Document:

Unassociated Document

    

      DISCOVERY
LABORATORIES, INC.

      

      Form
of Series II Warrant To Purchase Common Stock

      

      Warrant
No.: [_____]

      Number of
Shares of Common Stock: [_________]

      Date of
Issuance: June 22, 2010 (“Issuance Date”)

      

      Discovery
Laboratories, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [____________], the registered holder hereof or its
permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the date hereof (the “Exercisability Date”), but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[_________________] [(_______)]1 fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is the Warrant to purchase Common Stock (this
“Warrant”) issued
pursuant to (i) Sections 1 and 2 of
that certain Underwriting Agreement (the “Underwriting Agreement”), dated as of June
17, 2010 (the “Pricing
Date”), by and among the Company, Lazard Capital Markets LLC and Boenning
& Scattergood, Inc., as underwriters and (ii) the Company’s Registration
Statement on Form S-3 (File number 333-151654) (the “Registration
Statement”).

       

      1.  EXERCISE OF
WARRANT.

       

      (a)  Mechanics of
Exercise.  Subject to the terms and conditions hereof, this
Warrant may be exercised by the Holder on any day on or after the Exercisability
Date, in whole or in part, by (i) delivery of a written notice, in the form
attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in
cash or by wire transfer of immediately available funds or (B) provided the
conditions for cashless exercise set forth in Section 1(d) are
satisfied, by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section
1(d)).  The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.  Execution
and delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares.  On or before the first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (collectively, the “Exercise Delivery Documents”),
the Company shall transmit by facsimile or electronic mail an acknowledgment of
receipt of the Exercise Delivery Documents to the Holder and Continental Stock
Transfer & Trust Company (the Company’s “Transfer
Agent”).  On or before the third (3rd)
Business Day following the date on which the Company has received all of the
Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder’s or its designee’s balance account with DTC through
its Deposit/Withdrawal At Custodian (“DWAC”) system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program or the Holder does not request delivery of the Warrant Shares
via DWAC, issue and dispatch by overnight courier to the address as specified in
the Exercise Notice, a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of Warrant Shares to
which the Holder is entitled pursuant to such exercise.  Upon delivery
of the Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date such Warrant
Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be.  If
this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised.  No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole number.  The Company shall pay any
and all taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

      

        

      
        1 Insert a
number of shares equal to 50% of the number of shares of common stock purchased
under the Underwriting Agreement.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (b)  Exercise
Price.  For purposes of this Warrant, “Exercise Price” means $0.28,
subject to adjustment as provided herein.

       

      (c)  Company’s Failure to Timely
Deliver Securities.  If the Company shall fail for any reason
or for no reason to issue to the Holder within three (3) Business Days of
receipt of the Exercise Delivery Documents in compliance with the terms of this
Section 1, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In”),
then the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such
Warrant Shares) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Warrant
Shares and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.

      
        
           

        

        
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      (d)  Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if a registration statement covering
the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”)
is not available and an exemption from registration is otherwise not available
for the resale of such Unavailable Warrant Shares, the Holder may exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless
Exercise”):

       

      Net
Number = (A x B) - (A
x C)

      B

      For
purposes of the foregoing formula:

       

      
        
          	
                	
                  A=

                	
                  the
      total number of shares with respect to which this Warrant is then being
      exercised.

                

        

      

       

      
        	
              	
                
                  B=

                

              	
                
                  the
      arithmetic average of the Closing Sale Prices of the shares of Common
      Stock for the five (5) consecutive Trading Days ending on the Trading Day
      immediately preceding the date of the Exercise
    Notice.

                

              

      

       

      
        	
              	
                
                  C=

                

              	
                
                  the
      Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

                

              

      

      

      For sake
of clarity, in the event that neither a registration statement nor an exemption
from registration is available, there is no circumstance that requires the
Company to effect a net cash settlement of the Warrant.

      

      (e)  Rule
144.  For purposes of Rule 144(d) promulgated under the
Securities Act, as in effect on the date hereof, it is intended that the Warrant
Shares issued in a Cashless Exercise shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Underwriting Agreement.

       

      (f)  Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed, and all such
disputes shall be resolved pursuant to Section
12.

      
        
           

        

        
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      (g)    Beneficial
Ownership.  The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the
shares of Common Stock outstanding immediately after giving effect to such
exercise.  For purposes of the foregoing sentence, the aggregate
number of shares of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein.  Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this Warrant, in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company’s most
recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing
with the Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the Company
or the Transfer Agent setting forth the number of shares of Common Stock
outstanding. To the extent that the limitation contained in this Section 1(g) applies,
the determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the submission of
an Exercise Notice shall be deemed to be each Holder’s determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such
determination.   For any reason at any time, upon the written or
oral request of the Holder, the Company shall within two (2) Business Days
confirm to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written notice to the Company, the
Holder may from time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that (i) any such
increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 1(g) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.

