Document:

ex10_2.htm

Exhibit 10.2

EXECUTION COPY

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Third Amendment"), dated as of June 9, 2010, is by and between SILVERLEAF RESORTS, INC., a Texas corporation, having an address of 1221 River Bend Drive, Suite 120, Dallas, Texas 75247 (“Borrower”) and LIBERTY BANK, a Connecticut non stock mutual savings bank, having an office and place of business at 315 Main Street, Middletown, Connecticut 06457 as facility agent and collateral agent (the "Lender").

RECITALS

A.            WHEREAS, pursuant to the terms and subject to the conditions of that certain Loan and Security Agreement, dated as of September 28, 2007, as modified by a Letter Agreement dated November 15, 2007, accepted by Borrower on December 14, 2007, by a First Amendment to Loan Agreement dated as of July 2, 2008, and by a Second Amendment to Loan Agreement dated as of June 1, 2010, by and between Lender and Borrower (such Loan and Security Agreement as so modified and amended, and as amended hereby and as may hereafter be amended, restated, supplemented or modified from time to time, being hereinafter referred to as the "Loan Agreement"), Lender has agreed to make available to Borrower revolving credit facilities in a maximum principal amount of up to $72,500,000.00; and

B.             WHEREAS, Borrower has requested Lender, and Lender has agreed subject to the terms and conditions of this Third Amendment, to further amend certain provisions of the Loan Agreement; and

C.             WHEREAS, in furtherance of the foregoing and to evidence the agreements of the parties hereto, the parties hereto desire to amend the Loan Agreement and to enter into such other agreements as are hereinafter provided.

AGREEMENT

NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows:

Article 1

Definitions

1.01         Capitalized terms used and not otherwise defined in this Third Amendment shall have the meanings assigned to such terms in the Loan Agreement, as amended hereby.

  

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Article 2

Amendments to Loan Agreement

The Loan Agreement is hereby amended as follows, such amendments to be deemed effective as of the Third Amendment Effective Date (defined below):

2.01         Amendments to Article I Section 1.1 Definitions.  As of the Third Amendment Effective Date, the following definitions are hereby amended and added as follows:

(A)           Change to Definition of Eligible Notes Receivable Subsections (h) and (v).

	
  

	
(i)

	
Subsection (h) shall read as follows:

	
  

	
(h)

	
a cash down payment has been received from Purchaser or the maker, with a FICO Score indicator of 600 or greater in an amount equal to at least ten percent (10%) of the actual purchase price of a one week Interval or in the case of a Purchaser or the maker, with a FICO Score indicator of 500-599 (Purchasers or makers with FICO Score indicators of less than 500 shall not be eligible and Notes Receivable from such individuals shall not be Eligible Notes Receivable) or having no FICO Score, in an amount equal to at least twenty percent (20%) of the actual purchase price of a one week Interval, and Purchaser shall have received no cash or other rebates of any kind;

	
  

	
(ii)

	
Subsection (v) shall read as follows:

	
  

	
(v)

	
the applicable Purchaser’s FICO Score is not less than 600, provided that 5% of the outstanding principal balance of all Eligible Notes Receivable may at any time be comprised of Notes Receivable where the applicable Purchaser has no FICO Score indicator, and for a period from the Third Amendment Effective Date to the first day of the seventh (7th) month thereafter 25% of the outstanding principal balance of all Eligible Notes Receivable may at any time be comprised of Notes Receivable where the applicable Purchaser has no FICO Score indicator or a FICO Score of 500-599, but commencing on the first day of the seventh (7th) month after the Third Amendment Effective Date only 15% of the outstanding principal balance of all Eligible Notes Receivable may at any time be comprised of Notes Receivable where the applicable Purchaser has no FICO Score indicator or a FICO Score of 500-599, and at all times from and after the Third Amendment Effective Date, the weighted average FICO Score (measured at the time of funding and at the end of each calendar quarter thereafter) of Eligible Notes Receivable in a funding shall not be less than 650;

  

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(B)           Change to Definition of Final Maturity Date.   The Definition of Final Maturity Date shall become:

 Final Maturity Date means June 9, 2015.

