Document:

Exhibit
      4.1

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
      (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO
      THE
      COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
      UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
      SAID
      ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
      BY THE SECURITIES.

    

    DISCOVERY
      LABORATORIES, INC.

    

    Warrant
      To Purchase Common Stock

    

    Number
      of
      Shares of Common Stock:
      2,314,815

    Date
      of
      Issuance: November 22, 2006 ("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, CAPITAL
      VENTURES INTERNATIONAL,
      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 Issuance Date, but not after 11:59 p.m.,
      New
      York time, on the Expiration Date (as defined below) 2,314,815 (the
      "Warrant
      Share Total")
      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 issued pursuant to Section 1 of that certain Securities Purchase
      Agreement, dated as of November 22, 2006 (the "Subscription
      Date"),
      by
      and among the Company and the Holder (the "Buyer")
      referred to therein (the "Securities
      Purchase Agreement").

    

    1. EXERCISE
      OF WARRANT.

     

    (a) Mechanics
      of Exercise.
      Subject
      to the terms and conditions hereof (including, without limitation, the
      limitations set forth in Section 1(f)), this Warrant may be exercised by the
      Holder on any day on or after the Issuance 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) 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) (the "Exercise
      Delivery Documents"),
      the
      Company shall transmit by facsimile an acknowledgment of confirmation of receipt
      of the Exercise Delivery Documents to the Holder and the Company's transfer
      agent (the "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 shares of Common Stock 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 Agent Commission system, or (Y) if the
      Transfer Agent is not participating in the DTC Fast Automated Securities
      Transfer Program, 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
      shares of Common Stock to which the Holder is entitled pursuant to such
      exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
      referred to in clause (ii)(A) above or notification to the Company of a Cashless
      Exercise referred to in Section 1(d), 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
      of delivery of the certificates evidencing such Warrant Shares. 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 up 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. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Exercise
      Price.
      For
      purposes of this Warrant, "Exercise
      Price"
      means
      $3.18, subject to adjustment as provided herein.

     

    (c) [Intentionally
      Omitted]

     

    
      
        
        

      

      
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    (d) Cashless
      Exercise.
       Notwithstanding
      anything contained herein to the contrary, if at any time following the
      Effectiveness Deadline (as defined in the Registration Rights Agreement) a
      Registration Statement (as defined in the Registration Rights Agreement)
      covering the Warrant Shares that are the subject of an Exercise Notice (the
      "Unavailable
      Warrant Shares")
      is not
      available for the resale of such Unavailable Warrant Shares, the Holder may,
      in
      its sole discretion, 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 Weighted Average Prices of the shares of Common Stock
      (as reported by Bloomberg) for the five (5) consecutive Trading Days ending
      on
      the date 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.

    

    (e) 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 resolve
      such dispute in accordance with Section 12.

     

    (f) Limitations
      on Exercises. 

     

    (1) Beneficial
      Ownership.
      This
      Warrant shall not be exercisable, and the Holder shall not have the right to
      exercise this Warrant until a date not less than 61 days following the date
      that
      the Holder provides the Company with written notice that this Warrant shall
      now
      be currently exercisable. This Warrant shall not be exercisable, 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% 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-KSB, Form 10-Q, Form 10-QSB, 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. For any reason at any time, upon the written or oral
      request of the Holder, the Company shall within one Business Day confirm orally
      and in writing 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 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. To the
      extent that the limitation contained in this Section 1(f) applies, the
      submission of an exercise Notice by the Holder shall be deemed to be the
      Holder’s representation that this Warrant is exercisable pursuant to the terms
      hereof and the Company shall be entitled to rely on such representation without
      making any further inquiry as to whether this Section 1(f) applies. In no event
      shall any exercise of this Warrant in breach of this Section 1(f) be deemed
      to
      be a violation by the Company of this Warrant. 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 any such increase or decrease will not be effective until the sixty-first
      (61st)
      day
      after such notice is delivered to the Company.

     

    
      
        
        

      

      
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    (2) Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon exercise
      of this Warrant and the Buyer shall not be entitled to receive any shares of
      Common Stock if the issuance of such shares of Common Stock would exceed that
      number of shares of Common Stock which the Company may issue upon exercise
      of
      this Warrant or otherwise without breaching the Company's obligations under
      the
      rules or regulations of any applicable Eligible Market (the "Exchange
      Cap"),
      except that such limitation shall not apply in the event that the Company (A)
      obtains the approval of its stockholders as required by the applicable rules
      of
      the Eligible Market for issuances of shares of Common Stock in excess of such
      amount or (B) obtains a written opinion from outside counsel to the Company
      that
      such approval is not required, which opinion shall be reasonably satisfactory
      to
      the Holder. In the event that the Company is prohibited from issuing any Warrant
      Shares for which an Exercise Notice has been received as a result of the
      operation of this Section 1(f)(2), the Company shall pay cash in exchange for
      cancellation of such Warrant Shares, at a price per Warrant Share equal to
      the
      difference between the Weighted Average Price and the Exercise Price as of
      the
      date of the attempted exercise.

     

    
      
        
        

      

      
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    (g) Insufficient
      Authorized Shares.
      If at
      any time while any of the Warrants remain outstanding the Company does not
      have
      a sufficient number of authorized and unreserved shares of Common Stock to
      satisfy its obligation to reserve for issuance upon exercise of the Warrants
      at
      least a number of shares of Common Stock equal to 100% (the "Required
      Reserve Amount")
      of the
      number of shares of Common Stock as shall from time to time be necessary to
      effect the exercise of all of the Warrants then outstanding (an "Authorized
      Share Failure"),
      then
      the Company shall immediately take all action necessary to increase the
      Company's authorized shares of Common Stock to an amount sufficient to allow
      the
      Company to reserve the Required Reserve Amount for the Warrants then
      outstanding. Without limiting the generality of the foregoing sentence, as
      soon
      as practicable after the date of the occurrence of an Authorized Share Failure,
      but in no event later than sixty (60) days after the occurrence of such
      Authorized Share Failure, the Company shall hold a meeting of its stockholders
      for the approval of an increase in the number of authorized shares of Common
      Stock. In connection with such meeting, the Company shall provide each
      stockholder with a proxy statement and shall use its best efforts to solicit
      its
      stockholders' approval of such increase in authorized shares of Common Stock
      and
      to cause its board of directors to recommend to the stockholders that they
      approve such proposal.

     

    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 Subscription Date subdivides (by any stock
      split, stock dividend, recapitalization 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 Subscription Date combines (by
      combination, reverse stock split 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.

     

    
      
        
        

      

      
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    (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 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 Weighted
      Average 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
      shares of Common Stock, and (ii) the denominator shall be the Weighted Average
      Price of the shares of Common Stock on the Trading Day immediately preceding
      such record date; and

     

    (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 common shares 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).

     

    
      
        
        

      

      
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    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 in writing all of the obligations of the Company under
      this Warrant and the other Transaction Documents in accordance with the
      provisions of this Section (4)(b) pursuant to written agreements in form and
      substance reasonably satisfactory to the Holder and reasonably approved by
      the
      Holder prior to such Fundamental Transaction, 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 and except
      as
      otherwise provided in Section 4(c) below, 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. Provision
      made pursuant to the preceding sentence shall be in a form and substance
      reasonably satisfactory to the Holder. The provisions of this Section 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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    (c) Notwithstanding
      and without limiting the foregoing, in the event of a Fundamental Transaction
      where the consideration consists of all or substantially all cash, at the
      request of the Holder delivered before the 90th day after such Fundamental
      Transaction, the remaining unexercised portion of this Warrant on the date
      of
      such Fundamental Transaction (as assumed and/or replaced by the Successor Entity
      as provided in Section 4(b) above) shall be exercisable for the capital stock
      of
      the Successor Entity (and not just for the cash consideration payable in respect
      of the shares of Common Stock in the Fundamental Transaction) and the exercise
      price and number of shares issuable upon the exercise thereof shall be equitably
      adjusted to provide the Holder with a warrant of equivalent value to the Warrant
      held by the Holder immediately prior to the closing of Fundamental
      Transaction.