      
        
           

        

        
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      2.  ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

       

      (a)  Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Pricing Date subdivides (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the Company at any time on or after the
Pricing Date combines (by any stock split, stock dividend, recapitalization,
reorganization, scheme, arrangement or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately
decreased.  Any adjustment under this Section 2(a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

       

      (b)  Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company’s Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the Holder; provided that no such adjustment pursuant to
this Section
2(b) will increase the Exercise Price or decrease the number of Warrant
Shares as otherwise determined pursuant to this Section
2.

       

      3.  RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to all
holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

       

      (a)  any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the Trading Day immediately preceding such record date;
and

      
        
           

        

        
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      (b)  the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided that in the event
that the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”)
of a company whose shares of common stock are traded on a national securities
exchange or a national automated quotation system, then the Holder may elect to
receive a warrant to purchase Other Shares of Common Stock in lieu of an
increase in the number of Warrant Shares, the terms of which shall be identical
to those of this Warrant, except that such warrant shall be exercisable into the
number of shares of Other Shares of Common Stock that would have been payable to
the Holder pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price equal
to the product of the amount by which the exercise price of this Warrant was
decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated
in accordance with the first part of this paragraph (b).

       

      4.  PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

      (a)  Purchase
Rights.  In addition to any adjustments pursuant to Section 2 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
“Purchase Rights”), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase
Rights.

       

      (b)  Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes this Warrant in
accordance with the provisions of this Section (4)(b),
including agreements to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
prior to such Fundamental Transaction, and satisfactory to the
Holder.  Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Warrant
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such
Successor Entity had been named as the Company herein.   Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of the Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or
other purchase or subscription rights) which the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction had the Warrant
been exercised immediately prior to such Fundamental Transaction.  If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the consideration it receives upon any exercise of
this Warrant following such Fundamental Transaction.   The
provisions of this Section 4 shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.

      
        
           

        

        
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      5.    NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the
Holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as this Warrant is outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
100% of the number of shares of Common Stock issuable upon exercise of this
Warrant then outstanding (without regard to any limitations on
exercise).

       

      6.  WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person’s capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person’s capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.

      
        
           

        

        
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      7.  REISSUANCE OF
WARRANTS.

       

      (a) Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company together with a written assignment
of this Warrant in the form attached hereto as Exhibit B duly
executed by the Holder or its agent or attorney, whereupon the Company will
forthwith, subject to compliance with any applicable securities laws, issue and
deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

       

      (b)  Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section
7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

       

      (c)  Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.

       

      (d) Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the
Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then underlying
this Warrant), (iii) shall have an issuance date, as indicated on the face of
such new Warrant, which is the same as the Issuance Date, and (iv) shall have
the same rights and conditions as this Warrant.

      
        
           

        

        
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      8.  NOTICES.  The
Company shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefor.  Whenever notice is required to be
given under this Warrant, unless otherwise provided herein, such notice shall be
given in writing, will be mailed (a) if within the domestic United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile or (b) if delivered from
outside the United States, by International Federal Express or facsimile, and
(c) will be deemed given (i) if delivered by first-class registered or certified
mail domestic, three business days after so mailed, (ii) if delivered by
nationally recognized overnight carrier, one business day after so mailed, (iii)
if delivered by International Federal Express, two business days after so mailed
and (iv) if delivered by facsimile, upon electronic confirmation of receipt, and
will be delivered and addressed as follows:

       

      (a) if to the Company,
to:

      

      Discovery
Laboratories, Inc.

      2600
Kelly Road

      Warrington,
Pennsylvania 18976

      Attention:  John
G. Cooper

      Facsimile:  215-488-9301

      

      with copies
to:

      

      Sonnenschein
Nath & Rosenthal LLP

      Two World
Financial Center

      New York,
New York 10281

      Attention:  Ira
L. Kotel, Esq.

      Facsimile:  212-768-6800

      

      (b)   if to the Holder, at
its address on the Exercise Notice in the form attached as Exhibit A hereto, or
at such other address or addresses as may have been furnished to the Company in
writing.

      

      9.  AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended only with the written consent of the Company and the
Holder, and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only with the written
consent of the Holder.

       

      10.  GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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.

       

      11.  CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      12.  DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile or electronic mail within two (2) Business Days of receipt of the
Exercise Notice giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant Shares within
three Business Days of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall, within two (2) Business
Days submit via facsimile or electronic mail (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside
accountant.  The Company shall cause at its expense the investment
bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
ten Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

       

      13.  REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant.

       

      14.  TRANSFER.  Subject
to compliance with any applicable securities laws, this Warrant may be offered
for sale, sold, transferred or assigned without the consent of the
Company.

       

      15.  CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

       

      (a)  “Bloomberg” means Bloomberg
Financial Markets.

       

      (b)  “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

       

      (c)  “Change of Control” means any
Fundamental Transaction other than (A) any reorganization, recapitalization or
reclassification of the Common Stock, in which holders of the Company’s voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      (d)  “Closing Bid Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as determined by the Board
of Directors of the Company in the exercise of its good faith
judgment.  All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

       

      (e)  “Common Stock” means
(i) the Company’s shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

       

      (f)  RESERVED

       

      (g)  “Convertible Securities” means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

       

      (h)  “Eligible Market” means the
Principal Market, The New York Stock Exchange, Inc., The American Stock
Exchange, The NASDAQ Global Select Market or The NASDAQ Capital
Market.

