Document:

Exhibit
      10.2

     

    REGISTRATION
      RIGHTS AGREEMENT

     

    REGISTRATION
      RIGHTS AGREEMENT
      (this
      "Agreement"),
      dated
      as of November 22, 2006, by and among Discovery Laboratories, Inc., a Delaware
      corporation, with headquarters located at 2600 Kelly Road, Suite 100,
      Warrington, PA 18976 (the "Company"),
      and
      Capital Ventures International, a Cayman Islands company (the "Buyer").

     

    WHEREAS:

     

    A. In
      connection with the Securities Purchase Agreement by and among the parties
      hereto of even date herewith (the "Securities
      Purchase Agreement"),
      the
      Company has agreed, upon the terms and subject to the conditions set forth
      in
      the Securities Purchase Agreement, to issue and sell to the Buyer (i) shares
      (the "Common
      Shares")
      of the
      Company's common stock, par value $0.001 per share (the "Common
      Stock")
      and
      (ii) a warrant (the "Warrant"),
      which
      will be exercisable to purchase shares of Common Stock (as exercised
      collectively, the "Warrant
      Shares").

     

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

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

     

    1.  Definitions.
      

     

    Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement. As used in this
      Agreement, the following terms shall have the following meanings:

     

    a.  "Business
      Day"
      means
      any day other than Saturday, Sunday or any other day on which commercial banks
      in the City of New York are authorized or required by law to remain
      closed.

     

    b.  "Closing
      Date"
      shall
      have the meaning set forth in the Securities Purchase Agreement.

     

    c.  "Effective
      Date"
      means
      the date the Registration Statement has been declared effective by the
      SEC.

     

    d.  "Effectiveness
      Deadline"
      means
      the date (i) in the event that the Registration Statement is not subject to
      a
      full review by the SEC, ninety (90) calendar days after the Closing Date or
      (ii)
      in the event that the Registration Statement is subject to a full review by
      the
      SEC, one-hundred and twenty (120) calendar days after the Closing
      Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    e.  "Filing
      Deadline"
      means
      the date that is thirty (30) calendar days after the Closing Date.

     

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

     

    g.  "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    h.  "register,"
      "registered,"
      and
      "registration"
      refer
      to a registration effected by preparing and filing one or more Registration
      Statements (as defined below) in compliance with the 1933 Act and pursuant
      to
      Rule 415 and the declaration or ordering of effectiveness of such Registration
      Statement(s) by the SEC.

     

    i.  "Registrable
      Securities"
      means
      (i) the Common Shares, (ii) the Warrant Shares issued or issuable upon
      exercise of the Warrants, and (iii) any shares of capital stock of the Company
      issued or issuable with respect to the Common Shares, the Warrant Shares and
      the
      Warrants as a result of any stock split, stock dividend, recapitalization,
      exchange or similar event or otherwise, without regard to any limitations on
      exercises of the Warrant.

     

    j.  "Registration
      Statement"
      means a
      registration statement or registration statements of the Company filed under
      the
      1933 Act covering resale of 100% of the Registrable Securities.

     

    k.  "Required
      Holders"
      means
      the holders of at least a majority of the Registrable Securities.

     

    l.  "Rule
      415"
      means
      Rule 415 promulgated under the 1933 Act or any successor rule providing for
      offering securities on a continuous or delayed basis.

     

    m.  "SEC"
      means
      the United States Securities and Exchange Commission.

     

    2.  Registration.

     

    a.  Mandatory
      Registration.
      The
      Company shall prepare, and, as soon as practicable but in no event later than
      the Filing Deadline, file with the SEC the Registration Statement on Form S-3
      covering the resale of the Registrable Securities. In the event that Form S-3
      is
      unavailable for such a registration, the Company shall use such other form
      as is
      available for such a registration on another appropriate form reasonably
      acceptable to the Required Holders, subject to the provisions of Section 2(d).
      The Registration Statement shall contain (except if otherwise agreed with the
      Required Holders) the "Selling
      Stockholder"
      and
      "Plan
      of Distribution"
      sections in substantially the form attached hereto as Exhibit
      B.
      The
      Company shall use its best efforts to have the Registration Statement declared
      effective by the SEC as soon as practicable, but in no event later than the
      Effectiveness Deadline. By 9:30 am on the Business Day following the Effective
      Date, the Company shall file with the SEC in accordance with Rule 424 under
      the
      1933 Act the final prospectus to be used in connection with sales pursuant
      to
      such Registration Statement.

     

    
      
        
        

      

      
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    b.  Exclusivity
      of Registrable Securities.
      In no
      event shall the Company include any securities other than Registrable Securities
      on any Registration Statement without the prior written consent of the
      Holder.

     

    c.  Ineligibility
      for Form S-3.
      In the
      event that Form S-3 is not available for the registration of the resale of
      Registrable Securities hereunder, the Company shall (i) register the resale
      of the Registrable Securities on another appropriate form reasonably acceptable
      to the Required Holders and (ii) undertake to register the Registrable
      Securities on Form S-3 as soon as such form is available, provided that the
      Company shall maintain the effectiveness of the Registration Statement then
      in
      effect until such time as a Registration Statement on Form S-3 covering the
      Registrable Securities has been declared effective by the SEC.

     

    d.  Sufficient
      Number of Shares Registered.
      In the
      event that at any time the number of shares available under a Registration
      Statement filed pursuant to Section 2(a) is insufficient to cover all of the
      Registrable Securities required to be covered by such Registration Statement,
      the Company shall amend the applicable Registration Statement, or file a new
      Registration Statement (on the short form available therefor, if applicable),
      or
      both, so as to cover all of the Registrable Securities. The Company shall use
      its best efforts to cause such amendment and/or new Registration Statement
      to
      become effective as soon as practicable following the filing thereof.