     

    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, the number of shares of Common Stock
      as
      shall from time to time be necessary to effect the 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.
      Notwithstanding this Section 6, the Company shall provide the Holder with copies
      of the same notices and other information given to the stockholders of the
      Company generally, contemporaneously with the giving thereof to the
      stockholders.

     

    

    
      
        
        

      

      
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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, whereupon the Company will forthwith 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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    8. NOTICES.
      Whenever notice is required to be given under this Warrant, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Securities Purchase Agreement. 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 therefore.
      Without limiting the generality of the foregoing, the Company will give written
      notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least fifteen days prior to the date on which the Company
      closes its books or takes a record (A) with respect to any dividend or
      distribution upon the shares of Common Stock, (B) with respect to any grants,
      issuances or sales of any Options, Convertible Securities or rights to purchase
      stock, warrants, securities or other property to holders of shares of Common
      Stock or (C) for determining rights to vote with respect to any Fundamental
      Transaction, dissolution or liquidation, provided in each case that such
      information shall be made known to the public prior to or in conjunction with
      such notice being provided to the Holder.

     

    9. AMENDMENT
      AND WAIVER.
      Except
      as expressly provided herein, neither this Warrant nor any term hereof may
      be
      amended, waived, discharged or terminated other than by a written instrument
      signed by the party against whom enforcement of any such amendment, waiver,
      discharge or termination is sought.

     

    10. GOVERNING
      LAW.
      This
      Warrant shall be governed by and construed and enforced in accor-dance 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 all the Buyers
      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.

     

    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 within two
      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 Business Days submit via facsimile (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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    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 and the other Transaction Documents,
      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
      right
      to pursue actual damages for any failure by the Company to comply with the
      terms
      of this Warrant. The Company acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm to the Holder and that the remedy at
      law
      for any such breach may be inadequate. The Company therefore agrees that, in
      the
      event of any such breach or threatened breach, the holder of this Warrant shall
      be entitled, in addition to all other available remedies, to an injunction
      restraining any breach, without the necessity of showing economic loss and
      without any bond or other security being required.

     

    14. TRANSFER. This
      Warrant may be offered for sale, sold, transferred or assigned without the
      consent of the Company, except as may otherwise be required by Section 2(f)
      of
      the Securities Purchase Agreement.

     

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

     

    (a) 
      "Approved
      Stock Plan"
      means
      any employee benefit plan which has been approved by the Board of Directors
      of
      the Company, pursuant to which the Company's securities may be issued to any
      employee, consultant, officer or director for services provided to the
      Company.

     

    (b) "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    (c) "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.

     

    (d) "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.

     

    (e) "Common
      Stock Deemed Outstanding"
      means,
      at any given time, the number of shares of Common Stock actually outstanding
      at
      such time, plus the number of shares of Common Stock deemed to be outstanding
      pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the
      Options or Convertible Securities are actually exercisable at such time, but
      excluding any shares of Common Stock owned or held by or for the account of
      the
      Company or issuable upon exercise of this Warrant.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

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

     

    (g) "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.

     

    (h) 
      "Excluded
      Securities"
      means
      any Common Stock issued or issuable: (i) in connection with any Approved Stock
      Plan; (ii) upon the exercise of the Warrants; (iii) in connection with any
      strategic acquisition or transaction by the Company, whether through an
      acquisition of stock or a merger of any business, assets or technologies the
      primary purpose of which is not to raise equity capital; (iv) upon warrants
      (exercisable for not more than 500,000 shares in the aggregate) issued to a
      bank
      or other financial institution in connection with a bona fide non-convertible
      loan, equipment leasing or indebtedness transaction and (v) upon exercise of
      any
      Options or Convertible Securities which are outstanding on the day immediately
      preceding the Subscription Date, provided that the terms of such Options or
      Convertible Securities are not amended, modified or changed on or after the
      Subscription Date.

     

    (i) "Expiration
      Date"
      means
      the date sixty (60) months after 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...

     

    (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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (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 Global Market.

     

    (o) 
      "Registration
      Rights Agreement"
      means
      that certain registration rights agreement by and among the Company and the
      Buyers.

     

    (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).

     

    (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 the 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:  	/s/ John
              Cooper
	 	
              
Name: John
              Cooper
              Title: Executive
                Vice President & CFO

            
	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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 to the holder __________
      Warrant Shares in accordance with the terms of the Warrant.

    

    Date:
      _______________ __, ______

    

    _____________________________

    Name
      of
      Registered Holder

     

     

    By:
      _____________________________    

    Name:

    Title:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ACKNOWLEDGMENT

    

    The
      Company hereby acknowledges this Exercise Notice and hereby directs [Transfer
      Agent]
      to issue
      the above indicated number of shares of Common Stock in accordance with the
      Transfer Agent Instructions dated November [__], 2006 from the Company and
      acknowledged and agreed to by [Transfer
      Agent].

    

    DISCOVERY
      LABORATORIES, INC.

    

    By:_________________________________

    Name:

    Title:Exhibit
      10.1

    SECURITIES
      PURCHASE AGREEMENT

     

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

     

    WHEREAS:

     

    A. The
      Company and the Buyer is executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by Section 4(2) of
      the
      Securities Act of 1933, as amended (the "1933
      Act"),
      and
      Rule 506 of Regulation D ("Regulation
      D")
      as
      promulgated by the United States Securities and Exchange Commission (the
      "SEC")
      under
      the 1933 Act.

     

    B. The
      Buyer
      wishes to purchase, and the Company wishes to sell, upon the terms and
      conditions stated in this Agreement, 4,629,630 shares (the “Common
      Shares”)
      of the
      Common Stock, par value $0.001 per share, of the Company (the "Common
      Stock")
      (ii) a
      warrant to acquire up to 2,314,815 additional shares of Common Stock, in
      substantially the form attached hereto as Exhibit
      A
      (as
      exercised, collectively, the "Warrant
      Shares").

     

    C. Contemporaneously
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, substantially in
      the
      form attached hereto as Exhibit
      B
      (the
      "Registration
      Rights Agreement")
      pursuant to which the Company has agreed to provide certain registration rights
      with respect to the Common Shares, and the Warrant Shares under the 1933 Act
      and
      the rules and regulations promulgated thereunder, and applicable state
      securities laws.

     

    D. The
      Common Shares, the Warrant and the Warrant Shares collectively are referred
      to
      herein as the "Securities".

     

    NOW,
      THEREFORE,
      the
      Company and the Buyer hereby agree as follows:

     

    
      	 	
              1.

            	
              PURCHASE
                AND SALE OF COMMON SHARES AND
                WARRANT

            

    

     

    (a) Purchase
      of Common Shares and Warrant.
      Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
      7
      below, the Company shall issue and sell to the Buyer, and the Buyer agrees
      to
      purchase from the Company on the Closing Date (as defined below), the number
      of
      Common Shares, along
      with the Warrant to acquire up to that number of Warrant Shares as is set forth
      above (the "Closing").
      The
      Closing shall occur on the Closing Date at the offices of Dickstein Shapiro
      LLP
      at 1177 Avenue of the Americas, 47th Floor, New York, NY 10036-2714, or at
      such
      other location as may be mutually agreed upon by the parties

     

    (b) Purchase
      Price.
      The
      purchase price for the Common Shares and related Warrant to be purchased by
      the
      Buyer at the Closing shall be $10,000,000 (the "Purchase
      Price").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) Closing
      Date.
      The
      date and time of the Closing (the "Closing
      Date")
      shall
      be 10:00 a.m., New York City Time, on the date hereof (or such other date and
      time as is mutually agreed to by the Company and the Buyer).