       

      (i)  “Expiration Date” means the
date nine (9) months following the Issuance Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that
is not a Holiday.

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      (j)  “Fundamental Transaction” means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.

       

      (k)  “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

       

      (l)  “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

       

      (m)  “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

       

      (n)  “Principal Market” means The
NASDAQ Capital Market.

       

      (o)  RESERVED

       

      (p)  “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

       

      (q)  “Trading Day” means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided
that “Trading Day” shall not include any day on which the Common Stock are
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock are suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York time).

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      (r)  “Weighted Average Price” means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder.  If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 12 with the
term “Weighted Average Price” being substituted for the term “Exercise Price.”
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

       

      [Signature
Page Follows]

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

      

      
        
          
            
              
                	 
      	
                        DISCOVERY
      LABORATORIES, INC.

                      
	 
      	 
      	 
      
	 
      	
                        By: 

                      	 
      
	 
      	
                        Name: 

                      
	 
      	
                        Title:

                      

              

            

          

        

      

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       EXHIBIT
A

      

      EXERCISE
NOTICE

       

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

      

      DISCOVERY
LABORATORIES, INC.

      

      The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Discovery
Laboratories, Inc, a Delaware corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”).  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

      

      1.  Form
of Exercise Price.  The Holder intends that payment of the Exercise
Price shall be made as:

      

      
        	
                 
      

              	
                ____________  

              	
                a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

              

      

      

      
        	
                 
      

              	
                ____________  

              	
                a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

              

      

      

      2.  Payment
of Exercise Price.  In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

      

      3.  Delivery
of Warrant Shares.  The Company shall deliver __________ Warrant
Shares in the name of the undersigned holder or in the name of
______________________ in accordance with the terms of the Warrant to the
following DWAC Account Number or by physical delivery of a certificate
to:

      

      
        
          	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

        

      

      

      Date:
_______________ __, ______

      

      
        
          
            	
                      

                  	 
      

          

        

      

         Name
of Registered Holder

      

      
        
          
            	
                    By:

                  	 
      	 
      
	 
      	
                    Name:

                  	 
      
	 
      	
                    Title:

                  	 
      

          

        

      

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

      ACKNOWLEDGMENT

      

      The
Company hereby acknowledges this Exercise Notice and hereby directs Continental
Stock Transfer & Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated
[    ], 2010 from the Company and acknowledged and agreed to
by Continental Stock Transfer & Trust Company.

      

      
        
          
            	 
      	
                    DISCOVERY
      LABORATORIES, INC

                  
	 
      	 
      	 
      
	 
      	
                    By: 

                  	 
      
	 
      	 
      	
                    Name: 

                  
	 
      	 
      	
                    Title:

                  

          

        

      

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

       EXHIBIT B

      ASSIGNMENT
FORM

      

      (To
assign the foregoing warrant, execute

      this form
and supply required information.

      Do not
use this form to exercise the warrant.)

      

      FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

      

      _______________________________________________
whose address is

      

      _______________________________________________________________.

       

      _______________________________________________________________

      

      Dated:  ______________,
_______

      

      

      
        
          
            
              
                	
                        Holder’s
      Signature:          

                      	 
      	 
      
	 
      	 
      	 
      
	
                        Holder’s
      Address:          

                      	
                         
      

                      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

              

            

          

        

      

        

      Signature
Guaranteed:  ___________________________________________

      

      NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.Exhibit 10.1

     

    LIHUA
INTERNATIONAL, INC.

     

    INDEPENDENT
DIRECTOR AGREEMENT

     

    

    This
INDEPENDENT DIRECTOR AGREEMENT (the “Agreement”) is made and entered into as of
this 11th day of June 2010, effective as of April 14, 2010 (the “Effective
Date”), by and between Lihua International, Inc., a Delaware corporation whose
shares are publicly traded (the “Company”), and Robert Bruce, a citizen of the
United States, with the following address:  c/o Oakmont Advisory
Group, LLC, 477 Congress Street, Suite 1002, Portland, Maine  04101, United
States (the “Independent Director”).

     

    WHEREAS,
the Company desires to re-engage the Independent Director, and the Independent
Director desires to serve, as a non-employee director of the Company, subject to
the terms and conditions contained in this Agreement.

     

    NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the receipt of which is hereby acknowledged, the Company and the
Independent Director, intending to be legally bound, hereby agree as
follows:

     

    1.           DEFINITIONS.

     

    (a)           “Corporate
Status” describes the capacity of the Independent Director with respect to the
Company and the services performed by the Independent Director in that
capacity.

     

    (b)           “Entity”
shall mean any corporation, partnership, limited liability company, joint
venture, trust, foundation, association, organization or other legal
entity.