     

    e.  Registration
      and Related Defaults.
      Should
      an
      Event (as defined below) occur, then upon the occurrence of such Event, and
      on
      every monthly anniversary thereof until the applicable Event is cured, as
      partial relief for the damages suffered therefrom by the Buyer (which remedy
      shall not be exclusive of any other remedies available under this Agreement,
      at
      law or in equity), the Company shall pay to the Buyer an amount in cash, as
      liquidated damages and not as a penalty, equal to 1.0% (the “Percentage”)
      of the
      aggregate purchase price paid by the Buyer for the Securities; provided that
      if
      the Event shall continue, beginning with the first month following such Event,
      the Percentage shall be increased to 1.5%. The payments to which the Buyer
      shall
      be entitled pursuant to this Section 2(e) are referred to herein as
      "Event
      Payments".
      In the
      event the Company fails to make Event Payments in a timely manner, such Event
      Payments shall bear interest at the rate of 1.0% per month until paid in full.
      In
      no
      event shall the aggregate Event Payments required to be paid hereunder exceed
      7%
      of the aggregate purchase price payable for the Registrable Securities.
For
      such
      purposes, each of the following shall constitute an “Event”:

     

    (i)  the
      Registration Statement is not filed on or prior to the Filing Date;

     

    (ii)  the
      Registration Statement is not declared effective on or prior to the
      Effectiveness Deadline;

     

    
      
        
        

      

      
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    (iii)   except
      (A) as provided for in Section 3(r), (B) if the Company is involved in
      a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act,
      or
      (C) a merger or consolidation of the Company or a sale of more than
      one-half of the assets of the Company in one or a series of related
      transactions, unless following such transaction or series of transactions,
      the
      holders of the Company's securities prior to the first such transaction continue
      to hold at least 50% of the voting rights and equity interests of the surviving
      entity or acquirer (clauses (B) and (C), collectively, the "Excluded
      Events"),
      after
      the Effective Date, the Buyer is not permitted to sell Registrable Securities
      under the Registration Statement (or a subsequent Registration Statement filed
      in replacement thereof) for any reason (other than the fault of such Buyer)
      for
      any period in excess of the Applicable Grace Period (as defined in Section
      3q);

     

    (iv)   except
      as
      a result of the Excluded Events, the Common Stock is not listed or quoted,
      or is
      suspended from trading, on the Principal Market (as defined in the Warrant)
      for
      a period of three Trading Days (which need not be consecutive Trading Days)
      during the Registration Period;
      or

     

    (v)   the
      Company fails to have available a sufficient number of authorized but unissued
      and otherwise unreserved shares of Common Stock available to issue Warrant
      Shares upon any exercise of the Warrant or, except as a result of the Excluded
      Events, during the Registration Period, any Common Shares or Warrant Shares
      are
      not listed on the
      Principal Market.

     

    3.  Related
      Obligations.

     

    At
      such
      time as the Company is obligated to file a Registration Statement with the
      SEC
      pursuant to Section 2(a), 2(d) or 2(e), the Company will use its best efforts
      to
      effect the registration of the Registrable Securities in accordance with the
      intended method of disposition thereof and, pursuant thereto, the Company shall
      have the following obligations:

     

    a.  The
      Company shall submit to the SEC, within two (2) Business Days after the Company
      learns that no review of a particular Registration Statement will be made by
      the
      staff of the SEC or that the staff has no further comments on a particular
      Registration Statement, as the case may be, a request for acceleration of
      effectiveness of such Registration Statement to a time and date not later than
      two (2) Business Days after the submission of such request. The
      Company shall keep each Registration Statement effective pursuant to Rule 415
      at
      all times until the earlier of (i) the date as of which the Investors may sell
      all of the Registrable Securities covered by such Registration Statement without
      restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
      under
      the 1933 Act (without Cashless Exercise of the Warrants) or (ii) the date on
      which the Investors shall have sold all of the Registrable Securities covered
      by
      such Registration Statement (the "Registration
      Period").
      The
      Company shall ensure that each Registration Statement (including any amendments
      or supplements thereto and prospectuses contained therein) shall not contain
      any
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein, or necessary to make the statements therein (in the case
      of
      prospectuses, in the light of the circumstances in which they were made) not
      misleading.

     

    
      
        
        

      

      
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    b.  The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to a Registration Statement and
      the
      prospectus used in connection with such Registration Statement, which prospectus
      is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may
      be
      necessary to keep such Registration Statement effective at all times during
      the
      Registration Period, and, during such period, comply with the provisions of
      the
      1933 Act with respect to the disposition of all Registrable Securities of the
      Company covered by such Registration Statement until such time as all of such
      Registrable Securities shall have been disposed of in accordance with the
      intended methods of disposition by the seller or sellers thereof as set forth
      in
      such Registration Statement. In the case of amendments and supplements to a
      Registration Statement which are required to be filed pursuant to this Agreement
      (including pursuant to this Section 3(b)) by reason of the Company filing a
      report on Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB or any analogous report
      under the Securities Exchange Act of 1934, as amended (the "1934
      Act"),
      the
      Company shall have incorporated such report by reference into such Registration
      Statement, if applicable, or shall file such amendments or supplements with
      the
      SEC on the same day on which the 1934 Act report is filed which created the
      requirement for the Company to amend or supplement such Registration
      Statement.

     

    c.  The
      Company shall permit the Buyer to review and comment upon the “Selling
      Stockholders” and “Plan of Distribution” sections of the Registration Statement
      or any related Prospectus or amendment or supplement thereto and any risk factor
      contained in such document that addresses specifically the transactions
      contemplated under the Securities Purchase Agreement, as proposed to be filed;
      (i) in the case of a Registration Statement, not less than three (3) Business
      Days prior to its filing with the SEC and (ii) in the case of any amendments
      and
      supplements to a Registration Statement (except for reports or other filings
      made pursuant to the 1934 Act), within a reasonable number of days prior to
      their filing with the SEC; provided that, the failure of any Investor or its
      counsel to respond to such proposed documents within two business days after
      receipt thereof shall be deemed approval of same; and provided, further, that
      no
      such review and comment shall inhibit the Company from filing the Registration
      Statement or otherwise from complying with its obligations under this Agreement
      or under the 1933 Act or 1934 Act. The Company shall furnish to the Buyer,
      without charge, upon the Buyer’s request (i) copies of any correspondence from
      the SEC or the staff of the SEC to the Company or its representatives relating
      to the “Selling Stockholders” and “Plan of Distribution” sections of the
      Registration Statement and (ii) such number of copies of the Registration
      Statement, any amendment(s) thereto, and prospectuses as may be required by
      the
      1933 Act and such other documents as the Buyer may reasonably
      request.