     

    (d) Form
      of Payment.
      On the
      Closing Date, (i) the Buyer shall pay its respective Purchase Price to the
      Company for the Common Shares and Warrant to be issued and sold to the Buyer
      at
      the Closing, by wire transfer of immediately available funds in accordance
      with
      the Company's written wire instructions, and (ii) the Company shall deliver
      to the Buyer (A) one or more stock certificates, free and clear of all
      restrictive and other legends (except as expressly provided in Section 2(h)
      hereof), evidencing the number of Common Shares the Buyer is purchasing and
      (B)
      a Warrant pursuant to which the Buyer shall have the right to acquire the number
      of Warrant Shares, in all cases duly executed on behalf of the Company and
      registered in the name of the Buyer.

     

    2. BUYER'S
      REPRESENTATIONS, WARRANTIES AND COVENANTS.

     

    The
      Buyer
      represents and warrants that: 

     

    (a) Organization
      and Qualification.
      Buyer
      is duly organized and validly existing in good standing under the laws of the
      jurisdiction in which it is incorporated and has the requisite corporate power
      and authorization to enter into and perform its obligations under this
      Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent
      Instructions (as defined in Section 5), the Warrant and each of the other
      agreements entered into by the parties hereto in connection with the
      transactions contemplated by this Agreement (collectively, the "Transaction
      Documents"). 

     

    (b) No
      Public Sale or Distribution.
      The
      Buyer is (i) acquiring the Common Shares and the Warrant and (ii) upon exercise
      of the Warrant will acquire the Warrant Shares issuable upon exercise thereof,
      in the ordinary course of business for its own account and not with a view
      towards, or for resale in connection with, the public sale or distribution
      thereof, except pursuant to sales registered or exempted under the 1933 Act
      and
      the Buyer does not have a present arrangement to effect any distribution of
      the
      Securities to or through any person or entity; provided,
      however,
      that by
      making the representations herein, the Buyer does not agree to hold any of
      the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act. 

     

    (c) Accredited
      Investor Status.
      The
      Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
      Regulation D. Buyer hereby represents that (i) Buyer was contacted regarding
      the
      sale of the Securities by the Agent (as defined below) or the Company (or an
      authorized agent or representative thereof) with whom Buyer had a prior
      substantial pre-existing relationship and (ii) no Securities were offered or
      sold to it by means of any form of general solicitation or general advertising,
      and in connection therewith, Buyer did not: (X) receive or review any
      advertisement, article, notice or other communication published in a newspaper
      or magazine or similar media or broadcast over television or radio whether
      closed circuit, or generally available; or (Y) attend any seminar meeting or
      industry investor conference whose attendees were invited by any general
      solicitation or general advertising. Buyer is not itself a “broker” or a
“dealer” as defined in the Securities Exchange Act of 1934, as amended (the
      "1934
      Act")
      and is
      not an “affiliate” of the Company as defined in Rule 405 promulgated under the
      Securities Act.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (d) Reliance
      on Exemptions.
      The
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and the Buyer's compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      the Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of the Buyer to acquire the
      Securities.

     

    (e) Information.
      The
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities which have been requested by the Buyer.
      The Buyer and its advisors, if any, have been afforded the opportunity to ask
      questions of the Company. Neither such inquiries nor any other due diligence
      investigations conducted by the Buyer or its advisors, if any, or its
      representatives shall modify, amend or affect the Buyer's right to rely on
      the
      Company's representations and warranties contained herein. The Buyer understands
      that its investment in the Securities involves a high degree of risk and is
      able
      to afford a complete loss of such investment. The Buyer has sought such
      accounting, legal and tax advice as it has considered necessary to make an
      informed investment decision with respect to its acquisition of the Securities.
      The Buyer has not relied on any information or advice furnished by or on behalf
      of the Agent in connection with the transactions contemplated
      hereby.

     

    (f) No
      Governmental Review.
      The
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (g) Transfer
      or Resale.
      The
      Buyer understands that except as provided in the Registration Rights Agreement:
      (i) the Securities have not been and are not being registered under the 1933
      Act
      or any state securities laws, and may not be offered for sale, sold, assigned
      or
      transferred unless (A) subsequently registered thereunder, (B) the Buyer shall
      have delivered to the Company an opinion of counsel, in a form reasonably
      acceptable to the Company, to the effect that such Securities to be sold,
      assigned or transferred may be sold, assigned or transferred pursuant to an
      exemption from such registration, or (C) the Buyer provides the Company with
      reasonable assurance that such Securities can be sold, assigned or transferred
      pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
      (or a successor rule thereto) (collectively, "Rule
      144");
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(r)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      Person is under any obligation to register the Securities under the 1933 Act
      or
      any state securities laws or to comply with the terms and conditions of any
      exemption thereunder. Notwithstanding the foregoing, the Securities may be
      pledged in connection with a bona fide margin account or other loan secured
      by
      the Securities and such pledge of Securities shall not be deemed to be a
      transfer, sale or assignment of the Securities hereunder, and no Buyer effecting
      a pledge of Securities shall be required to provide the Company with any notice
      thereof or otherwise make any delivery to the Company pursuant to this Agreement
      or any other Transaction Document, including, without limitation, this Section
      2(g); provided, that in order to make any sale, transfer or assignment of
      Securities, the Buyer and its pledgee makes such disposition in accordance
      with
      or pursuant to a registration statement or an exemption under the 1933
      Act.

     

    
      
        
        

      

      
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    (h) Legends.
      The
      Buyer understands that the certificates or other instruments representing the
      Common Shares and the Warrant and, until such time as the resale of the Common
      Shares and the Warrant Shares have been registered under the 1933 Act as
      contemplated by the Registration Rights Agreement, the stock certificates
      representing the Warrant Shares, except as set forth below, shall bear any
      legend as required by the "blue sky" laws of any state and a restrictive legend
      in substantially the following form (and a stop-transfer order may be placed
      against transfer of such stock certificates):

     

    [NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
      SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
      OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
      THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
      OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
      IS
      NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
      SAID
      ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
      BY THE SECURITIES.

     

    (i) Validity;
      Enforcement.
      This
      Agreement and the Registration Rights Agreement have been duly and validly
      authorized, executed and delivered on behalf of the Buyer and shall constitute
      the legal, valid and binding obligations of the Buyer enforceable against the
      Buyer in accordance with their respective terms, except
      as
      rights to indemnity and contribution may be limited by state or federal
      securities laws or the public policy underlying such laws, except
      as
      such enforceability may be limited by general principles of equity,
      including as to limitations on the enforcement of the remedy of specific
      performance and other equitable remedies (regardless of whether such
      enforceability is considered in a proceeding in equity or at law),
      or to
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      and
      other similar laws relating to, or affecting generally, the enforcement of
      applicable creditors' and contracting parties’ rights and remedies. The persons
      signing on behalf of Buyer hereby warrant and represent that they have the
      authority to execute and deliver this Agreement on behalf of Buyer.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (j) No
      Conflicts.
      The
      execution, delivery and performance by the Buyer of this Agreement and the
      Registration Rights Agreement and the consummation by the Buyer of the
      transactions contemplated hereby and thereby will not (i) result in a violation
      of the organizational documents of the Buyer or (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture or
      instrument to which the Buyer is a party, or (iii) result in a violation of
      any
      law, rule, regulation, order, judgment or decree (including federal and state
      securities laws) applicable to the Buyer, except in the case of clauses (ii)
      and
      (iii) above, for such conflicts, defaults, rights or violations which would
      not,
      individually or in the aggregate, reasonably be expected to have a material
      adverse effect on the ability of the Buyer to perform its obligations
      hereunder.

     

    (k) Residency.
      The
      Buyer is a resident of the Cayman Islands.