(C)           Change to Definition of Interest Rate.   The Definition of Interest Rate shall become:

 Interest Rate means a variable rate, adjusted as of each LIBO Rate Determination Date, equal to the LIBO Rate, determined as of each LIBO Rate Determination Date, plus five hundred (500) basis points per annum provided however that at no time, for calculation of the Interest Rate, shall the LIBO Rate be less than 1.25% making the minimum Interest Rate due from Borrower to Lender 6.25%.

(D)           Change to Definition of LIBO Rate Determination Date.   The Definition of LIBO Rate Determination Date shall become:

LIBO Rate Determination Date means the first Business Day of each month.  Notwithstanding the foregoing, the initial LIBO Rate Determination Date shall be the Third Amendment Effective Date.

(E)            Change to Definition of Loan Year.   The Definition of Loan Year shall become:

“Loan Year means the period from the Third Amendment Effective Date through the last day of the next full twelve (12) calendar month period and each twelve (12) calendar month period thereafter.

(F)            Change to Definition of Maximum Amount.  The Definition of Maximum Amount shall become:

Maximum Amount means an aggregate amount not to exceed at any time $75,000,000.00 provided that such maximum amount is subject to the restrictions set forth in Section 2.1(a),  Schedule 1.0 and Section 2.1(c) of the Loan Agreement and further provided that the maximum aggregate amount shall not to exceed at any time $40,000,000.00 until such time as a new participating lender or a lender joins the credit by executing a participation agreement or joinder agreement and then only to the extent that such new participating lender or Lender is committed to fund.

(G)           Change to Definition of Revolving Loan Period.  The Definition of Revolving Loan Period shall become:

 Revolving Loan Period means the period commencing with the Third Amendment Effective Date during which the Borrower may borrow, repay and re-borrow Advances and terminating June 9, 2012.

  

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(H)           Addition of Definition of Third Amendment Effective Date. The Definition of Third Amendment Effective Date set forth below shall be added to Article I Section 1.1 of the Loan Agreement in appropriate alphabetical order to read in its entirety as follows:

 Third Amendment Effective Date shall be June 9, 2010.

2.02           Amendments To Section 2 Revolving Loan and Lending Limits.  As of the Third Amendment Effective Date:

(A)           Change to Section 2.1(c) of the Loan Agreement (Maximum Advances). Section 2.1(c) is hereby amended and restated to read in its entirety as follows:

2.1(c)      Maximum Amount of Advances.  Notwithstanding anything to the contrary contained herein, no Lender shall have an obligation to make an Advance of its Pro Rata Percentage thereof hereunder if (i) the aggregate of Advances outstanding would cause the Loan to exceed the lesser of (A) Borrowing Base, (B) the Availability or (C) the Commitment, or (ii) such an Advance would cause the aggregate outstanding principal balance of Liberty Bank’s Commitment retained by Liberty Bank and not participated to other lenders to exceed Forty Million Dollars ($40,000,000); or (iii) such an Advance would cause such Lender or any Participant in such loans to violate any legal lending limit under Section 2.5 hereof or otherwise.

(B)           Change to Section 2.3(c) of the Loan Agreement (Payments).  Section 2.3(c) is hereby amended and restated to read in its entirety as follows:

2.3           Renewal Fee; Origination Fee; Unused Line Fee; and Late Fee.  Borrower shall pay a renewal fee to Agent of one half of one percent (0.50%) of Liberty Bank’s Commitment (i.e. $200,000).  Borrower shall pay an origination fee to Agent of one percent (1.0%) of the Commitment of any lender which executes a participation agreement or a joinder agreement with Agent after the Third Amendment Effective Date (prorated over the number of months remaining in the 24-month borrowing term).  In addition, Borrower shall pay an unused line fee (the “Unused Line Fee”) calculated as of the last day of each calendar month equal to one half of one percent (0.50%) per annum of the difference between (i) the Commitment of all lenders to the Loan Agreement, and (ii) the average outstanding principal balance of the Loan during such month, which Unused Line Fee shall be due and payable by the fifteenth (15th) day of the following calendar month; provided, that the Unused Line Fee will be waived for any calendar month where the average outstanding principal balance of the Loan during such month exceeds Seventy Five Percent (75%) of the Commitment of all lenders to the Loan Agreement.  In addition, Borrower shall, if any installment of interest and/or the payment of principal is not received by Agent within 5 Business Days after the due date thereof, in addition to any other rights or remedies conferred upon Agent pursuant to Section 9 hereof and the other Loan Documents, Agent may elect to assess a late charge of five percent (5%) of the amount of the installment due and unpaid, which such late charge shall be added to the delinquent amount to compensate Agent for the expense of handling the delinquency.  Borrower and Agent agree that such late charge represents a good faith and fair and reasonable estimate of the probable cost to Agent of such delinquency.  Borrower acknowledges that during the time that any such amount is in default, Agent shall incur losses which are impracticable, costly and inconvenient to ascertain and that such late charge represents a reasonable sum considering all of the circumstances existing on the Effective Date of this Agreement and represents a reasonable estimate of the losses Agent shall incur by reason of late payment.  Borrower further agrees that proof of actual losses would be costly, inconvenient, impracticable and extremely difficult to fix.  Acceptance of such late charge shall not constitute a waiver of the default with respect to the overdue installment, and shall not prevent Agent from exercising any of the other rights and remedies available hereunder.

  

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(C)           Change to Section 2.4(a) of the Loan Agreement (Voluntary Prepayments).

Section 2.4(a) is hereby amended and restated to read in its entirety as follows:

(a)            Voluntary Prepayments.  Except for regular payments of interest and principal as provided hereunder, prepayments (i) shall not be permitted through and including March 8, 2012, but (ii) may be made in whole or in part, upon five (5) days prior written notice to the Agent at any time on or after March 9, 2012 if such payment arises out of a securitization, pooling or similar conduit transaction without payment of a premium or penalty and (iii) may be made in whole or in part, upon five (5) days prior written notice to the Agent at any time after the end of the Revolving Loan Period upon payment of the applicable Prepayment Premium (whether such prepayment results from voluntary payments by Borrower, acceleration, or otherwise); provided, however, that payments or prepayments of Pledged Notes Receivable made by Purchasers who are not directly or indirectly solicited by Borrower to make such prepayment shall not violate this Section (a), and no Prepayment Premium shall be payable as a result of any such payment by Purchasers.

2.03         Amendment of Section 3- Modification of Eligible Notes Receivable.  As of the Third Amendment Effective Date, the following provison of Section 3 of the Loan Agreement is hereby amended and restated to read as follows:

Modification of Eligible Notes Receivable.  Notwithstanding anything herein to the contrary, Borrower shall have the right to modify the interest rate and term only of the Eligible Notes Receivable without Agent’s prior consent, provided that: (i) any such change in the rate of interest on any one or more Eligible Notes Receivable shall not reduce the average interest rate on all Eligible Notes Receivable to less than ten percent (10%) per annum at any time (excluding Eligible Notes Receivable with a lower interest rate pursuant to the SCRA); (ii) the term of no Eligible Notes Receivable shall be increased to a term longer than one hundred twenty (120) months from the date of the first required monthly payment of such Eligible Note Receivable, except that with respect to any Eligible Note Receivable in respect of which one or more monthly payments have been deferred, the term of such Eligible Note Receivable may be extended one month for each such deferred payment provided, however, that in no event shall the term of such Eligible Note Receivable be increased to a term longer than one hundred twenty eight (128) months from the date of the first required monthly payment of such Eligible Note Receivable; (iii) no Eligible Note Receivable is so modified more than once in any twelve (12) month period or more than twice during the term of such Eligible Note Receivable, and (iv) at no time may Borrower so modify the terms of Eligible Notes Receivable constituting more than five percent (5%) of the outstanding principal balance of all Eligible Notes Receivable at any time.