     

    d.  The
      Company shall furnish to each Investor, without charge and upon such Investor’s
      request, such number of copies of the Registration Statement, any amendment(s)
      thereto, and prospectuses as may be required by the 1933 Act and such other
      documents as such Investor may reasonably request. from time to time in order
      to
      facilitate the disposition of the Registrable Securities owned by such
      Investor.

     

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

     

    
      
        
        

      

      
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    f.  The
      Company shall notify each Investor in writing of the happening of any event,
      as
      promptly as practicable after becoming aware of such event, as a result of
      which
      the prospectus included in a Registration Statement, as then in effect, includes
      an untrue statement of a material fact or omission to state a material fact
      required to be stated therein or necessary to make the statements therein,
      in
      the light of the circumstances under which they were made, not misleading
      (provided that in no event shall such notice contain any material, nonpublic
      information), and, subject to Section 3(r), promptly prepare a supplement or
      amendment to such Registration Statement to correct such untrue statement or
      omission. The Company shall also promptly notify each Investor in writing (i)
      when a prospectus or any prospectus supplement or post-effective amendment
      has
      been filed, and when a Registration Statement or any post-effective amendment
      has become effective (notification of such effectiveness shall be delivered
      to
      each Investor by facsimile on the same day of such effectiveness and by
      overnight mail), (ii) of any request by the SEC for amendments or supplements
      to
      a Registration Statement or related prospectus or related information, and
      (iii)
      of the Company's reasonable determination that a post-effective amendment to
      a
      Registration Statement would be appropriate.

     

    g.  The
      Company shall use its best efforts to prevent the issuance of any stop order
      or
      other suspension of effectiveness of a Registration Statement, or the suspension
      of the qualification of any of the Registrable Securities for sale in any
      jurisdiction and, if such an order or suspension is issued, to obtain the
      withdrawal of such order or suspension at the earliest possible moment and
      to
      notify each Investor who holds Registrable Securities being sold of the issuance
      of such order and the resolution thereof or its receipt of notice of the
      initiation or threat of any proceeding for such purpose.

     

    h.  The
      Company shall hold in confidence and not make any disclosure of information
      concerning an Investor provided to the Company unless (i) disclosure of such
      information is necessary to comply with federal or state securities laws, (ii)
      the disclosure of such information is necessary to avoid or correct a
      misstatement or omission in any Registration Statement, (iii) the release of
      such information is ordered pursuant to a subpoena or other final,
      non-appealable order from a court or governmental body of competent jurisdiction
      or (iv) such information has been made generally available to the public other
      than by disclosure in violation of this Agreement. If the Company becomes
      legally compelled (by subpoena, civil or criminal investigative demand or
      similar process) to make any disclosure that is prohibited or otherwise
      constrained by this Agreement, the Company shall give prompt written notice
      to
      such Investor and allow such Investor, at the Investor's expense, to undertake
      appropriate action to prevent disclosure of, or to obtain a protective order
      for, such information.

     

    
      
        
        

      

      
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    i.  The
      Company shall use its best efforts either to (i) cause all of the Registrable
      Securities covered by a Registration Statement to be listed on each securities
      exchange on which securities of the same class or series issued by the Company
      are then listed, if any, if the listing of such Registrable Securities is then
      permitted under the rules of such exchange, or (ii) secure designation and
      quotation of all of the Registrable Securities covered by a Registration
      Statement on The NASDAQ Global Market. The Company shall pay all fees and
      expenses in connection with satisfying its obligation under this Section
      3(i).

     

    j.  The
      Company shall cooperate with the Investors who hold Registrable Securities
      being
      offered and, to the extent applicable, facilitate the timely preparation and
      delivery of certificates (bearing any applicable restrictive legend)
      representing the Registrable Securities to be offered pursuant to a Registration
      Statement and enable such certificates to be in such denominations or amounts,
      as the case may be, as the Investors may reasonably request and registered
      in
      such names as the Investors may request.

     

    k.  The
      Company shall use its best efforts to comply with all applicable rules and
      regulations of the SEC in connection with any registration
      hereunder.

     

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

     

    m.  The
      Company shall use its best efforts to cause the Registrable Securities covered
      by a Registration Statement to be registered with or approved by such other
      governmental agencies or authorities as may be necessary to consummate the
      disposition of such Registrable Securities.

     

    n.  The
      Company shall make generally available to its security holders as soon as
      practical, but not later than ninety (90) days after the close of the period
      covered thereby, an earnings statement (in form complying with, and in the
      manner provided by, the provisions of Rule 158 under the 1933 Act) covering
      a
      twelve-month period beginning not later than the first day of the Company's
      fiscal quarter next following the effective date of a Registration Statement.
      

     

    
      
        
        

      

      
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    o.  The
      Company shall otherwise use its best efforts to comply with all applicable
      rules
      and regulations of the SEC in connection with any registration
      hereunder.

     

    p.  Within
      two (2) Business Days after a Registration Statement which covers Registrable
      Securities is ordered effective by the SEC, the Company shall deliver, and
      shall
      cause legal counsel for the Company to deliver, to the transfer agent for such
      Registrable Securities (with copies to the Investors whose Registrable
      Securities are included in such Registration Statement) confirmation that such
      Registration Statement has been declared effective by the SEC in the form
      attached hereto as Exhibit
      A.