     

    (c)           “Proceeding”
shall mean any threatened, pending or completed claim, action, suit,
arbitration, alternate dispute resolution process, investigation, administrative
hearing, appeal, or any other proceeding, whether civil, criminal,
administrative or investigative, whether formal or informal, including a
proceeding initiated by the Independent Director pursuant to Section 12 of this
Agreement to enforce the Independent Director’s rights hereunder.

     

    (d)           “Expenses”
shall mean all reasonable fees, costs and expenses, approved by the Company in
advance and reasonably incurred in connection with any Proceeding, including,
without limitation, attorneys’ fees, disbursements and retainers, fees and
disbursements of expert witnesses, private investigators, professional advisors
(including, without limitation, accountants and investment bankers), court
costs, transcript costs, fees of experts, travel expenses, duplicating, printing
and binding costs, telephone and fax transmission charges, postage, delivery
services, secretarial services, and other disbursements and
expenses.

     

    (e)           “Liabilities”
shall mean judgments, damages, liabilities, losses, penalties, excise taxes,
fines and amounts paid in settlement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (f)           “Parent”
shall mean any corporation or other entity (other than the Company) in any
unbroken chain of corporations or other entities ending with the Company, if
each of the corporations or entities, other than the Company, owns stock or
other interests possessing 50% or more of the economic interest or the total
combined voting power of all classes of stock or other interests in one of the
other corporations or entities in the chain.

     

    (g)           “Subsidiary”
shall mean any corporation or other entity (other than the Company) in any
unbroken chain of corporations or other entities beginning with the Company, if
each of the corporations or entities, other than the last corporation or entity
in the unbroken chain, owns stock or other interests possessing 50% or more of
the economic interest or the total combined voting power of all classes of stock
or other interests in one of the other corporations or entities in the
chain.

     

    2.           SERVICES
OF INDEPENDENT DIRECTOR. While this Agreement is in effect, the Independent
Director shall perform duties as an independent director and/or a member of the
committees of the Board, be compensated for such and be reimbursed expenses in
accordance with the Schedule A attached to this Agreement, subject to the
following.

     

    (a)           The
Independent Director will perform services as is consistent with Independent
Director’s position with the Company, as required and authorized by the By-Laws
and Articles of Incorporation of the Company, and in accordance with high
professional and ethical standards and all applicable laws and rules and
regulations pertaining to the Independent Director’s performance hereunder,
including without limitation, laws, rules and regulations relating to a public
company.

     

    (b)           The
Independent Director is solely responsible for taxes arising out of any
compensation paid by the Company to the Independent Director under this
Agreement, and the Independent Director understands that he/she will be issued a
U.S. Treasury form 1099 for any compensation paid to him/her by the
Company.  The Independent Director acknowledges and agrees that
because he is not an employee of the Company the Company will not withhold any
amounts for taxes from any of his payments under the Agreement.

     

    (c)           The
Company may offset any and all monies payable to the Independent Director to the
extent of any monies owing to the Company from the Independent
Director.

     

    (d)           The
rules and regulations of the Company notified to the Independent Director, from
time to time, apply to the Independent Director. Such rules and regulations are
subject to change by the Company in its sole discretion. Notwithstanding the
foregoing, in the event of any conflict or inconsistency between the terms and
conditions of this Agreement and rules and regulations of the Company, the terms
of this Agreement control.

     

    3.           REQUIREMENTS
OF INDEPENDENT DIRECTOR. During the term of the Independent Director’s services
to the Company hereunder, Independent Director shall observe all applicable laws
and regulations relating to independent directors of a public company as
promulgated from to time, and shall not: (1) be an employee of the Company or
any Parent or Subsidiary; (2) accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the Company other than as a director
and/or a member of a committee of the Board; (3) be an affiliated person of the
Company or any Parent or Subsidiary, as the term “affiliate” is defined in 17
CFR 240.10A-3(e)(1), other than in his capacity as a director and/or a member of
a committee of the Board; (4) possess an interest in any transaction with the
Company or any Parent or Subsidiary, for which disclosure would be required
pursuant to 17 CFR 229.404(a), other than in his capacity as a director and/or a
member of a committee of the Board committees; (5) be engaged in a business
relationship with the Company or any Parent or Subsidiary, for which disclosure
would be required pursuant to 17 CFR 229.404(b), except that the required
beneficial interest therein shall be modified to be 5% hereby.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    4.           REPORT
OBLIGATION. While this Agreement is in effect, the Independent Director shall
immediately report to the Company in the event: (1) the Independent Director
knows or has reason to know or should have known that any of the requirements
specified in Section 3 hereof is not satisfied or is not going to be satisfied;
and (2) the Independent Director simultaneously serves on an audit committee of
any other public company.