     

    (l) 
      Illegal Transactions.
      The
      Buyer has not,
      directly or indirectly, and no Person acting on behalf of or pursuant to any
      understanding with the Buyer, has engaged in any transactions in the securities
      of the Company (including, without limitation, any Short Sales involving any
      of
      the Company’s securities) since the time that the Buyer was first contacted by
      the Company or the Agent regarding the investment in the Company contemplated
      by
      this Agreement. The Buyer covenants that neither it nor any Person acting on
      its
      behalf or pursuant to any understanding with the Buyer will engage, directly
      or
      indirectly, in any transactions in the securities of the Company (including
      Short Sales) prior to the time the transactions contemplated by this Agreement
      are publicly disclosed. “Short
      Sales” include,
      without limitation, all “short sales” as defined in Rule 200 promulgated under
      Regulation SHO under the Exchange Act and all types of direct and indirect
      stock
      pledges, forward sale contracts, options, puts, calls, short sales, swaps,
      derivatives and similar arrangements (including on a total return basis), and
      sales and other transactions through non-U.S. broker-dealers or foreign
      regulated brokers.

     

    (m) No
      Brokers.
      Buyer
      represents and warrants that it has not “engaged,” “consented to” or
“authorized” any broker, finder or intermediary to act on its behalf, directly
      or indirectly, as a broker, finder or intermediary in connection with the
      transactions contemplated by this Agreement. Buyer agrees to indemnify and
      hold
      harmless the Company from and against all fees, commissions or other payments
      owing to any such person or firm acting on behalf of Buyer. Buyer acknowledges
      that the Agent is acting as placement agent of the Company in connection with
      the Offering and will be compensated by the Company for acting in such
      capacity.

     

    (n) Reliance
      on Representations.
      The
      Buyer acknowledges that the Company and its counsel are entitled to rely on
      the
      representations and warranties made herein and otherwise requested by the
      Company for use in preparation of the Registration Statement to be filed by
      the
      Company pursuant to Registration Rights Agreement. All such information shall
      be
      true, correct and complete as of the date of this Agreement, the Closing Date
      and the filing date for any such Registration Statement. The Buyer will notify
      the Company of any change in any such information until such time as the Company
      is no longer required to keep the Registration Statement effective.

     

    
      
        
        

      

      
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    (o) Pre-existing
      Registration Rights.
      The
      Buyer acknowledges that holders of 500,000 shares of the Company’s Common Stock
      that have been previously issued by the Company, or are issuable by the Company
      upon the exercise of certain warrants, may have certain “piggyback” and or
“demand” registration rights and may elect to exercise such rights in connection
      with any registration statement to be filed by the Company pursuant to the
      Registration Rights Agreement, and that the exercise of any such rights, and
      the
      performance by the Company of its obligations in connection therewith shall
      not
      be a violation of the terms of this Agreement and the Registration Rights
      Agreement. 

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company represents and warrants to the Buyer that:

     

    (a) Organization
      and Qualification.
      Each of
      the Company and its "Subsidiaries"
      (which
      for purposes of this Agreement means any entity (i) in which the Company,
      directly or indirectly, owns capital stock or holds an equity or similar
      interest and (ii) which has operations and material assets) are corporations
      duly organized and validly existing in good standing under the laws of the
      jurisdiction in which they are incorporated, and have the requisite corporate
      power and authorization to own their properties and to carry on their business
      as now being conducted. Each of the Company and its Subsidiaries is duly
      qualified as a foreign corporation to do business and is in good standing in
      every jurisdiction in which its ownership of property or the nature of the
      business conducted by it makes such qualification necessary, except to the
      extent that the failure to be so qualified or be in good standing would not
      have
      a Material Adverse Effect. As used in this Agreement, "Material
      Adverse Effect"
      means
      any material adverse effect on the business, properties, assets, operations,
      results of operations, condition (financial or otherwise) or prospects of the
      Company and its Subsidiaries, taken as a whole, or on the transactions
      contemplated hereby and the other Transaction Documents by the agreements and
      instruments to be entered into in connection herewith or therewith, or on the
      authority or ability of the Company to perform its obligations under the
      Transaction Documents; provided, however, that changes relating to (i) the
      economy in general, (ii) the Company’s industry in general or (iii) the
      Company’s working capital and liquidity shall not in itself be deemed to arise
      to a Material Adverse Effect. The
      Company has no subsidiaries other than its presently inactive subsidiary, Acute
      Therapeutics, Inc., which has been inactive from the date of its
      inception.

     

    (b) Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement, the Registration Rights Agreement,
      the Irrevocable Transfer Agent Instructions (as defined in Section 5), the
      Warrant and each of the other agreements entered into by the parties hereto
      in
      connection with the transactions contemplated by this Agreement (collectively,
      the "Transaction
      Documents")
      and to
      issue the Securities in accordance with the terms hereof and thereof. The
      execution and delivery of the Transaction Documents by the Company and the
      consummation by the Company of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Common Shares and the Warrant
      and the reservation for issuance and the issuance of the Warrant Shares issuable
      upon exercise of the Warrant have been duly authorized by the Company's Board
      of
      Directors and no further consent or authorization is required by the Company,
      its Board of Directors or its stockholders. This Agreement and the other
      Transaction Documents have been duly executed and delivered by the Company,
      and
      constitute the legal, valid and binding obligations of the Company, enforceable
      against the Company in accordance with their respective terms, except
      as
      rights to indemnity and contribution may be limited by state or federal
      securities laws or the public policy underlying such laws, except
      as
      such enforceability may be limited by general principles of equity,
      including as to limitations on the enforcement of the remedy of specific
      performance and other equitable remedies (regardless of whether such
      enforceability is considered in a proceeding in equity or at law),
      or to
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      and
      other similar laws relating to, or affecting generally, the enforcement of
      applicable creditors' and contracting parties’ rights and remedies.

     

    
      
        
        

      

      
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    (c) Issuance
      of Securities.
      The
      Common Shares and the Warrant are duly authorized and, upon issuance in
      accordance with the terms hereof and receipt by the Company of the Purchase
      Price therefor, shall be validly issued and free from all taxes, liens and
      charges (other
      than arising under federal or state securities or “blue sky” laws and
      regulations) with
      respect to the issue thereof and the Common Shares shall be fully paid and
      nonassessable with the holders being entitled to all rights accorded to a holder
      of Common Stock. As of the Closing Date, the Company shall have duly authorized
      and reserved for issuance a number of shares of Common Stock which equals the
      number of Warrant Shares. The Company shall, so long as any portion of the
      Warrant is outstanding, take all action necessary to reserve and keep available
      out of its authorized and unissued Capital Stock, solely for the purpose of
      effecting the exercise of the Warrant, 100% of the number of shares of Common
      Stock issuable upon exercise of the Warrant (subject to reduction from time
      to
      time for Common Stock issued upon exercise of the Warrant). Upon exercise in
      accordance with the Warrant, the Warrant Shares will be validly issued, fully
      paid and nonassessable and free from all taxes, liens and charges with respect
      to the issue thereof (other
      than arising under federal or state securities or “blue sky” laws and
      regulations),
      with
      the holders being entitled to all rights accorded to a holder of Common Stock.
      Subject
      to the accuracy of the representations and warranties of Buyer contained in
      Section 2 of this Agreement, issuance
      by the Company of the Securities
      contemplated by this Agreement are exempt from the registration requirements
      of
      the 1933 Act.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Common Shares and
      Warrant and reservation for issuance and issuance of the Warrant Shares) will
      not (i) result in a violation of the Certificate of Incorporation (as defined
      below) or Bylaws (as defined below) of the Company or any of its Subsidiaries
      or
      (ii) conflict with, or constitute a default (or an event which with notice
      or
      lapse of time or both would become a default) under, or give to others any
      rights of termination, amendment, acceleration or cancellation of, any material
      agreement, indenture or instrument to which the Company or any of its
      Subsidiaries is a party, or (iii) result in a violation of any law, rule,
      regulation, order, judgment or decree (including federal and state securities
      laws and regulations and the rules and regulations of the Principal Market)
      applicable to the Company or any of its Subsidiaries or by which any property
      or
      asset of the Company or any of its Subsidiaries is bound or affected, except
      in
      the case of clauses (ii) and (ii), above, for such matters
      which, either individually or in the aggregate, would not reasonably be expected
      to have a Material Adverse Effect.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (e) Consents.
      Except
      for
      the filing of a Notice of Additional Listing with NASDAQ (which the Company
      will
      file with NASDAQ no later than the Closing Date), registration of the Common
      Shares and the Warrant Shares issuable upon exercise of the Warrant under the
      Securities Act, the listing of the Common Shares and the Warrant Shares on
      the
      Nasdaq Global Market and such consents, notifications, approvals,
      authorizations, registrations or qualifications as may be required under the
      Exchange Act and applicable state securities or “blue sky” laws in connection
      with the purchase of the Securities by Buyer,
      the
      Company is not required to obtain any consent, authorization or order of, or
      make any filing or registration with, any court, governmental agency or any
      regulatory or self-regulatory agency or any other Person in order for it to
      execute, deliver or perform any of its obligations under or contemplated by
      the
      Transaction Documents, in each case in accordance with the terms hereof or
      thereof. The Company and its Subsidiaries are unaware of any facts or
      circumstances that might prevent the Company from obtaining or effecting any
      of
      the registration, application or filings pursuant to the preceding sentence.
      Except for such matters
      that, either individually or in the aggregate, would not reasonably be expected
      to have a Material Adverse Effect, the
      Company is not in violation of the listing requirements of the Principal Market
      and has no knowledge of any facts that would reasonably lead to delisting or
      suspension of the Common Stock in the foreseeable future.