     

    q.  Notwithstanding
      anything to the contrary herein, at any time after the Effective Date, the
      Company may delay the disclosure of material, non-public information concerning
      the Company the disclosure of which at the time is not, in the good faith
      opinion of the Board of Directors of the Company and its counsel, in the best
      interest of the Company and, in the opinion of counsel to the Company, otherwise
      required (a "Grace
      Period");
      provided, that the Company shall promptly (i) notify the Investors in writing
      of
      the existence of material, non-public information giving rise to a Grace Period
      (provided that in each notice the Company will not disclose the content of
      such
      material, non-public information to the Investors) and the date on which the
      Grace Period will begin, and (ii) notify the Investors in writing of the date
      on
      which the Grace Period ends; and, provided further, that no Grace Period shall
      exceed twenty (20) consecutive days or an aggregate of sixty (60) days during
      any three hundred sixty five (365) day period (an "Allowable
      Grace Period").
      For
      purposes of determining the length of a Grace Period above, the Grace Period
      shall begin on and include the date the Investors receive the notice referred
      to
      in clause (i) and shall end on and include the later of the date the Investors
      receive the notice referred to in clause (ii) and the date referred to in such
      notice. The provisions of Section 3(g) hereof shall not be applicable during
      the
      period of any Allowable Grace Period. Upon expiration of the Grace Period,
      the
      Company shall again be bound by the first sentence of Section 3(f) with respect
      to the information giving rise thereto unless such material, non-public
      information is no longer applicable. Notwithstanding anything to the contrary,
      the Company shall cause its transfer agent to deliver unlegended shares of
      Common Stock to a transferee of an Investor in accordance with the terms of
      the
      Securities Purchase Agreement in connection with any sale of Registrable
      Securities with respect to which an Investor has entered into a contract for
      sale, and delivered a copy of the prospectus included as part of the applicable
      Registration Statement (unless an exemption from such prospectus delivery
      requirement exists), prior to the Investor's receipt of the notice of a Grace
      Period and for which the Investor has not yet settled. 

     

    4.  Obligations
      of the Investors.

     

    a.  At
      least
      five (5) Business Days prior to the first anticipated filing date of a
      Registration Statement, the Company shall notify each Investor in writing of
      the
      information the Company requires from each such Investor if such Investor elects
      to have any of such Investor's Registrable Securities included in such
      Registration Statement. It shall be a condition precedent to the obligations
      of
      the Company to complete the registration pursuant to this Agreement with respect
      to the Registrable Securities of a particular Investor that such Investor shall
      furnish to the Company such information regarding itself, the Registrable
      Securities held by it and the intended method of disposition of the Registrable
      Securities held by it as shall be reasonably required to effect the
      effectiveness of the registration of such Registrable Securities and shall
      execute such documents in connection with such registration as the Company
      may
      reasonably request. 

     

    
      
        
        

      

      
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    b.  Each
      Investor, by such Investor's acceptance of the Registrable Securities, agrees
      to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of any Registration Statement hereunder, unless
      such Investor has notified the Company in writing of such Investor's election
      to
      exclude all of such Investor's Registrable Securities from such Registration
      Statement.

     

    c.  Each
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(g) or the first
      sentence of 3(f), such Investor will immediately discontinue disposition of
      Registrable Securities pursuant to any Registration Statement(s) covering such
      Registrable Securities until such Investor's receipt of the copies of the
      supplemented or amended prospectus contemplated by Section 3(g) or the first
      sentence of 3(f) or receipt of notice that no supplement or amendment is
      required. Notwithstanding anything to the contrary, the Company shall cause
      its
      transfer agent to deliver unlegended shares of Common Stock to a transferee
      of
      an Investor in accordance with the terms of the Securities Purchase Agreement
      in
      connection with any sale of Registrable Securities with respect to which an
      Investor has entered into a contract for sale prior to the Investor's receipt
      of
      a notice from the Company of the happening of any event of the kind described
      in
      Section 3(g) or the first sentence of 3(f) and for which the Investor has not
      yet settled.

     

    d.  Each
      Investor covenants and agrees that it will comply with the prospectus delivery
      requirements of the 1933 Act as applicable to it or an exemption therefrom
      in
      connection with sales of Registrable
      Securities pursuant to the Registration Statement.

     

    5.  Expenses
      of Registration.

     

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

     

    6.  Indemnification.

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    7.  Contribution.

     

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

     

    8.  Reports
      Under the 1934 Act.
      

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

       

    

    9.  Assignment
      of Registration Rights.
      

     

    The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of such Investor's Registrable
      Securities if: (i) the Investor agrees in writing with the transferee or
      assignee to assign such rights and a copy of such agreement is furnished to
      the
      Company within a reasonable time after such assignment; (ii) the Company is,
      within a reasonable time after such transfer or assignment, furnished with
      written notice of (a) the name and address of such transferee or assignee and
      (b) the securities with respect to which such registration rights are being
      transferred or assigned; (iii) immediately following such transfer or assignment
      the further disposition of such securities by the transferee or assignee is
      restricted under the 1933 Act or applicable state securities laws; (iv) at
      or
      before the time the Company receives the written notice contemplated by clause
      (ii) of this sentence the transferee or assignee agrees in writing with the
      Company to be bound by all of the provisions contained herein; and (v) such
      transfer shall have been made in accordance with the applicable requirements
      of
      the Securities Purchase Agreement.

     

    10.  Amendment
      of Registration Rights.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with the written consent of the Company and the Holder.
      Any
      amendment or waiver effected in accordance with this Section 10 shall be binding
      upon each Investor and the Company. No such amendment shall be effective to
      the
      extent that it applies to less than all of the holders of the Registrable
      Securities. No consideration shall be offered or paid to any Person to amend
      or
      consent to a waiver or modification of any provision of any of this Agreement
      unless the same consideration also is offered to all of the parties to this
      Agreement.

     

    11.  Miscellaneous.

     

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

     

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

     

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    If
      to the
      Company: 

     

    Discovery
      Laboratories, Inc.

    2600
      Kelly Road, Suite 100

    Warrington,
      PA 18976

    Telephone: (215)
      488-9300

    Facsimile: (215)
      488-9301

    Attention: John
      G.
      Cooper, CFO

    

    with
      a
      copy to:

     

    Dickstein
      Shapiro LLP

    1177
      Avenue of the Americas

    New
      York,
      NY 10036-2714

    Telephone: (212)
      277-6686

    Facsimile: (212)
      277-6501

    Attn:
      Ira
      L. Kotel

    

    If
      to
      Buyer:

    

    Capital
      Ventures International

    c/o
      Heights Capital Management, Inc.

