Warrant Holder by a means set forth in Section 10.4 of the
Agreement.

     

    Section
8.              No
Impairment.  The Company will not, by amendment of its Charter
or Bylaws or through any reorganization, transfer of assets, consolidation,
merger, dissolution or issue or sale of securities, willfully avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrant Holder against wrongful
impairment.  Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action
as may be reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable Warrant Shares on the
exercise of this Warrant. Notwithstanding the foregoing, nothing in this Section
8 shall restrict or impair the Company’s right to effect any changes to the
rights, preferences, privileges or restrictions associated with the Warrant
Shares so long as such changes do not affect the rights, preferences, privileges
or restrictions associated with the Warrant Shares in a manner adversely
different from the effect that such changes have generally on the rights,
preferences, privileges or restrictions associated with all other shares of
Common Stock.

     

    Section
9.              Rights As
Stockholder.  Except as set forth in Section 6 above,
prior to exercise of this Warrant, the Warrant Holder shall not be entitled to
any rights as a stockholder of the Company with respect to the Warrant Shares,
including (without limitation) the right to vote such shares, receive dividends
or other distributions thereon or be notified of stockholder
meetings.

     

    Section
10.            Replacement of
Warrant.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant and, in
the case of any such loss, theft or destruction of the Warrant, upon delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

     

    Section
11.            Choice of
Law.  This Warrant shall be construed under the laws of the
State of New York.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Section
12.            Entire Agreement;
Amendments.  Except for any written instrument concurrent or
subsequent to the date hereof executed by the Company and the Investor, this
Warrant, the Agreement and the Registration Rights Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby.  No provision of this Warrant may be waived or amended other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.

     

    Section
13.            Restricted
Securities.

     

    (a)           Registration or Exemption
Required.  This Warrant has been issued in a transaction exempt
from the registration requirements of the Securities Act in reliance upon the
provisions of Section 4(2) thereof and Regulation D promulgated thereunder,
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to this Warrant.  This
Warrant and the Warrant Shares issuable upon exercise of this Warrant may not be
resold except pursuant to an effective registration statement or an exemption to
the registration requirements of the Securities Act and applicable state
laws.

     

    (b)           Legend.  Any
replacement Warrants issued pursuant to Section 2 and Section 10
hereof and, unless a registration statement has been declared effective by the
SEC and remains effective in accordance with the Securities Act with respect
thereto, any Warrant Shares issued upon exercise hereof, shall bear the
following legend:

     

    “THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.”

     

    (c)           No Other Legend or Stock
Transfer Restrictions.  No legend other than the one specified
in Section 13(b) has been or shall be placed on the share certificates
representing the Warrant Shares and no instructions or “stop transfer orders”
(so called “stock
transfer restrictions”) or other restrictions have been or shall be given
to the Company’s transfer agent with respect thereto other than as expressly set
forth in this Section 13.

     

    (d)           Assignment.  Assuming
the conditions of Section 13(a) above regarding registration or exemption
have been satisfied, the Warrant Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant (each of the foregoing, a “Transfer”), in whole
or in part, but only to an Affiliate of the Warrant Holder.  The
Warrant Holder shall deliver a written notice to Company, substantially in the
form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be Transferred and
the respective number of Warrant Shares to be covered by the warrants to be
Transferred to each assignee.  The Company shall effect the Transfer
within ten (10) days, and shall deliver to the Transferee(s) designated by the
Warrant Holder a Warrant or Warrants of like tenor and terms for the appropriate
number of shares.  In connection with and as a condition of any such
proposed Transfer, the Company may require (i) the Warrant Holder to provide an
opinion of counsel to the Warrant Holder in form and substance reasonably
satisfactory to the Company to the effect that the proposed Transfer complies
with all applicable federal and state securities laws and (ii) any such
Transferee to provide customary representations and warranties attendant to the
acquisition of unregistered securities, including without limitation the
transferee’s investment intent and status as an “accredited investor” within the
meaning of Regulation D.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (e)           Investor’s
Compliance.  Nothing in this Section 13 shall affect in
any way the Investor’s obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.

     

    Section
14.            Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be given in accordance with
Section 10.4 of the Agreement.

     

    Section
15.            Miscellaneous.  This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.  The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.  The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.

     

    Section
16.            Company Call
Right.

     

    (a)           If
a Funding Default occurs, the Company shall have the right to demand the
surrender of this Warrant or any remaining portion thereof, Warrant Shares
and/or cash from the Investor as follows (the “Call
Right”):

     

    (i)           If
the Investor has not previously exercised this Warrant in full, then the Company
shall have a right to demand the surrender of this Warrant, or remaining portion
thereof, from the Investor without compensation, and the Investor shall promptly
surrender this Warrant, or remaining portion thereof.  Following such
demand for surrender, this Warrant shall automatically be deemed to have been
canceled and shall have no further force or effect.