     

    5.           TERM
AND TERMINATION. The term of this Agreement shall be for one (1) year from the
Effective Date, unless terminated as provided for in this Section 5 (the
“Term”).  This Agreement and the Independent Director’s services
hereunder shall terminate upon the earlier of the following:

     

    (a)           Removal
of the Independent Director as a director of the Company, upon proper Board or
stockholder action in accordance with the By-Laws and Articles of Incorporation
of the Company and applicable law;

     

    (b)           Resignation
of the Independent Director as a director of the Company upon written notice to
the Board of Directors of the Company; or

     

    (c)           Termination
of this Agreement by the Company, in the event any of the requirements specified
in Section 3 hereof is not satisfied, as determined by the Company in its sole
discretion.

     

    6.           LIMITATION
OF LIABILITY. In no event shall the Independent Director be individually liable
to the Company or its shareholders for any damages for breach of fiduciary duty
as an independent director of the Company, unless the Independent Director’s act
or failure to act involves intentional misconduct, fraud or a knowing violation
of law.

     

    7.           AGREEMENT
OF INDEMNITY. The Company agrees to indemnify the Independent Director as
follows:

     

    (a)           Subject
to the exceptions contained in Section 8(a) below, if the Independent Director
was or is a party or is threatened to be made a party to any Proceeding (other
than an action by or in the right of the Company) by reason of the Independent
Director’s Corporate Status, the Independent Director shall be indemnified by
the Company against all Expenses and Liabilities incurred or paid by the
Independent Director in connection with such Proceeding (referred to herein as
“Indemnifiable Expenses” and “Indemnifiable Liabilities,” respectively, and
collectively as “Indemnifiable Amounts”).

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b)           Subject
to the exceptions contained in Section 8(b) below, if the Independent Director
was or is a party or is threatened to be made a party to any Proceeding by or in
the right of the Company, to procure a judgment in its favor by reason of the
Independent Director’s Corporate Status, the Independent Director shall be
indemnified by the Company against all Indemnifiable Expenses.

     

    (c)           For
purposes of this Agreement, the Independent Director shall be deemed to have
acted in good faith in conducting the Company’s affairs as an independent
director of the Company and/or a member of a committee of the Board of the
Company, if the Independent Director: (i) exercised or used the same degree of
diligence, care, and skill as an ordinarily prudent man would have exercised or
used under the circumstances in the conduct of his own affairs; or (ii) took, or
omitted to take, an action in reliance upon advise of counsels or other
professional advisors for the Company, or upon statements made or information
furnished by other directors, officers or employees of the Company, or upon a
financial statement of the Company provided by a person in charge of its
accounts or certified by a public accountant or a firm of public accountants,
which the Independent Director had reasonable grounds to believe to be
true.

     

    8.           EXCEPTIONS
TO INDEMNIFICATION. Director shall be entitled to indemnification under Sections
7(a) and 7(b) above in all circumstances other than the following:

     

    (a)           If
indemnification is requested under Section 7(a) and it has been adjudicated
finally by a court or arbitral body of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim for
indemnification has arisen, (i) the Independent Director failed to act in good
faith and in a manner the Independent Director reasonably believed to be in or
not opposed to the best interests of the Company, (ii) the Independent Director
had reasonable cause to believe that the Independent Director’s conduct was
unlawful, or (iii) the Independent Director’s conduct constituted willful
misconduct, fraud or knowing violation of law, then the Independent Director
shall not be entitled to payment of Indemnifiable Amounts
hereunder.

     

    (b)           If
indemnification is requested under Section 7(b) and

     

    (i)           it
has been adjudicated finally by a court or arbitral body of competent
jurisdiction that, in connection with the subject of the Proceeding out of which
the claim for indemnification has arisen, the Independent Director failed to act
in good faith and in a manner the Independent Director reasonably believed to be
in or not opposed to the best interests of the Company, including without
limitation, the breach of Section 4 hereof by the Independent Director, the
Independent Director shall not be entitled to payment of Indemnifiable Expenses
hereunder; or

     

    (ii)           it
has been adjudicated finally by a court or arbitral body of competent
jurisdiction that the Independent Director is liable to the Company with respect
to any claim, issue or matter involved in the Proceeding out of which the claim
for indemnification has arisen, including, without limitation, a claim that the
Independent Director received an improper benefit or improperly took advantage
of a corporate opportunity, the Independent Director shall not be entitled to
payment of Indemnifiable Expenses hereunder with respect to such claim, issue or
matter.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    9.           WHOLLY
OR PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, and
without limiting any such provision, to the extent that the Independent Director
is, by reason of the Independent Director’s Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Independent
Director shall be indemnified in connection therewith. If the Independent
Director is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify the Independent Director
against those Expenses reasonably incurred by the Independent Director or on the
Independent Director’s behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this section, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.

     

    10.         ADVANCES
AND INTERIM EXPENSES. The Company may pay to the Independent Director all
Indemnifiable Expenses incurred by the Independent Director in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final disposition of such Proceeding, if the Independent Director
furnishes the Company with a written undertaking, to the satisfaction of the
Company, to repay the amount of such Indemnifiable Expenses advanced to the
Independent Director in the event it is finally determined by a court or
arbitral body of competent jurisdiction that the Independent Director is not
entitled under this Agreement to indemnification with respect to such
Indemnifiable Expenses.