    101
      California Street, Suite 3250

    San
      Francisco, CA 94111

    Telephone: (415)
      403-6500

    Facsimile: (415)
      403-6525

    Attention: Martin
      Kobinger

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender's facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by a
      courier or overnight courier service shall be rebuttable evidence of personal
      service, receipt by facsimile or receipt from a nationally recognized overnight
      delivery service in accordance with clause (i), (ii) or (iii) above,
      respectively.

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

       

    

    j.  All
      consents and other determinations required to be made by the Investors pursuant
      to this Agreement shall be made, unless otherwise specified in this Agreement,
      by the Required Holders.

     

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

     

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

     

    m.  The
      obligations of each Investor hereunder are several and not joint with the
      obligations of any other Investor, and no provision of this Agreement is
      intended to confer any obligations on any Investor vis-à-vis any other Investor.
      Nothing contained herein, and no action taken by any Investor pursuant hereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated herein.

     

    *
      * * * *
      *

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	 	 	 
	 	
              COMPANY:

            
	 	 
	 	DISCOVERY
              LABORATORIES, INC.
	 
 	 
 	 
 
	 	By:  	
              /s/
                John Cooper

            
	 	
              
                

              

              Name:  John
                Cooper

              Title:    Executive
                Vice President & CFO

            
	 	 

    
      	 	 	 
	 	
              
                BUYER:

              

            
	 	 
	 	
              CAPITAL
                VENTURES INTERNATIONAL

            
	 	By:
              Heights Capital Management, Inc.,
              its
                authorized signatory

            
	 
 	 
 	 
 
	 	By:  	
              /s/
                Martin Kobinger

            
	 	
              

              Name:  
                Martin Kobinger

              Title:    Investment
                Manager

            
	 	 

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

    

    FORM
      OF NOTICE OF EFFECTIVENESS

     

    OF
      REGISTRATION STATEMENT

     

    [   ]

    [   ]

    [   ]

    Attention:
      [                       
]

     

    Re:     Discovery
      Laboratories, Inc.

    Ladies
      and Gentlemen:

     

    [We
      are][I am] counsel to Discovery Laboratories, Inc., a Delaware corporation
      (the
      "Company"),
      and
      have represented the Company in connection with that certain Securities Purchase
      Agreement (the "Securities
      Purchase Agreement")
      entered into by and among the Company and the buyer named therein (collectively,
      the "Holder")
      pursuant to which the Company issued to the Holder shares (the “Common
      Shares”)
      of the
      Company's common stock, $0.001 par value per share (the "Common
      Stock")
      and a
      warrant exercisable for shares of Common Stock (the "Warrant").
      Pursuant to the Securities Purchase Agreement, the Company also has entered
      into
      a Registration Rights Agreement with the Holder (the "Registration
      Rights Agreement")
      pursuant to which the Company agreed, among other things, to register the
      Registrable Securities (as defined in the Registration Rights Agreement),
      including the shares of Common Stock issuable upon exercise of the Warrants,
      under the Securities Act of 1933, as amended (the "1933
      Act").
      In
      connection with the Company's obligations under the Registration Rights
      Agreement, on ____________ ___, 200_, the Company filed a Registration Statement
      on Form S-3 (File No. 333-_____________) (the "Registration
      Statement")
      with
      the Securities and Exchange Commission (the "SEC")
      relating to the Registrable Securities which names each of the Holders as a
      selling stockholder thereunder.

     

    In
      connection with the foregoing, [we][I] advise you that a member of the SEC's
      staff has advised [us][me] by telephone that the SEC has entered an order
      declaring the Registration Statement effective under the 1933 Act at
[ENTER
      TIME OF EFFECTIVENESS]
      on
[ENTER
      DATE OF EFFECTIVENESS]
      and
      [we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
      staff, that any stop order suspending its effectiveness has been issued or
      that
      any proceedings for that purpose are pending before, or threatened by, the
      SEC
      and the Registrable Securities are available for resale under the 1933 Act
      pursuant to the Registration Statement.

     

    This
      letter shall serve as our standing instruction to you that the shares of Common
      Stock are freely transferable by the Holder pursuant to the Registration
      Statement. You need not require further letters from us to effect any future
      legend-free issuance or reissuance of shares of Common Stock to the Holder
      as
      contemplated by the Company's Irrevocable Transfer Agent Instructions dated
      November __, 2006, provided at the time of such reissuance, the Company has
      not
      otherwise notified you that the Registration Statement is unavailable for the
      resale of the Registrable Securities.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	Very
              truly
              yours,
	 	[ISSUER'S
              COUNSEL]
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	 

    

    CC: 
      Capital
      Ventures International

    
       

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

     

    SELLING
      STOCKHOLDER

     

    The
      shares of common stock being offered by the selling stockholder are those
      previously issued to the Selling Stockholder and those issuable to the Selling
      Stockholder upon exercise of the warrants. For additional information regarding
      the issuances of common stock and the warrants, see "Private Placement of Common
      Shares and Warrants" above. We are registering the shares of common stock in
      order to permit the selling stockholder to offer the shares for resale from
      time
      to time. Except for the ownership of the shares of common stock and the
      warrants, the selling stockholder have not had any material relationship with
      us
      within the past three years.

     

    The
      table
      below lists the selling stockholder and other information regarding the
      beneficial ownership of the shares of common stock by the selling stockholder.
      The second column lists the number of shares of common stock beneficially owned
      by the selling shareholder, based on its ownership of the shares of common
      stock
      and the warrants, as of ________, 2006, assuming exercise of the warrants held
      by the selling stockholder on that date, without regard to any limitations
      on
      exercise.

     

    The
      third
      column lists the shares of common stock being offered by this prospectus by
      the
      selling stockholder.

     

    In
      accordance with the terms of registration rights agreements with the holder
      of
      the shares of common stock and the warrants, this prospectus generally covers
      the resale of that number of shares of common stock equal to the number of
      shares of common stock issued and the shares of common stock issuable upon
      exercise of the related warrants, determined as if the outstanding warrants
      were
      exercised, as applicable, in full, in each case, as of the trading day
      immediately preceding the date this registration statement was initially filed
      with the SEC. The fourth column assumes the sale of all of the shares offered
      by
      the selling stockholder pursuant to this prospectus.