     

    (f) Acknowledgment
      Regarding Buyer's Purchase of Securities.
      The
      Company acknowledges and agrees that the Buyer is acting solely in the capacity
      of arm's length purchaser with respect to the Transaction Documents and the
      transactions contemplated hereby and thereby and that the Buyer is not (i)
      an
      officer or director of the Company, (ii) an "affiliate" of the Company (as
      defined in Rule 144) or (iii) to the Knowledge of the Company (defined below),
      a
      "beneficial owner" of more than 10% of the Common Stock (as defined for purposes
      of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
      "1934
      Act")).
      The
      Company further acknowledges that the Buyer is not acting as a financial advisor
      or fiduciary of the Company (or in any similar capacity) with respect to the
      Transaction Documents and the transactions contemplated hereby and thereby,
      and
      any advice given by the Buyer or any of its representatives or agents in
      connection with the Transaction Documents and the transactions contemplated
      hereby and thereby is merely incidental to the Buyer's purchase of the
      Securities. The Company further represents to the Buyer that the Company's
      decision to enter into the Transaction Documents has been based solely on the
      independent evaluation by the Company and its representatives. For the purposes
      of this Agreement, the term “Knowledge of the Company” shall mean the knowledge,
      after due inquiry, of the President and Chief Executive Officer, the Chief
      Financial Officer, the Executive Vice President and General Counsel and any
      other Executive Vice Presidents or persons holding comparable positions in
      the
      Company.

     

    (g) No
      General Solicitation; Placement Agent's Fees.
      Neither
      the Company, nor any of its affiliates, nor, to the Knowledge of the Company,
      any Person acting on its or their behalf, has engaged in any form of general
      solicitation or general advertising (within the meaning of Regulation D) in
      connection with the offer or sale of the Securities. The Company shall be
      responsible for the payment of any placement agent's fees, financial advisory
      fees, or brokers' commissions for any placement agent, financial advisor or
      broker engaged by the Company or its affiliates or acting on behalf of the
      Company relating to or arising out of the transactions contemplated hereby.
      The
      Company shall pay, and hold the Buyer harmless against, any fees, commissions
      or
      other payments or related expense (including, without limitation, attorney's
      fees and out-of-pocket expenses) arising in connection with any such claim.
      The
      Company has engaged Jefferies & Co. as placement agent in connection with
      the sale of the Securities (the "Agent").
      Other
      than the Agent, the Company has not engaged any placement agent or other agent
      in connection with the sale of the Securities.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (h) No
      Integrated Offering.
      None of
      the Company, its Subsidiaries, any of their affiliates, and any Person acting
      on
      their behalf has taken any action to sell, offer for sale or solicit offers
      to
      buy any securities of the Company which would require registration of any of
      the
      Securities under Section 5 of the 1933 Act, unless such offer, issuance or
      sale
      was or shall be within the exemptions of Section 4 of the 1933 Act. The
      Company
      has offered securities for sale only to “accredited investors” within the
      meaning of Rule 501 under the Securities Act. The Company is not required to
      obtain stockholder approval of the transactions contemplated by this Agreement
      under the listing or maintenance requirements of the Primary Market. None of
      the
      Company, its Subsidiaries, their affiliates and any Person acting on their
      behalf will take any action or steps that would require registration of any
      of
      the Securities under the 1933 Act or cause the offering of the Securities to
      be
      integrated with other offerings, for purposes of the 1933 Act or the
      requirements of the Principal Market.

     

    (i) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Certificate of Incorporation
      or the laws of the State of Delaware which is or could become applicable to
      the
      Buyer as a result of the transactions contemplated by this Agreement, including,
      without limitation, the Company's issuance of the Securities and the Buyer's
      ownership of the Securities.

     

    (j) SEC
      Documents; Financial Statements.
      During
      the two years prior to the date hereof, the Company has timely filed all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
      of the foregoing filed prior to the date hereof or prior to the date of the
      Closing, and all exhibits included therein and financial statements and
      schedules thereto and documents incorporated by reference therein being
      hereinafter referred to as the "SEC
      Documents").
      As of
      their respective dates, the SEC Documents complied in all material respects
      with
      the requirements of the 1934 Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents, and none of the SEC
      Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in the
      light of the circumstances under which they were made, not misleading. The
      Company’s Subsidiary is not required to file any reports or other documents with
      the SEC. As of their respective dates, the financial statements of the Company
      included in the SEC Documents complied as to form in all material respects
      with
      applicable accounting requirements and the published rules and regulations
      of
      the SEC with respect thereto. Such financial statements have been prepared
      in
      accordance with United States generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or
      (ii) in the case of unaudited interim statements, to the extent they may
      exclude footnotes or may be condensed or summary statements) and fairly present
      in all material respects the financial position of the Company as of the dates
      thereof and the results of its operations and cash flows for the periods then
      ended (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). With respect to the transactions contemplated by this Agreement,
      none of the information referred to in Section 2(d) of this Agreement provided
      by or on behalf of the Company to the Buyer which is not included in the SEC
      Documents contains any untrue statement of a material fact or omits to state
      any
      material fact necessary in order to make the statements therein, in the light
      of
      the circumstance under which they are or were made, not misleading.

     

    
      
        
        

      

      
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    (k) Absence
      of Certain Changes.
      Except
      as disclosed in the 

     

    SEC
      Documents and Schedule
      3(k),
      since
      September 30, 2006, there has been no material adverse change and no material
      adverse development in the business, properties, operations, condition
      (financial or otherwise), results of operations or prospects of the Company
      or
      its Subsidiaries. Except as disclosed in the SEC Documents and Schedule
      3(k),
      since
      September 30, 2006, the Company has not (i) declared or paid any dividends,
      (ii)
      sold any assets, individually or in the aggregate, in excess of $500,000 outside
      of the ordinary course of business or (iii) had capital expenditures,
      individually or in the aggregate, in excess of $500,000. The Company has not
      taken any steps to seek protection pursuant to any bankruptcy law nor does
      the
      Company have any knowledge or reason to believe that its creditors intend to
      initiate involuntary bankruptcy proceedings or any actual knowledge of any
      fact
      which would reasonably lead a creditor to do so.