2.04         Amendment of Section 7 Covenants.  As of the Third Amendment Effective Date, the following provisons of Section 7.1 of the Loan Agreement (Affirmative Covenants) are hereby amended, restated and added to read as follows:

(A)           7.1(x)(i) Tangible Net Worth.  Borrower shall, on and after December 31, 2009, at all times have and maintain a Tangible Net Worth of not less than $154,865M plus 50% of aggregate amount of proceeds received by Borrower after December 31, 2009 in connection with each issuance by Borrower of any class or classes of capital stock after December 31, 2009, except for stock issued to retire existing unsecured subordinated debt, plus 50% of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after December 31, 2009.

  

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(B)           7.1x(vii) Minimum FICO Scores.   Borrower shall not permit, for any calendar quarter, the weighted average FICO Credit Bureau Scores of all of Borrower’s sales, not limited to those resulting in pledged Notes Receivable to Agent, with respect to which a FICO score can be obtained, to be less than 650.

(C)           A new Section 7.1(y) shall be added to read as follows:

7.1(y)       Maintenance of Deposit Account Relationship.  Borrower will, or will cause an Affiliate or one or more homeowner associations, to establish and maintain an aggregate of $250,000 or greater of cleared, demand deposit (or other depository relationship reasonably acceptable to Agent) interest bearing funds in an account with Agent and, commencing on July 1, 2011, Borrower will, or will cause an Affiliate or one or more homeowner associations, to increase the aggregate cleared, demand deposit (or other depository relationship reasonably acceptable to Agent) interest bearing funds account balances maintained with Agent to be not less than $500,000 and, commencing on December 1, 2011, Borrower will, or will cause an Affiliate or one or more homeowner associations, to increase the aggregate cleared, demand deposit (or other depository relationship reasonably acceptable to Agent) interest bearing funds maintained with Agent to not less than $750,000.

2.05         Amendment of Section 12 Notices.  The notice provision in Section 12.1 for Lender shall be changed to:

If to Lender:

Liberty Bank

315 Main Street

Middletown, Connecticut  06457

Attn: David F. Brede, Vice President

Phone No. (860) 343-7436

Fax No.  (860) 343-7439

2.06         Amendments to Schedule 1.0 to Loan Agreement. As of the Third Amendment Effective Date, Schedule 1.0 to the Loan Agreement shall be in the form attached hereto as Schedule 1.0.

2.07         Amendments to Exhibits to Loan Agreement. As of the Third Amendment Effective Date, Exhibits A, B and D to the Loan Agreement are hereby amended to be in the form attached as Exhibits A,  B and D to this Third Amendment.

2.08         Amendment to Promissory Note. As of the Third Amendment Effective Date, the Promissory Note is hereby amended to be in the form attached as Exhibit E.

  

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Article 3

Events of Default

3.01         Acknowledgment of No Existing Events of Default. Borrower hereby acknowledges that, immediately prior to giving effect to this Third Amendment, Borrower has not failed to comply with any provision of the Loan Agreement and knows, after due inquiry and investigation, of no events or conditions, which exist or with the passage of time are or would be or become Events of Default.

Article 4

Conditions

4.01         Conditions to Effectiveness.  The effectiveness of this Third Amendment and the agreements of Lender set forth herein, are subject to the satisfaction of the following conditions precedent, all in form and substance satisfactory to Lender in its sole discretion:

(a)            Lender shall have received each of the following, each in form and substance satisfactory to Lender in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender:

(i)             This Third Amendment, duly executed by an authorized officer of Borrower; and

    (ii)            The Second Amended and Restated Promissory Note attached hereto

as Exhibit E; and

(iii)           Borrower shall have paid or authorized Lender to charge its loan account for $200,000 in connection with the provisions contained in this Third Amendment; and

(iv)           Borrower shall have furnished to Lender evidence, reasonably satisfactory to Lender, that its bond obligations maturing in April 2010 have been fully paid and retired; and

(v)           All other documents Lender may request with respect to any matter relevant to this Third Amendment or the transactions contemplated hereby.