     

    11.         PROCEDURE
FOR PAYMENT OF INDEMNIFIABLE AMOUNTS. The Independent Director shall submit to
the Company a written request specifying the Indemnifiable Amounts, for which
the Independent Director seeks payment under Section 7 hereof and the Proceeding
of which has been previously notified to the Company and approved by the Company
for indemnification hereunder. At the request of the Company, the Independent
Director shall furnish such documentation and information as are reasonably
available to the Independent Director and necessary to establish that the
Independent Director is entitled to indemnification hereunder. The Company shall
pay such Indeminfiable Amounts within thirty (30) days of receipt of all
required documents.

     

    12.         REMEDIES
OF INDEPENDENT DIRECTOR.

     

    (a)           RIGHT
TO PETITION COURT. In the event that the Independent Director makes a request
for payment of Indemnifiable Amounts under Sections 7, 9-11 above, and the
Company fails to make such payment or advancement in a timely manner pursuant to
the terms of this Agreement, the Independent Director may petition the
appropriate judicial authority to enforce the Company’s obligations under this
Agreement.

     

    (b)           BURDEN
OF PROOF. In any judicial proceeding brought under Section 12 (a) above, the
Company shall have the burden of proving that the Independent Director is not
entitled to payment of Indemnifiable Amounts hereunder.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (c)           EXPENSES.
The Company agrees to reimburse the Independent Director in full for any
Expenses incurred by the Independent Director in connection with investigating,
preparing for, litigating, defending or settling any action brought by the
Independent Director under Section 12 (a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.

     

    (d)           VALIDITY
OF AGREEMENT. The Company shall be precluded from asserting in any Proceeding,
including, without limitation, an action under Section 12 (a) above, that the
provisions of this Agreement are not valid, binding and enforceable or that
there is insufficient consideration for this Agreement and shall stipulate in
court that the Company is bound by all the provisions of this
Agreement.

     

    (e)           FAILURE
TO ACT NOT A DEFENSE. The failure of the Company (including its Board of
Directors or any committee thereof, independent legal counsel, or stockholders)
to make a determination concerning the permissibility of the payment of
Indemnifiable Amounts or the advancement of Indemnifiable Expenses under this
Agreement shall not be a defense in any action brought under Section 12 (a)
above.

     

    13.         PROCEEDINGS
AGAINST COMPANY. Except as otherwise provided in this Agreement, the Independent
Director shall not be entitled to payment of Indemnifiable Amounts or
advancement of Indemnifiable Expenses with respect to any Proceeding brought by
the Independent Director against the Company, any Entity which it controls, any
director or officer thereof, or any third party, unless the Company has
consented to the initiation of such Proceeding. This section shall not apply to
counterclaims or affirmative defenses asserted by the Independent Director in an
action brought against the Independent Director.

     

    14.         INSURANCE.
The Company may, at its discretion, obtain and maintain a policy or policies of
director and officer liability insurance, in an amount not less than $5,000,000,
of which the Independent Director will be named as an insured, providing the
Independent Director with coverage for Indemnifiable Amounts and/or
Indemnifiable Expenses in accordance with said insurance policy or policies
(“D&O Insurance”); provided that:

     

    (a)           The
Independent Director agrees that, while the Company has valid and effective
D&O Insurance, and except as provided in (c) of this section, Sections 7-13
of this Agreement shall not apply, and the Company’s indemnification obligation
to the Independent Director under this Agreement shall be deemed fulfilled by
virtue of purchasing and maintaining such insurance policy or policies, in
accordance with the terms and conditions thereof and subject to exclusions
stated thereon, provided, however, that the Company
will pay any deductibles under any such insurance policy or policies. The
Independent Director agrees that the Company shall have no obligation to
challenge the decisions made by the insurance carrier(s) (“Insurance Carrier”)
relating to any claims made under such insurance policy or
policies;

     

    (b)           The
Independent Director agrees that the Company’s indemnification obligation to the
Independent Director under (a) of this section shall be deemed discharged and
terminated, in the event the Insurance Carrier refused payment for any
Proceedings against the Independent Director due to the acts or omissions of the
Independent Director;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (c)           While
the D&O Insurance is valid and effective, the Company agrees that it shall
indemnify the Independent Director for the Indemnifiable Amounts and
Indemnifiable Expenses, to the extent that any Proceedings are coverable by
D&O Insurance, but in excess of the policy amount, in accordance with
Sections 7-13 of this Agreement; and

     

    (d)           While
the D&O Insurance is valid and effective, this Section 14 states the entire
and exclusive remedy of the Independent Director with respect to the
indemnification obligation of the Company to the Independent Director under this
Agreement.

     

    15.         SUBROGATION.
In the event of any payment of Indemnifiable Amounts under this Agreement or the
D&O Insurance, the Company or its Insurance Carrier, as the case may be,
shall be subrogated to the extent of such payment to all of the rights of
contribution or recovery of the Independent Director against other persons, and
the Independent Director shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.