     

    Under
      the
      terms of the warrants, a selling shareholder may not exercise the warrants,
      to
      the extent such exercise would cause such selling shareholder, together with
      its
      affiliates, to beneficially own a number of shares of common stock which would
      exceed 9.99% of our then outstanding shares of common stock following such
      exercise, excluding for purposes of such determination shares of common stock
      issuable upon exercise of the warrants which have not been exercised. The number
      of shares in the second column does not reflect this limitation. The selling
      stockholder may sell all, some or none of their shares in this offering. See
      "Plan of Distribution."

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

    
      	
               

              Name
                of Selling Shareholder

            	
              Number
                of Shares Owned 

              Prior
                to Offering

            	
              Maximum
                Number of Shares 

              to
                be Sold Pursuant to this 

              Prospectus

            	
              Number
                of Shares Owned 

              After
                Offering

            
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

     

    [Footnotes]

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

    

    PLAN
      OF DISTRIBUTION

     

    We
      are
      registering the shares of common stock previously issued and the shares of
      common stock issuable upon exercise of the warrants to permit the resale of
      these shares of common stock by the holders of the common stock and warrants
      from time to time after the date of this prospectus. We will not receive any
      of
      the proceeds from the sale by the selling stockholder of the shares of common
      stock. We will bear all fees and expenses incident to our obligation to register
      the shares of common stock.

     

    The
      selling stockholder may sell all or a portion of the shares of common stock
      beneficially owned by them and offered hereby from time to time directly or
      through one or more underwriters, broker-dealers or agents. If the shares of
      common stock are sold through underwriters or broker-dealers, the selling
      stockholder will be responsible for underwriting discounts or commissions or
      agent's commissions. The shares of common stock may be sold in one or more
      transactions at fixed prices, at prevailing market prices at the time of the
      sale, at varying prices determined at the time of sale, or at negotiated prices.
      These sales may be effected in transactions, which may involve crosses or block
      transactions, 

     

    
      	·  	
              on
                any national securities exchange or quotation service on which the
                securities may be listed or quoted at the time of
                sale;

            

    

     

    
      	·  	
              in
                the over-the-counter market;

            

    

     

    
      	·  	
              in
                transactions otherwise than on these exchanges or systems or in the
                over-the-counter market;

            

    

     

    
      	·  	
              through
                the writing of options, whether such options are listed on an options
                exchange or otherwise;

            

    

     

    
      	·  	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	·  	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	·  	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	·  	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	·  	
              privately
                negotiated transactions;

            

    

     

    
      	·  	
              short
                sales;

            

    

     

    
      	·  	
              sales
                pursuant to Rule 144;

            

    

     

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              broker-dealers
                may agree with the selling securityholders to sell a specified number
                of
                such shares at a stipulated price per
                share;

            

    

     

    
      	·  	
              a
                combination of any such methods of sale;
                and

            

    

     

    
      	·  	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    If
      the
      selling stockholder effects such transactions by selling shares of common stock
      to or through underwriters, broker-dealers or agents, such underwriters,
      broker-dealers or agents may receive commissions in the form of discounts,
      concessions or commissions from the selling stockholder or commissions from
      purchasers of the shares of common stock for whom they may act as agent or
      to
      whom they may sell as principal (which discounts, concessions or commissions
      as
      to particular underwriters, broker-dealers or agents may be in excess of those
      customary in the types of transactions involved). In connection with sales
      of
      the shares of common stock or otherwise, the selling stockholder may enter
      into
      hedging transactions with broker-dealers, which may in turn engage in short
      sales of the shares of common stock in the course of hedging in positions they
      assume. The selling stockholder may also sell shares of common stock short
      and
      deliver shares of common stock covered by this prospectus to close out short
      positions and to return borrowed shares in connection with such short sales.
      The
      selling stockholder may also loan or pledge shares of common stock to
      broker-dealers that in turn may sell such shares.

     

    The
      selling stockholder may pledge or grant a security interest in some or all
      of
      the warrants or shares of common stock owned by them and, if they default in
      the
      performance of their secured obligations, the pledgees or secured parties may
      offer and sell the shares of common stock from time to time pursuant to this
      prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
      applicable provision of the Securities Act of 1933, as amended, amending, if
      necessary, the list of selling stockholder to include the pledgee, transferee
      or
      other successors in interest as selling stockholders under this prospectus.
      The
      selling stockholder also may transfer and donate the shares of common stock
      in
      other circumstances in which case the transferees, donees, pledgees or other
      successors in interest will be the selling beneficial owners for purposes of
      this prospectus.

     

    The
      selling stockholder and any broker-dealer participating in the distribution
      of
      the shares of common stock may be deemed to be "underwriters" within the meaning
      of the Securities Act, and any commission paid, or any discounts or concessions
      allowed to, any such broker-dealer may be deemed to be underwriting commissions
      or discounts under the Securities Act. At the time a particular offering of
      the
      shares of common stock is made, a prospectus supplement, if required, will
      be
      distributed which will set forth the aggregate amount of shares of common stock
      being offered and the terms of the offering, including the name or names of
      any
      broker-dealers or agents, any discounts, commissions and other terms
      constituting compensation from the selling stockholder and any discounts,
      commissions or concessions allowed or reallowed or paid to
      broker-dealers.

     

    Under
      the
      securities laws of some states, the shares of common stock may be sold in such
      states only through registered or licensed brokers or dealers. In addition,
      in
      some states the shares of common stock may not be sold unless such shares have
      been registered or qualified for sale in such state or an exemption from
      registration or qualification is available and is complied with.

     

    
      
        
        

      

      
        B-4

        
          

        

      

      
        
        

      

       

    

    There
      can
      be no assurance that any selling shareholder will sell any or all of the shares
      of common stock registered pursuant to the shelf registration statement, of
      which this prospectus forms a part.