(b)            The representations and warranties contained herein and in the Loan Agreement and the Schedules and Exhibits thereto and the other documents executed in connection with the Loan Agreement (herein referred to as "Loan Documents"), as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof, except for such representations and warranties as are by their express terms limited to a specific date.

(c)            All proceedings taken in connection with the transactions contemplated by this Third Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender.

(d)            Borrower shall have paid Lender for all fees, costs and expenses incurred by Lender in preparation and execution of this Third Amendment.

  

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4.02         Conditions to Further Advances.  The following shall have occurred to the reasonable satisfaction of Lender prior to the making of any Advance after the Third Amendment Effective Date:

(a)            Borrower will, or will have caused an Affiliate or one or more homeowner associations, to establish and maintain an aggregate of $250,000 or greater of cleared, demand deposit (or other depository relationship reasonably acceptable to Agent) interest bearing funds in an account with Agent; and

(b)            Borrower shall have obtained from Wells Fargo Bank, in its capacity as Custodian, an acknowledgement that the financing amount recited in the Amended and Restated Custodial and Collateral Agency Agreement (Timeshare Receivables Loan Facility) Silverleaf Resorts, Inc. has increased to up to $75,000,000.

Article 5

Ratifications, Representations and Warranties

5.01         Ratifications. The terms and provisions set forth in this Third Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Third Amendment the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect.  Borrower and Lender agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms.  This Third Amendment is not intended to be or to create, nor shall it be construed as or constitute, a novation or an accord and satisfaction but shall constitute an amendment of the Loan Agreement.

5.02         Representations and Warranties.  Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Third Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Organization of Borrower; (b) Borrower has authorized the execution, delivery and performance of this Third Amendment and any and all other Loan Documents executed and/or delivered in connection herewith; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby; (f) Borrower has not amended its Articles or Certificate of Incorporation or Bylaws since the date of the Loan Agreement; (g) the execution, delivery and performance of this Third Amendment and the Loan Documents executed in connection herewith by Borrower are within its powers, have been duly authorized, and do not contravene (i) its Articles or Certificate of Incorporation and Bylaws, or (ii) any applicable law; and (h) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any governmental authority or other Person, is required in connection with the execution, delivery, performance, validity or enforceability of this Third Amendment or the Loan Documents executed in connection herewith, as applicable, by or against Borrower.

  

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Article 6

Miscellaneous Provisions

6.01         Survival of Representations and Warranties.  All representations and warranties made herein and in the Loan Agreement or any other Loan Document, including, without limitation, any document furnished in connection with this Third Amendment, shall survive the execution and delivery of this Third Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them.

6.02         Reference to Loan Agreement.  Each of the Loan Agreement and the other Loan Documents, and any and all other documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and such other Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement, as amended hereby.

6.03         Severability.  If any term or provision of this Third Amendment is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Third Amendment which shall be given effect so far as possible.

6.04         Successors and Assigns.  This Third Amendment is binding upon and shall inure to the benefit of Lender, all future holders of any Note and all Transferees, and each of their respective successors and permitted assigns.  Borrower may not assign or transfer any of its rights or obligations hereunder or under any of the other Loan Documents without the prior written consent of Lender.

6.05         Counterparts.  This Third Amendment may be executed in one or more counterparts, all of which taken together shall constitute but one and the same instrument. This Third Amendment may be executed by facsimile transmission, which facsimile signatures shall be considered original executed counterparts for purposes of this Section 6.05, and each party to this Third Amendment agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party to this Third Amendment.

6.06         Effect of Waiver.  No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty.

6.07         Headings.  The headings, captions, and arrangements used in this Third Amendment are for convenience only and shall not affect the interpretation of this Third Amendment.

6.08         Applicable Law; Waiver of Jury Trial.  THIS THIRD AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE LOAN AGREEMENT AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE LOAN AGREEMENT.