     

    (l) No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      Except
      for the transactions contemplated by this Agreement, no material event,
      liability, development or circumstance has occurred or exists with respect
      to
      the Company or its Subsidiaries or their respective business, properties,
      prospects, operations or financial condition, that would be required to be
      disclosed by the Company under applicable securities laws on a registration
      statement on Form S-1 filed with the SEC relating to an issuance and sale by
      the
      Company of its Common Stock and which has not been publicly
      announced.

     

    (m) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor its Subsidiaries is in violation of any term of or in default
      under the Certificate of Incorporation or Bylaws or their organizational charter
      or bylaws, respectively. To the Knowledge of the Company, neither the Company
      nor any Subsidiary is in violation of any judgment, decree or order or any
      statute, ordinance, rule or regulation applicable to the Company or its
      Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
      its business in violation of any of the foregoing, except for possible
      violations which would not, individually or in the aggregate, have a Material
      Adverse Effect. Without limiting the generality of the foregoing, to the
      Knowledge of the Company, the Company is not in violation in any material
      respect of any of the rules, regulations or requirements of the Principal Market
      and the Company has no Knowledge of any facts or circumstances that would
      reasonably lead to delisting or suspension of the Common Stock by the Principal
      Market in the foreseeable future. Since December 31, 2005, (i) the Common Stock
      has been designated for quotation or listed on the Principal Market, (ii)
      trading in the Common Stock has not been suspended by the SEC or the Principal
      Market and (iii) except as disclosed in Schedule
      3(m),
      the
      Company has received no communication, written or oral, from the SEC or the
      Principal Market regarding the violation of a Nasdaq Marketplace Rule or the
      suspension or delisting of the Common Stock from the Principal Market. The
      Company and its Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses, except where
      the
      failure to possess such certificates, authorizations or permits would not have,
      individually or in the aggregate, a Material Adverse Effect, and, to the
      Knowledge of the Company, neither the Company nor any such Subsidiary has
      received any notice of proceedings relating to the revocation or modification
      of
      any such certificate, authorization or permit.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (n) Foreign
      Corrupt Practices.
      To the
      Knowledge of the Company, neither the Company, nor any of its Subsidiaries,
      nor
      any director, officer, agent, employee or other Person acting on behalf of
      the
      Company or any of its Subsidiaries has, in the course of its actions for, or
      on
      behalf of, the Company knowingly and intentionally (i) used any corporate funds
      for any unlawful contribution, gift, entertainment or other unlawful expenses
      relating to political activity; (ii) made any direct or indirect unlawful
      payment to any foreign or domestic government official or employee from
      corporate funds; (iii) violated or is in violation of any provision of the
      U.S.
      Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
      bribe, rebate, payoff, influence payment, kickback or other unlawful payment
      to
      any foreign or domestic government official or employee.

     

    (o) Sarbanes-Oxley
      Act.
      The
      Company is in compliance with all applicable provisions of the Sarbanes-Oxley
      Act of 2002 that are effective as of the date hereof, and all applicable rules
      and regulations promulgated by the SEC thereunder that are effective as of
      the
      date hereof, except where such noncompliance would not reasonably be expected
      to
      have, individually or in the aggregate, a Material Adverse Effect.

     

    (p) Transactions
      With Affiliates.
      Except
      as set forth in the SEC Documents, none of the officers, directors or employees
      of the Company is presently a party to any transaction with the Company or
      any
      of its Subsidiaries (other than for ordinary course services as employees,
      officers or directors), including any contract, agreement or other arrangement
      providing for the furnishing of services to or by, providing for rental of
      real
      or personal property to or from, or otherwise requiring payments to or from
      any
      such officer, director or employee or, to the Knowledge of the Company, any
      corporation, partnership, trust or other entity in which any such officer,
      director, or employee has a substantial interest or is an officer, director,
      trustee or partner.

     

    (q) Equity
      Capitalization.
      As of
      November 16, 2006, the authorized capital stock of the Company consists of
      180
      million shares of Common Stock and 5 million shares of Preferred Stock, of
      which
      (i) 64,949,901 shares are issued and outstanding, 11,207,822 shares are reserved
      for issuance pursuant to the Company's stock option (of which 9,472,786 relate
      to outstanding options), 4,210,203 shares are reserved for issuance pursuant
      to
      securities (other than the aforementioned options and the Warrant) exercisable
      or exchangeable for, or convertible into, shares of Common Stock, and 362,972
      shares are reserved for issuance pursuant to the Company’s 401(k) Plan. All such
      outstanding shares have been validly issued and are fully paid and
      nonassessable. Except as disclosed in Schedule
      3(q)
      or as
      described in or contemplated by the SEC Documents: (i) none of the Company's
      capital stock is subject to preemptive rights or any other similar rights or
      any
      liens or encumbrances suffered or permitted by the Company; (ii) there are
      no
      outstanding options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into, or exercisable or exchangeable for, any capital stock of
      the
      Company or any of its Subsidiaries, or contracts, commitments, understandings
      or
      arrangements by which the Company or any of its Subsidiaries is or may become
      bound to issue additional capital stock of the Company or any of its
      Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into, or exercisable or exchangeable for, any capital stock of
      the
      Company or any of its Subsidiaries; (iii) except for Indebtedness of the
      Company incurred in the ordinary course of business of the Company, which in
      the
      aggregate would not reasonably be expected to have a Material Adverse Effect,
      there are no outstanding debt securities, notes, credit agreements, credit
      facilities or other agreements, documents or instruments evidencing material
      Indebtedness of the Company or any of its Subsidiaries or by which the Company
      or any of its Subsidiaries is or may become bound; (iv) except for
      financing statements related to Indebtedness of the Company described in the
      SEC
      Documents, there are no financing statements securing obligations in any
      material amounts, either singly or in the aggregate, filed in connection with
      the Company or any of its Subsidiaries; (v) there are no material agreements
      or
      arrangements under which the Company or any of its Subsidiaries is obligated
      to
      register the sale of any of their securities under the 1933 Act (except pursuant
      to the Registration Rights Agreement); (vi) there are no outstanding securities
      or instruments of the Company or any of its Subsidiaries which contain any
      redemption or similar provisions, and there are no contracts, commitments,
      understandings or arrangements by which the Company or any of its Subsidiaries
      is or may become bound to redeem a security of the Company or any of its
      Subsidiaries; (vii) there are no securities or instruments containing
      anti-dilution or similar provisions that will be triggered by the issuance
      of
      the Securities; (viii) the Company does not have any stock appreciation rights
      or "phantom stock" plans or agreements or any similar plan or agreement; and
      (ix) the Company and its Subsidiaries have no material liabilities or
      obligations required to be disclosed in the SEC Documents but not so disclosed
      in the SEC Documents, other than those incurred in the ordinary course of the
      Company's or its Subsidiaries' respective businesses and which, individually
      or
      in the aggregate, would not reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

      
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    (r)  Indebtedness
      and Other Contracts.
      Except
      as disclosed in or contemplated by the SEC Documents or on Schedule
      3(r),
      neither
      the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
      (as
      defined below), (ii) is a party to any contract, agreement or instrument, the
      violation of which, or default under which, by the other party(ies) to such
      contract, agreement or instrument could reasonably be expected to result in
      a
      Material Adverse Effect, (iii) is in violation of any term of or in default
      under any contract, agreement or instrument relating to any Indebtedness, except
      where such violations and defaults would not result, individually or in the
      aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
      agreement or instrument relating to any Indebtedness, the performance of which,
      in the judgment of the Company's officers, has or is expected to have a Material
      Adverse Effect. For purposes of this Agreement: (x) "Indebtedness"
      of any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services (including, without limitation, "capital leases" in
      accordance with generally accepted accounting principles) (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    
      
        
        

      

      
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    (s) Absence
      of Litigation.
      Except
      as described in the SEC Documents, there are no actions, suits, proceedings,
      inquiries or investigations before or by the Principal Market, any court, public
      board, government agency, self-regulatory organization or body pending or,
      to
      the Knowledge of the Company, threatened against or affecting the Company,
      the
      Common Stock or any of its Subsidiaries or any of the Company's or the Company's
      Subsidiary's officers or directors, whether of a civil or criminal nature or
      otherwise, which, individually or in the aggregate, might reasonably be expected
      to have a Material Adverse Effect. 