     

    The
      selling stockholder and any other person participating in such distribution
      will
      be subject to applicable provisions of the Securities Exchange Act of 1934,
      as
      amended, and the rules and regulations thereunder, including, without
      limitation, Regulation M of the Exchange Act, which may limit the timing of
      purchases and sales of any of the shares of common stock by the selling
      stockholder and any other participating person. Regulation M may also restrict
      the ability of any person engaged in the distribution of the shares of common
      stock to engage in market-making activities with respect to the shares of common
      stock. All of the foregoing may affect the marketability of the shares of common
      stock and the ability of any person or entity to engage in market-making
      activities with respect to the shares of common stock.

     

    We
      will
      pay all expenses of the registration of the shares of common stock pursuant
      to
      the registration rights agreement, estimated to be
      $[     ] in total, including, without limitation,
      Securities and Exchange Commission filing fees and expenses of compliance with
      state securities or "blue sky" laws; provided, however, that a selling
      shareholder will pay all underwriting discounts and selling commissions, if
      any.
      We will indemnify the selling stockholder against liabilities, including some
      liabilities under the Securities Act, in accordance with the registration rights
      agreements, or the selling stockholder will be entitled to contribution. We
      may
      be indemnified by the selling stockholder against civil liabilities, including
      liabilities under the Securities Act, that may arise from any written
      information furnished to us by the selling shareholder specifically for use
      in
      this prospectus, in accordance with the related registration rights agreements,
      or we may be entitled to contribution.

     

    Once
      sold
      under the shelf registration statement, of which this prospectus forms a part,
      the shares of common stock will be freely tradable in the hands of persons
      other
      than our affiliates.

     

    
      
        
        

      

      
        B-5Exhibit
      10.1

    

    STOCK
      TRANSFER AGREEMENT

    THIS
      AGREEMENT
      made and
      entered into this 25th day of October 2006, by and between Universal Capital
      Management, Inc., a Delaware corporation (the “Company”);
      and
      David M. Bovi (“Bovi”).

    

    WHEREAS,
      Bovi
      has exercised in full an option to purchase up to Four Hundred Thousand
      (400,000) shares of the common stock of the Company at a price of Two Dollars
      ($2.00) per share issued pursuant to the Company’s 2006 Equity Incentive Plan
      (the “Plan”);

     

    WHEREAS,
      Bovi
      has paid the aggregate exercise price by delivery of an $800,000 promissory
      note
      (“Promissory
      Note”),
      which
      complies with the terms of the Plan;

     

    WHEREAS,
      Bovi is
      willing to pay all of the principal and interest due under the Promissory Note
      with his transfer to the Company of 1,000,000 shares of Extreme Visual
      Technologies, Inc. common stock (“EVT
      Common Stock”);

    

    WHEREAS,
      the
      Company agrees to accept 1,000,000 shares of EVT Common Stock as full payment
      and satisfaction of the entire principal and interest amount due under the
      Promissory Note.

    

    NOW
      THEREFORE,
      in
      consideration of the premises and the mutual covenants, the parties agree as
      follows:

    	1.  	
            Transfer
              of Securities.
              Subject to and in accordance with the terms and conditions of this
              Stock
              Transfer Agreement (“Agreement”),
              Bovi agrees to transfer to the Company and the Company agrees to accept
              from Bovi 1,000,000 shares of EVT Common Stock as full payment and
              satisfaction of the entire principal and interest amount due under
              the
              Promissory Note.

          

    

    	2.  	
            Delivery
              of Items; Effect. 

          

    

    	2.1  	
            Upon
              the closing of this Agreement, Bovi shall deliver to the Company a
              stock
              certificate representing 1,000,000 shares of fully paid and non-assessable
              shares of EVT Common Stock issued in the Company’s name;
              

          

    

    	2.2  	
            Upon
              the closing of this Agreement, the Company shall deliver to Bovi: (i)
              a
              properly executed Satisfaction of Note, in the form of Exhibit
              A
              hereto, evidencing receipt of full payment and satisfaction of the
              entire
              principal and interest amount due under the Promissory Note; and (ii)
              the
              certificate(s) representing the shares of the capital stock of the
              Company
              registered in the name of Bovi that secured the Promissory Note pursuant
              to the security agreement of even date
              thereof.

          

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    	3.  	
            Representations
              and Warranties of Bovi.
              Bovi represents and warrants to the Company as
              follows:

          

     

    	3.1  	
            Title
              to Shares of Common Stock.
              Bovi has good and marketable title to the shares of EVT Common Stock
              to be
              transferred pursuant to this Agreement. There is no third party lien,
              claim or interest against such shares, currently or threatened, and
              such
              shares are unencumbered.

          

    

    	3.2  	
            Transferability
              of Shares of Common Stock.
              Bovi has full power and authority to transfer the shares of EVT Common
              Stock to be transferred pursuant to this Agreement, and the execution,
              delivery and performance of this Agreement does not require the consent,
              approval or authorization of any third party, including any governmental
              authority, other than as described herein.

          

    

    	3.3  	
            No
              Conflict.
              The execution and delivery of this Agreement and the consummation of
              the
              transactions contemplated hereby shall not result in a breach of, or
              constitute a default under or a violation of the provisions of any
              agreement or other instrument to which each of them is a party or by
              which
              each of them is bound or of any law, ordinance, regulation, decree
              or
              order applicable to them.

          

    

    	3.4  	
            No
              Untrue Statements.
              In
              connection with the execution and delivery of this Agreement and the
              consummation of the transactions contemplated hereby, no statement
              any of
              them has made in this Agreement, and no written statement contained
              in any
              certificate, schedule or other document required to be furnished by
              any of
              them to the Company pursuant to this Agreement, contains or will contain
              any untrue statement of a material fact, or omits or will omit to state
              a
              material fact necessary in order to make the statements not
              misleading.

          

    

    	4.  	
            Time
              of Closing.
              The closing under this Agreement shall take place upon the date of
              execution of this Agreement (the “Closing
              Event”).
              

          

    

    	5.  	
            Transfer
              Documents.
              Each of the parties hereto shall (i) make such other agreements and
              execute such other documents as the parties determine necessary to
              effectuate the transactions contemplated by this Agreement, and (ii)
              provide the other party with such additional information and documents
              as
              may reasonably be requested in connection with the securities exchanged
              hereunder, including information necessary to substantiate the tax
              basis
              of such securities.