6.11         Final Agreement.  THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS THIRD AMENDMENT IS EXECUTED.  THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS THIRD AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER.

  

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6.12         Release by Borrower.  By execution of this Third Amendment, Borrower acknowledges and confirms that Borrower does not have any offsets, defenses or claims against Lender, or any of its present or former subsidiaries, affiliates, officers, directors, shareholders, employees, agents, representatives, attorneys, predecessors, successors or assigns whether asserted or unasserted.  To the extent that Borrower may have such offsets, defenses or claims, Borrower and each of its successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs, executors, as applicable, jointly and severally, knowingly, voluntarily and intentionally waive, release and forever discharge Lender, its subsidiaries, affiliates, officers, directors, shareholders, employees, agents, attorneys, predecessors, successors and assigns, both present and former (collectively the "Lender Affiliates") of and from any and all actual or potential claims, demands, damages, actions, requests for sanctions and causes of action, torts, obligations, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, all other liabilities whether known or unknown, matured or unmatured, contingent or absolute, of any kind or description whatsoever, either in law or in equity or otherwise, asserted or unasserted which against Lender and/or Lender Affiliates they ever had, now have, claim to have or may later have or which any of any Borrower's successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs, executors, as applicable, both present and former ever had, now has, claim to have or may later have, upon or by reason of any manner, cause, causes or thing whatsoever, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated, and Borrower hereby agrees that Borrower is collaterally estopped from asserting any claims against Lender or any of the Lender Affiliates relating to the foregoing.

IN WITNESS WHEREOF, this Third Amendment To Loan and Security Agreement has been executed and is effective as of the date first above written.

	  	
BORROWER:

	  	  
	  	
SILVERLEAF RESORTS, INC., a Texas corporation

	  	  
	  	  
	  	
By:  /S/  HARRY J. WHITE, JR.

	  	
Name:  Harry J. White, Jr.

	  	
Title:    Chief Financial Officer

  

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LENDER:

	  	  
	  	
LIBERTY BANK

	  	  
	  	
By:  /S/  DAVID F. BREDE

	  	
Name:  David F. Brede

	  	
Title:    Vice President

List of Exhibits and Schedules to Agreement Not Filed Herewith:

Schedule 1.0 – Identification of Lenders, Participants and Their Respective Pro Rata Percentage

Exhibit A – Collateral Assignment of Notes Receivable and Interval Mortgages

Exhibit B – Borrowing Base Report

Exhibit D – Borrowers Certificate and Request for Advance

Exhibit E – Second Amended and Restated Promissory Note

 

 

11Unassociated Document

    Execution
copy

    FORM
OF WARRANT

     

    June
11,
2010                    

     

    Warrant
to Purchase up to 1,250,000 shares of Common Stock of Discovery Laboratories,
Inc. (the “Company”).

     

    In
consideration for Kingsbridge Capital Limited (the “Investor”) agreeing
to enter into that certain Common Stock Purchase Agreement, dated as of the date
hereof, between the Investor and the Company (the “Agreement”), the
Company hereby agrees that the Investor or any other Warrant Holder (as defined
below) is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period (as defined below) up to
1,250,000 fully paid and non-assessable shares of common stock, par value $0.001
per share, of the Company (the “Common Stock”) at the
Exercise Price (as defined below), as the same may be adjusted from time to time
pursuant to Section 6 hereof.  Capitalized terms used herein and not
otherwise defined shall have the meanings given them in the
Agreement.

     

    Section
1.          Definitions.

     

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

     

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

     

    “Exercise Price” as of
the date hereof shall mean $0.4459.

     

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

     

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

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    Section
2.         Exercise.