     

    (t) Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any Subsidiary has received any notice or obtained any Knowledge of
      circumstances indicating that they will not be able to renew their existing
      insurance coverage (modified to the extent deemed prudent and customary by
      the
      management of the Company) as and when such coverage expires or to obtain
      similar coverage from similar insurers as may be necessary to continue its
      business at a cost that is commercially reasonable and not reasonably likely
      to
      result in a Material Adverse Effect.

     

    (u) Employee
      Relations.
      The
      Company and its Subsidiaries believe that their relations with their employees
      are good. No executive officer of the Company (as defined in Rule 501(f) of
      the
      1933 Act) has notified the Company that such officer intends to leave the
      Company or otherwise terminate such officer's employment with the Company.
      No
      executive officer of the Company, to the Knowledge of the Company, is, or is
      now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement,
      non-competition agreement, or any restrictive covenant to which the Company
      and
      such executive are parties, and, to the Knowledge of the Company, the continued
      employment of each such executive officer does not subject the Company or any
      of
      its Subsidiaries to any liability with respect to any of the foregoing matters.
      The Company and its Subsidiaries are in compliance with all federal, state,
      local and foreign laws and regulations respecting employment and employment
      practices, terms and conditions of employment and wages and hours, except where
      failure to be in compliance would not, either individually or in the aggregate,
      reasonably be expected to result in a Material Adverse Effect.

     

    
      
        
        

      

      
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    (v) Title.
      Except
      as described in or contemplated by the SEC Documents, the Company and its
      Subsidiaries have good and marketable title to all personal property owned
      by
      them which is material to their respective business, in each case free and
      clear
      of all liens, encumbrances and defects except such as do not materially affect
      the value of such property and do not interfere with the use made and proposed
      to be made of such property by the Company and any of its Subsidiaries. Any
      real
      property and facilities held under lease by the Company and any of its
      Subsidiaries are held by them under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company and its
      Subsidiaries. The Company owns no real property.

     

    (w) Intellectual
      Property Rights.
      The
      Company owns or licenses all the proprietary rights ("Intellectual
      Property Rights")
      which
      are necessary for the business of the Company as now conducted. The Company
      does
      not have any Knowledge of any infringement by the Company or its Subsidiaries
      of
      Intellectual Property Rights of others. To the Knowledge of the Company, there
      is no claim, action or proceeding being made, brought or threatened against
      the
      Company or any of its Subsidiaries regarding its Intellectual Property Rights.
      The Company has no Knowledge of any facts or circumstances which might give
      rise
      to any of the foregoing infringements or claims, actions or proceedings. The
      Company and its Subsidiaries have taken commercially reasonable measures to
      protect the secrecy, confidentiality and value of all of their Intellectual
      Property Rights.

     

    (x) Environmental
      Laws.
      To the
      Knowledge of the Company, the Company and its Subsidiaries (i) are in compliance
      with any and all Environmental Laws (as hereinafter defined), (ii) have received
      all permits, licenses or other approvals required of them under applicable
      Environmental Laws to conduct their respective businesses and (iii) are in
      compliance with all terms and conditions of any such permit, license or approval
      where, in each of the foregoing clauses (i), (ii) and (iii), the failure to
      so
      comply could be reasonably expected to have, individually or in the aggregate,
      a
      Material Adverse Effect. The term "Environmental
      Laws"
      means
      all federal, state or local laws relating to pollution or protection of human
      health or the environment (including, without limitation, ambient air, surface
      water, groundwater, land surface or subsurface strata), including, without
      limitation, laws relating to emissions, discharges, releases or threatened
      releases of chemicals, pollutants, contaminants, or toxic or hazardous
      substances or wastes (collectively, "Hazardous
      Materials") into
      the
      environment, or otherwise relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of Hazardous Materials,
      as well as all authorizations, codes, decrees, demands or demand letters,
      injunctions, judgments, licenses, notices or notice letters, orders, permits,
      plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    
      
        
        

      

      
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    (y) Tax
      Status.
      The
      Company and each of its Subsidiaries (i) has made or timely filed all federal
      and material state income and other tax returns, reports and declarations
      required by any jurisdiction to which it is subject, (ii) has paid all taxes
      and
      other governmental assessments and charges that are material in amount, shown
      or
      determined to be due on such returns, reports and declarations, except those
      being contested in good faith and (iii) has set aside on its books provision
      reasonably adequate for the payment of any taxes payable for periods subsequent
      to the periods to which such returns, reports or declarations apply. To the
      Knowledge of the Company, there are no unpaid taxes in any material amount
      claimed to be due and payable by the taxing authority of any jurisdiction and
      no
      factual basis for any such claim.

     

    (z) Internal
      Accounting and Disclosure Controls.
      The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management's general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles (GAAP)
      and to maintain asset accountability, (iii) access to assets is permitted only
      in accordance with management's general or specific authorization and (iv)
      the
      recorded accountability for assets is compared with the existing assets at
      reasonable intervals and appropriate action is taken with respect to any
      difference. The Company maintains disclosure controls and procedures (as such
      term is defined in Rule 13a-14 under the 1934 Act) that are designed to ensure
      that information required to be disclosed by the Company in the reports that
      it
      files or submits under the 1934 Act (i) is recorded, processed, summarized
      and
      reported, within the time periods specified in the rules and forms of the SEC,
      and (ii) is accumulated and communicated to the Company’s management, including
      its principal executive officer or officers and its principal financial officer
      or officers, as appropriate, to allow timely decisions regarding required
      disclosure.

     

    (aa) Form
      S-3 Eligibility.
      The
      Company is eligible to register the Common Shares and the Warrant Shares for
      resale by the Buyer using Form S-3 promulgated under the 1933 Act.

     

    (bb) Off
      Balance Sheet Arrangements.
      There
      is no transaction, arrangement, or other relationship between the Company and
      an
      unconsolidated or other off balance sheet entity that is required to be
      disclosed by the Company in its Exchange Act filings and is not so disclosed
      and
      that would be reasonably likely to have a Material Adverse Effect.

     

    (cc) Manipulation
      of Price.
      The
      Company has not, and, to the Knowledge of the Company, no one acting on its
      behalf has, (i) taken, directly or indirectly, any action designed to cause
      or
      to result in the stabilization or manipulation of the price of any security
      of
      the Company to facilitate the sale or resale of any of the Securities, (ii)
      sold, bid for, purchased, or paid any compensation for soliciting purchases
      of,
      any of the Securities, other than the Agents' placement of the Securities,
      or
      (iii) paid or agreed to pay to any person any compensation for soliciting
      another to purchase any other securities of the Company.