     

    (ii)           If,
prior to receiving a Call Right Notice (as defined below), the Investor has
previously exercised this Warrant with respect to some or all of the Warrant
Shares, and the Investor has not previously sold such Warrant Shares, then the Company shall have a right
to purchase from the Investor that number of shares of Common Stock equal to the
number of shares of Common Stock issued in connection with the exercise(s) of
the Warrant, at a repurchase price per share equal to the price per share paid
by the Investor in connection with such exercise(s).  For greater
certainty, (a) if Warrant Shares were exercised for cash, the purchase
price per share under the Call Right shall be equal to the Exercise Price,
(b) if Warrant Shares were exercised in a Cashless Exercise, the purchase
price per share for such Warrant Shares under the Call Right shall be zero, and
(c) if such Warrant Shares were exercised on both a cash and Cashless
Exercise basis, the purchase price per share under the Call Right shall be equal
to the total amount of cash paid in connection with such cash exercise(s)
divided by the total number of shares of Common Stock issued in connection with
all exercises of the Warrant (whether on a cash or Cashless Exercise
basis).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (iii)           If,
prior to receiving a Call Right Notice, the Investor has previously exercised
this Warrant with respect to some or all of the Warrant Shares, and the Investor
subsequently sold such Warrant Shares, then the Investor shall remit to the
Company the excess, if any, of (x) the proceeds received by Investor through the
sale of such Warrant Shares, over (y) the aggregate Exercise Price for such
Warrant Shares.  In the event that the Investor obtained such Warrant
Shares through a Cashless Exercise, then the Investor shall instead remit to the
Company all proceeds received by the Investor through the sale of such Warrant
Shares.  For the avoidance of doubt, in the event that the Investor
has sold some or all of the Warrant Shares prior to receiving a Call Right
Notice, then the right set forth in this paragraph (iii) shall constitute
the sole Call Right of the Company with respect to such Warrant Shares which
have been sold.

     

    (b)           The
Company may exercise the Call Right by delivering a notice (the “Call Right Notice”)
to the Investor within thirty (30) days after the occurrence of a Funding
Default.  On the tenth (10th) business day following delivery of the
Call Right Notice to the Investor, the Company shall tender the purchase price,
if any, and the Investor shall tender shares of Common Stock, if any, to be sold
to the Company pursuant to the Call Right Notice, immediately following which
the Company and the Investor shall consummate such purchase and
sale.  The Call Right shall survive both the assignment of the Warrant
by the Investor and the disposition of the Warrant Shares by the Investor
following exercise of the Warrant.

     

    [Remainder
of Page Intentionally Left Blank.  Signature Page
Follows.]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.

     

    
      
        	 	

                DISCOVERY
      LABORATORIES, INC.

              	 
	 	 	 	 
	 	
                By:
      

              	 	 
	 	 	

                Name:
      John G. Cooper

              	 
	 	 	

                Title:
      Executive Vice President and

                             Chief
      Financial Officer

              	 
	 	 	 	 


      

       

    

    Investor
acknowledges and agrees to the terms and conditions of this
Warrant.

     

    
      
        	 	

                KINGSBRIDGE
      CAPITAL LIMITED

              	 
	 	 	 	 
	 	
                By:
      

              	 	 
	 	 	

                Maria
      O'Donohue

              	 
	 	 	

                Director

              	 
	 	 	 	 


      

    

     

    
      
        
        

      

      
        
          Warrant
dated December 12, 2008 – Signature Page

        

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
A TO THE WARRANT

     

    EXERCISE
FORM

     

    DISCOVERY
LABORATORIES, INC.

     

    The
undersigned hereby irrevocably exercises the right to purchase _______________
shares of Common Stock of Discovery Laboratories, Inc., a Delaware corporation
(the “Company”), evidenced
by the attached Warrant, and (CIRCLE EITHER (i) or (ii)) (i) tenders
herewith payment of the Aggregate Exercise Price with respect to such shares in
full, in the amount of $__________, in cash, by certified or official bank check
or by wire transfer for the account of the Company or (ii) elects, pursuant
to Section 2(c) of the Warrant, to convert such Warrant into shares of
Common Stock of the Company on a cashless exercise basis, all in accordance with
the conditions and provisions of said Warrant.

     

    The
undersigned requests that stock certificates for such Warrant Shares be issued,
and a Warrant representing any unexercised portion hereof be issued, pursuant to
this Warrant, in the name of the registered Warrant Holder and delivered to the
undersigned at the address set forth below.

     

    Dated:___________________________________

    


    
      
        
          
            
              
                
                  
                    
                      	 
	
                              Signature
      of Registered Holder

                            
	 
	
                              Name
      of Registered Holder (Print)

                            
	 
	
                              Address

                            


                    

                     

                    
                      
                        
                        

                      

                      
                        i

                        
                          

                        

                      

                      
                        
                        

                      

                    

                  

                

              

            

          

        

      

    

    


    EXHIBIT
B TO THE WARRANT

     

    ASSIGNMENT

     

    (To be
executed by the registered Warrant Holder desiring to transfer the
Warrant)

     

    FOR
VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby
sells, assigns and transfers unto the persons below named the right to purchase
_______________ shares of Common Stock of Discovery Laboratories, Inc. (the
“Company”)
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.

     

    Dated:___________________________________

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    	 
	
                                            Signature

                                          
	 
	
                                            Fill
      in for new Registration of Warrant:

                                          
	 
	 
	
                                            Name

                                          
	 
	 
	
                                            Address

                                          
	 
	 
      


                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      Please
print name and address of assignee (including zip code number)

       

      
        
          
          

        

        
          ii