     

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

     

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

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (c)      Cashless
Exercise.  If neither an effective registration statement
covering the Warrant Shares to be received by the Warrant Holder upon exercise
of the Warrant nor an exemption to the registration requirements of the
Securities Act of 1933, as amended (“Securities Act”), and applicable state
laws, is otherwise available for resale of such Warrant Shares, the Warrant
Holder may, as an alternative to payment of the Aggregate Exercise Price upon
exercise in accordance with paragraph (b) above, elect to effect a cashless
exercise by so indicating on the Exercise Notice and including a calculation of
the number of shares of Common Stock to be issued upon such exercise in
accordance with the terms hereof (a “Cashless
Exercise”).  If a registration statement on Form S-3 under the
Securities Act or such other form as deemed appropriate by counsel to the
Company covering the (x) the shares of Common Stock of the Company that may be
purchased under the Agreement, (y) the Warrant Shares, or (z) any securities
issued or issuable with respect to any of the foregoing by way of exchange,
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
has been declared effective by the SEC and remains effective, the Company may,
in its sole discretion, require the Warrant Holder to pay the Exercise Price of
the Warrant Shares being purchased by the Warrant Holder under this
Warrant.  The Company may, in its sole discretion, permit the Warrant
Holder to effect a Cashless Exercise at any time.  In the event of a
Cashless Exercise, the Warrant Holder shall receive that number of shares of
Common Stock determined by (i) multiplying the number of Warrant Shares for
which this Warrant is being exercised by the Per Share Warrant Value and
(ii) dividing the product by the average Closing Price of the Common Stock
during the five (5) Trading Days immediately preceding the Exercise Date,
rounded to the nearest whole share.  The Company shall cancel the
total number of Warrant Shares equal to the excess of the number of the Warrant
Shares for which this Warrant is being exercised over the number of Warrant
Shares to be received by the Warrant Holder pursuant to such Cashless
Exercise.  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
this Warrant.

     

    (d)      Replacement
Warrant.  In the event that the Warrant is not exercised in
full, the number of Warrant Shares shall be reduced by the number of such
Warrant Shares for which this Warrant is exercised, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of the Warrant
Holder a new Warrant as provided in Section 13(c), reflecting such adjusted
number of Warrant Shares.

     

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

     

    Section
4.         Delivery of Warrant
Shares.

     

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

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

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

     

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

     

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

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

     

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

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

    Section
11.        Choice of
Law.  This Warrant shall be construed under the laws of the
State of New York, without giving effect to the choice of law provisions of such
state that would cause the application of the laws of any other
jurisdiction.

     

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

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    Section
13.        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, with signatures guaranteed,
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 13(c)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less than 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)      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 13(c))
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.

     

    (c)      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 13(a) or
Section 13(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.

     

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

     

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

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Section
16.       Company Call
Right.

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

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

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

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

    

    
      
        	 	
                DISCOVERY
      LABORATORIES, INC.

              
	 	 
      
	 	
                By: 

              	
                  

              
	 	 
      	
                Name:
      John G. Cooper

              
	 	 
      	
                Title:
      Executive Vice President and

                 Chief
      Financial Officer

              

      

    

    

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

    

    
      
        	 	
                KINGSBRIDGE
      CAPITAL LIMITED

              
	 	 
      
	 	
                By: 

              	
                  

              
	 	 
      	
                Antony
      Gardner-Hillman

              
	 	 
      	
                Director

              

      

    

    

    Warrant
dated June 11, 2010 – Signature Page

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    EXHIBIT
A TO THE WARRANT

     

    EXERCISE
FORM

     

    DISCOVERY
LABORATORIES, INC.

     

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

     

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

     

    
      
        	
                Dated: 

              	
                  

              

      

    

    
      
        	
                  

              
	
                Signature
      of Registered Holder

              
	
                  

              
	
                Name
      of Registered Holder (Print)

              
	
                  

              
	
                Address

              

      

    

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    

    EXHIBIT
B TO THE WARRANT

     

    ASSIGNMENT

     

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

     

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

     

    
      
        	
                Dated: 

              	
                  

              	 
      
	
                  

              	 
      
	
                Signature

              
	 
      	 
      
	
                Fill
      in for new Registration of Warrant:

              
	
                  

              	 
      
	
                Name

              
	
                  

              	 
      
	
                Address

              
	
                  

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

              

      

    

    
      
         

      

      
        ii

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