     

    16.         AUTHORITY.
Each party has all necessary power and authority to enter into, and be bound by
the terms of, this Agreement, and the execution, delivery and performance of the
undertakings contemplated by this Agreement have been duly authorized by each
party hereto:

     

    17.         SUCCESSORS
AND ASSIGNMENT. This Agreement shall (a) be binding upon and inure to the
benefit of all successors and assigns of the Company (including any transferee
of all or a substantial portion of the business, stock and/or assets of the
Company and any direct or indirect successor by merger or consolidation or
otherwise by operation of law), and (b) be binding on and shall inure to the
benefit of the heirs, personal representatives, executors and administrators of
the Independent Director. The Independent Director has no power to assign this
Agreement or any rights and obligations hereunder.

     

    18.         CHANGE
IN LAW. To the extent that a change in applicable law (whether by statute or
judicial decision) shall mandate broader or narrower indemnification than is
provided hereunder, the Independent Director shall be subject to such broader or
narrower indemnification and this Agreement shall be deemed to be amended to
such extent.

     

    19.         SEVERABILITY.
Whenever possible, each provision of this Agreement shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Agreement, or any clause thereof, shall be determined by a court of
competent jurisdiction to be illegal, invalid or unenforceable, in whole or in
part, such provision or clause shall be limited or modified in its application
to the minimum extent necessary to make such provision or clause valid, legal
and enforceable, and the remaining provisions and clauses of this Agreement
shall remain fully enforceable and binding on the parties.

     

    20.         MODIFICATIONS
AND WAIVER. Except as provided in Section 18 hereof with respect to changes in
applicable law which broaden or narrow the right of the Independent Director to
be indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No delay in exercise or non-exercise by the Company of any right under
this Agreement shall operate as a current or future waiver by it as to its same
or different rights under this Agreement or otherwise.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    21.         NOTICES.
All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given (a) when delivered by hand,
(b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed
by certified or registered mail with postage prepaid, on the third business day
after the date en which it is so mailed:

     

    

    If to Independent Director, to: Robert
C. Bruce c/o Oakmont Advisory Group, LLC, 477 Congress Street, Suite 1002,
Portland, Maine  04101, U.S.A.

     

    If to the
Company, to: Jinhua Zhu, CEO, Lihua International, Houxiang Five Star Industry
District, Danyang City, Jiangsu Province, PR China 212312, or to such other
address as may have been furnished in the same manner by any party to the
others.

     

    22.         GOVERNING
LAW. This Agreement shall be governed by and construed and enforced under the
laws of the State of New York.

     

    23.         CONSENT
TO JURISDICTION. The parties hereby consent to the jurisdiction of the courts
having jurisdiction over matters arising in New York County, New York for any
proceeding arising out of or relating to this Agreement. The parties agree that
in any such proceeding, each party shall waive, if applicable, inconvenience of
forum and right to a jury.

     

    24.         AGREEMENT
GOVERNS. This Agreement is to be deemed consistent wherever possible with
relevant provisions of the By-Laws and Articles of Incorporation of the Company;
however, in the event of a conflict between this Agreement and such provisions,
the provisions of this Agreement shall control.

     

    25.         INDEPENDENT
CONTRACTOR. The parties understand, acknowledge and agree that the Independent
Director’s relationship with the Company is that of an independent contractor
and nothing in this Agreement is intended to or should be construed to create a
relationship other than that of independent contractor. Nothing in this
Agreement shall be construed as a contract of employment/engagement between the
Independent Director and the Company or as a commitment on the part of the
Company to retain the Independent Director in any capacity, for any period of
time or under any specific terms or conditions, or to continue the Independent
Director’s service to the Company beyond any period.

     

    26.         ARBITRATION.
Any dispute, controversy or claim arising out of or relating to this Agreement
or the breach thereof, shall be settled by arbitration, before one arbitrator in
accordance with the rules of the American Arbitration Association then in effect
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The arbitrator will be selected, by the parties, from
a panel of attorney arbitrators. The parties agree that any arbitration shall be
held in New York, New York. The language of the arbitration shall be in English.
The arbitrator will have no authority to make any relief, finding or award that
does not conform to the terms and conditions of this Agreement. Each party shall
bear its own attorneys’ or expert fees and any and all other party specific
costs. Either party, before or during any arbitration, may apply to a court
having jurisdiction for a restraining order or injunction where such relief is
necessary to protect its interests. Prior to initiation of arbitration, the
aggrieved party will give the other party written notice, in accordance with
this Agreement, describing the claim as to which it intends to initiate
arbitration.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    27.         ENTIRE
AGREEMENT. This Agreement constitutes the entire agreement between the Company
and the Independent Director with respect to the subject matter hereof, and
supersedes all prior understandings and agreements with respect to such subject
matter.

     

    IN
WITNESS WHEREOF, the parties hereto have executed this Independent Director
Indemnification Agreement as of the day and year first above
written.