          

    

    	6.  	
            Mutual
              Representation and Warranty.
              The parties hereto represent and warrant to each other that this Agreement
              is the legal, valid and binding obligation of each party hereto,
              enforceable against each party hereto, as the case may be, in accordance
              with the terms hereof.

          

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    	7.  	
            Miscellaneous.

          

    

    
      	 	
              7.1

            	
              Survival
                of Representations and Warranties; Limitation of Liability.
                The
                representations and warranties of each of the parties contained herein
                shall survive the execution and delivery hereof, and performance
                of
                obligations hereunder, and continue in full force and effect forever
                hereafter (subject to any applicable statutes of
                limitations).

            

    

    

    
      	 	
              7.2

            	
              No
                Third Party Beneficiaries.
                This Agreement shall not confer any rights or remedies upon any person
                or
                entity other than the parties and their respective successors, assigns,
                heirs or legal representatives, as the case may
                be.

            

    

    

    
      	 	
              7.3

            	
              Entire
                Agreement. This
                Agreement (including the documents referred to herein and any exhibits
                or
                schedules hereto) constitutes the entire agreement among the parties
                and
                supersedes any prior understandings, agreements, or representations
                by or
                among the parties, written or oral, to the extent they related in
                any way
                to the subject matter hereof.

            

    

    

    
      	 	
              7.4

            	
              Succession
                and Assignment. This
                Agreement shall be binding upon and inure to the benefit of the parties
                named herein and their respective successors, assigns, heirs or legal
                representatives, as the case may
                be.

            

    

    

    
      	 	
              7.5

            	
              Counterparts.
                This
                Agreement may be executed in one or more counterparts, each of which
                shall
                be deemed an original but all of which together will constitute one
                and
                the same instrument.

            

    

    

    
      	 	
              7.6

            	
              Headings.
                The
                paragraph and subparagraph headings contained in this Agreement are
                inserted for convenience only and shall not affect in any way the
                meaning
                or interpretation of this
                Agreement.

            

    

    

    
      	 	
              7.7

            	
              Notices.
                All
                notices, requests, demands, claims, and other communications hereunder
                shall be in writing. Any notice, request, demand, claim, or other
                communication hereunder shall be deemed duly given two business days
                after
                it is sent by registered or certified mail, return receipt requested,
                postage prepaid, and addressed to the intended recipient at the address
                first described herein.

            

    

    

    Either
      party hereto may send any notice, request, demand, claim, or other communication
      hereunder to the intended recipient at the address set forth above using any
      other means (including personal delivery, expedited courier, messenger service,
      telecopy, telex, ordinary mail, or electronic mail), but no such notice,
      request, demand, claim, or other communication shall be deemed to have been
      duly
      given unless and until it actually is received by the intended recipient. Either
      party may change the address to which notices, requests, demands, claims, and
      other communications hereunder are to be delivered by giving the other parties
      notice in the manner herein set forth.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	 	
              7.8

            	
              Governing
                Law. This
                Agreement shall be governed by, and construed in accordance with,
                the laws
                of the State of Delaware without giving effect to any choice or conflict
                of law provision or rule that would cause the application of the
                laws of
                any jurisdiction other than the State of
                Delaware.

            

    

    

    
      	 	
              7.9

            	
              Amendments
                and Waivers. No
                amendment of any provision of this Agreement shall be valid unless
                the
                same shall be in writing and signed by each of the parties hereto.
                No
                waiver by any party of any default, misrepresentation, or breach
                of
                warranty or covenant hereunder, whether intentional or not, shall
                be
                deemed to extend to any prior or subsequent default, misrepresentation,
                or
                breach of warranty or covenant hereunder or affect in any way any
                rights
                arising by virtue of any prior or subsequent such
                occurrence.

            

    

    

    
      	 	
              7.10

            	
              Severability.
                Any
                term or provision of this Agreement that is invalid or unenforceable
                in
                any situation in any jurisdiction shall not affect the validity or
                enforceability of the remaining terms and provisions hereof or the
                validity or enforceability of the offending term or provision in
                any other
                situation or in any other
                jurisdiction.

            

    

    

    
      	 	
              7.11

            	
              Conflict
                of Terms.
                In
                the event of a conflict of terms and conditions between this Agreement
                and
                any other agreement, the terms and conditions of this Agreement shall
                prevail.

            

    

     

    IN
      WITNESS WHEREOF,
      the
      undersigned have executed this Agreement as of date first written
      above.

    
      	 	 	 
	 	
              UNIVERSAL
                CAPITAL MANAGEMENT,
                INC.,

            
	 
 	 
 	 
 
	/s/
              Joseph T. Drennan	
            	/s/ Michael
              D. Queen
	
              

              Witness	
              
Michael
              Queen, President
	 	 

    

    
      	 	 	 
	 	 
	/s/
              Cheryl A. Rummings	  	/s/ David
              M.
              Bovi
	
              

              Witness	
              

              David M. Bovi
	 	
            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    Exhibit
      A

     

    SATISFACTION
      OF NOTE

    

    Universal
      Capital Management, Inc., a corporation organized and existing under the laws
      of
      the State of Delaware, the holder of the promissory note dated June 15, 2006
      in
      the principal amount of $800,000 executed by David M. Bovi to Universal Capital
      Management, Inc., and fully secured by a security agreement of even date thereof
      here, on this 25th day of October 2006, acknowledges full payment and
      satisfaction of that promissory note and consents to the release to David M.
      Bovi the certificate(s) representing the shares of the capital stock of the
      Company registered in the name of Bovi that secured the Promissory Note pursuant
      to the security agreement of even date thereof.

    
      
        	 	 	 	 
	 	 	 
	 	 
 	 
 	 
 
	 By: 	/s/
                Michael D.
                Queen	 	 
	 	
                
                  

                  Michael Queen, President, 

                Universal
                  Capital Management, Inc.

              	
              
	 	 	 

      

      
        
           

        

        
          5

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