     

    

    
      
        
          
            
              
                
                  
                    	 
      	 	 
      	 
	
                            AGREED

                          	 	
                            AGREED

                          	 
	 
      	 	 
      	 
	
                            Lihua
      International, Inc.

                          	 	
                            Independent
      Director

                          	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	
                            /s/ Jianhua
      Zhu

                          	 	
                            /s/ Robert C. Bruce

                          	 
	
                            Name:  Jianhua
      Zhu

                          	 	
                            Name:
      Robert C. Bruce

                          	 
	
                            Title:   Chairman
      and CEO

                          	 	 
      	 
	 
      	 	 
      	 

                  

                

              

            

          

        

      

    

     

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    SCHEDULE
A

     

    
      	
              I. 

            	
              COMPENSATION:

            

    

     

    A.  Fees. For all
services rendered by the Independent Director pursuant to this Agreement, both
during and outside of normal working hours, including but not limited to,
attending all required meetings of the Board or applicable committees thereof,
executive sessions of the independent directors, reviewing filing reports and
other corporate documents as requested by the Company, providing comments and
opinions as to business matters as requested by the Company, the Company agrees
to pay to the Independent Director a fee in cash of Twenty Five Thousand Dollars
($25,000) during the Term (the “Base Fee”).  In addition to the Base
Fee, the Company agrees to pay the Independent Director a fee in cash of Seven
Thousand Five Hundred Dollars ($7,500) (the Audit Committee Fee”), as long the
Independent Director remains chair of the Audit Committee of the
Company.  The Base Fee and the Audit Committee Fee shall be paid in
cash to the Independent Director on a quarterly basis in equal installments on
the last day of each calendar quarter. In addition to the Base Fee and the Audit
Committee Fee, the Company agrees to pay the Independent Director the
following:

    

    A)  If
the Independent Director resides in China:  (i) a $1,000 fee for each
board meeting attended by telephone; (ii) a $1,500 fee for each board meeting
attended in person in China; and (iii) a $5,000 fee for each board meeting
attended in person outside of China.

    

    B)  If
the Independent Director resides outside of China:  (i) a $1,000 fee
for each board meeting attended by telephone (ii)a $5,000 fee for each board
meeting attended in person outside of the United States; and (iii) a $1,500 fee
for each board meeting attended within the United States.

    

    The fees
under Sections I(A) and (B) above shall be paid on the last day of each calendar
quarter for meetings attended during such calendar quarter.

    

    B. Stock Option. Upon
execution of this Agreement the Independent Director shall be granted a 10-year
option to purchase Twenty Thousand (20,000) shares of common stock of the
Company, with an exercise price equal to the fair market value of a share of the
Company’s common stock on the date of the grant of the option.  Such
option shall vest in equal installments on August 31, 2010, November 30, 2010,
February 28, 2011 and May 31, 2011, as long as the Independent Director is
serving as a member of the Board of Directors at such time.  Such
award shall be made pursuant to the Company’s 2009 Omnibus Securities and
Incentive Plan. The Independent Director’s rights in respect to any grant shall
be determined solely by the Compensation Committee of the Company and are
subject to execution by Independent Director of any applicable agreements as
established and requested by the Company pursuant to the 2009 Omnibus Securities
and Incentive Plan.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    C. Expenses. During the
Term the Company shall promptly reimburse the Independent Director for all
expenses incurred by him/her in connection with attending (a) all meetings of
the Board or applicable committees thereof, (b) executive sessions of the
independent directors, and (c) stockholder meetings, as a director or a member
of any committee of the Board , which are approved by the Company in
advance.  The Company will only reimburse the Independent Director for
economy class airplane tickets.  In addition, the Independent Director
shall rely on the Company to arrange all hotel accommodations in connection with
any such meetings the Independent Director must attend. The amount of such
expenses eligible for reimbursement by the Company during a calendar year shall
not affect such expenses eligible for reimbursement by the Company in any other
calendar year, and the reimbursement of any such eligible expenses shall be made
on or before the last day of the calendar year next following the calendar year
in which the expense was incurred.

     

     

     

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    NO OTHER
BENEFITS OR COMPENSATION. The Independent Director acknowledges and agrees that
he/she is not granted and is not entitled to any other benefits or compensation
from the Company for the services provided under this Agreement except expressly
provided for in this Schedule A.

     

    
      
        
          
            
              
                	 
      	 	 
      	 
	
                        AGREED

                      	 	
                        AGREED

                      	 
	 
      	 	 
      	 
	
                        Lihua
      International, Inc.

                      	 	
                        Independent
      Director

                      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	
                        /s/ Jianhua Zhu

                      	 	
                        /s/ Robert C. Bruce

                      	 
	
                        Name:  Jianhua
      Zhu

                      	 	
                        Name:  Robert
      C. Bruce

                      	 
	
                        Title:   Chairman
      and CEO

                      	 	 
      	 
	 
      	 	 
      	 

              

            

          

        

      

    

     

    

    

     

    

    
      
        
        

      

      
        12

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