     

    (dd) Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income or similar
      taxes) which are required to be paid in connection with the sale and transfer
      of
      the Securities to be sold to the Buyer hereunder will be, or will have been,
      fully paid or provided for by the Company, and all laws imposing such taxes
      will
      be or will have been complied with.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (ee) Disclosure.
      The
      Company confirms that, with the exception of the transactions contemplated
      by
      this Agreement, neither it nor, to the Knowledge of the Company, any other
      Person acting on its behalf has provided the Buyer or its agents or counsel
      with
      any information that constitutes material, nonpublic information. The Company
      understands and confirms that the Buyer will rely on the foregoing
      representations in effecting transactions in securities of the Company. All
      disclosure provided by the Company to the Buyer regarding the Company, its
      business and the transactions contemplated hereby, including the Schedules
      to
      this Agreement, furnished by or on behalf of the Company are true and correct
      and do not contain any untrue statement of a material fact or omit to state
      any
      material fact necessary in order to make the statements made therein, in the
      light of the circumstances under which they were made, not misleading. To the
      Knowledge of the Company, no event or circumstance has occurred or information
      exists with respect to the Company or any Subsidiary or either of its or their
      respective business, properties, operations or financial conditions, which,
      under applicable law, rule or regulation, requires public disclosure or
      announcement by the Company but which has not been so publicly announced or
      disclosed (assuming for this purpose that the Company's reports filed under
      the
      Exchange Act of 1934, as amended, are being incorporated into an effective
      registration statement filed by the Company under the 1933 Act). The Company
      acknowledges and agrees that the Buyer does not make and has not made any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in the Transaction
      Documents.

     

    (ff) Acknowledgement
      Regarding Buyer's Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
      but subject to compliance by the Buyer with applicable law, it is understood
      and
      acknowledged by the Company (i) that the Buyer has not been asked to agree,
      nor
      has the Buyer agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or "derivative" securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by the Buyer, including, without
      limitation, short sales or "derivative" transactions, before or after the
      closing of this or future private placement transactions, may negatively impact
      the market price of the Company's publicly-traded securities; (iii) that the
      Buyer, and counter parties in "derivative" transactions to which the Buyer
      is a
      party, directly or indirectly, presently may have a "short" position in the
      Common Stock, and (iv) that the Buyer shall not be deemed to have any
      affiliation with or control over any arm's length counter-party in any
      "derivative" transaction. The Company further understands and acknowledges
      that
      (a) the Buyer may engage in hedging activities at various times during the
      period that the Securities are outstanding and (b) such hedging activities
      (if
      any) could reduce the value of the existing stockholders' equity interests
      in
      the Company at and after the time that the hedging activities are being
      conducted.

     

    (gg) No
      Implied Representations.
      All of
      the Company’s representations and warranties are contained in this Agreement,
      and no other representations or warranties by the Company shall be
      implied.

     

    
      
        
        

      

      
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    4. COVENANTS.

     

    (a) Best
      Efforts.
      Each
      party shall use its best efforts timely to satisfy each of the covenants and
      the
      conditions to be satisfied by it as provided in Sections 5, 6 and 7 of this
      Agreement.

     

    (b) Form
      D
      and Blue Sky.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to the Buyer promptly after such
      filing. The Company, on or before the Closing Date, shall take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for or to qualify the Securities for sale to the Buyer at the Closing
      pursuant to this Agreement under applicable securities or "Blue Sky" laws of
      the
      states of the United States (or to obtain an exemption from such qualification),
      and shall provide evidence of any such action so taken to the Buyer on or prior
      to the Closing Date. The Company shall make all filings and reports relating
      to
      the offer and sale of the Securities required under applicable securities or
      "Blue Sky" laws of the states of the United States only in such jurisdictions
      as
      Buyer shall reasonably request following the Closing Date.

     

    (c) Reporting
      Status.
      Until
      the date which is the later of the date on which (i) the Investor (as
      defined in the Registration Rights Agreement) shall have sold all the Common
      Shares and Warrant Shares and
      the
      Warrant is no longer outstanding or (ii) the Company is no longer obligated
      under the Registration Rights Agreement to maintain the registration statement
      filed thereunder (the "Reporting
      Period"),
      the
      Company shall timely file all reports required to be filed with the SEC pursuant
      to the 1934 Act, and the Company shall not terminate its status as an issuer
      required to file reports under the 1934 Act even if the 1934 Act or the rules
      and regulations thereunder would otherwise permit such termination.

     

    (d) Use
      of
      Proceeds.
      The
      Company will use substantially all of the proceeds from the sale of the
      Securities for purposes set forth in the Registration Statement to be filed
      by
      the Company pursuant to the Registration Rights Agreement but in no event for
      (i) the repayment of any outstanding Indebtedness of the Company or any of
      its
      Subsidiaries or (ii) the redemption or repurchase of any of its or its
      Subsidiaries' equity securities.

     

    (e) Financial
      Information.
      The
      Company agrees to send the following to each Investor during the Reporting
      Period (i) unless the following are filed with the SEC through EDGAR and are
      available to the public through the EDGAR system, within one (1) Business Day
      after the filing thereof with the SEC, a copy of its Annual Reports on Form
      10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
      any registration statements (other than on Form S-8) or amendments filed
      pursuant to the 1933 Act, and (ii) to the extent not filed with the SEC
      through EDGAR, copies of any notices and other information made available or
      given to the stockholders of the Company generally, contemporaneously with
      the
      making available or giving thereof to the stockholders. As used herein,
      "Business
      Day"
      means
      any day other than Saturday, Sunday or other day on which the Primary Market
      or
      commercial banks in The City of New York are authorized or required by law
      to
      remain closed.

     

    (f) Listing.
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which shares of Common
      Stock are then listed (subject to official notice of issuance) and shall
      maintain, so long as any other shares of Common Stock shall be so listed, such
      listing of all Registrable Securities from time to time issuable under the
      terms
      of the Transaction Documents. The Company shall maintain the Common Stock's
      authorization for listing on the Principal Market. Neither the Company nor
      any
      of its Subsidiaries shall take any action which would be reasonably expected
      to
      result in the delisting or suspension of the Common Stock on the Principal
      Market. The Company shall pay all fees and expenses in connection with
      satisfying its obligations under this Section 4(f).

     

    
      
        
        

      

      
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    (g) Fees.
      Subject
      to Section 8 below, at the Closing the Company shall pay an expense allowance
      to
      the Buyer or its designee(s) in an amount equal to $15,000 (reduced by the
      amount of any deposit heretofore paid) to cover the costs, fees and expenses
      incurred in connection with the preparation, execution and performance of this
      Agreement and the transactions contemplated hereunder, which amount shall be
      withheld by Buyer from the Purchase Price at the Closing. The Company shall
      be
      responsible for the payment of any fees or commissions due to any placement
      agent, financial advisor, or broker engaged by Buyer relating to or arising
      out
      of the transactions contemplated hereby, including, without limitation, any
      fees
      payable to the Agent.

     

    (h) Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Securities may be pledged by an
      Investor (as defined in the Registration Rights Agreement) in connection with
      a
      bona fide margin agreement or other loan or financing arrangement that is
      secured by the Securities. The pledge of Securities shall not be deemed to
      be a
      transfer, sale or assignment of the Securities hereunder, and no Investor
      effecting a pledge of Securities shall be required to provide the Company with
      any notice thereof or otherwise make any delivery to the Company pursuant to
      this Agreement or any other Transaction Document, including, without limitation,
      Section 2(g) of this Agreement; provided that an Investor and its pledgee shall
      be required to comply with the provisions of Section 2(g) of this Agreement in
      order to effect a sale, transfer or assignment of Securities to such pledgee.
      The Company hereby agrees to execute and deliver such documentation as a pledgee
      of the Securities may reasonably request in connection with a pledge of the
      Securities to such pledgee by an Investor.

     

    (i) Disclosure
      of Transactions and Other Material Information.
      The
      Company shall, on or before 8:30 a.m., New York City Time, no later than
      the first Business Day after the date of this Agreement, issue a press release
      (the "Press
      Release")
      disclosing the material terms of the transactions contemplated hereby. The
      Company shall provide the Buyer an advance copy of the Press Release and agrees
      to consider comments that the Buyer may provide but shall nevertheless be
      entitled to make such disclosure as it deems appropriate to meet its disclosure
      obligations under the 34 Act. On
      or
      before 8:30 a.m., New York City Time, no later than the third Business Day
      following the Closing Date, the Company shall file a Current Report on Form
      8-K
      describing the terms of the transactions contemplated by the Transaction
      Documents in the form required by the 1934 Act, and attaching the material
      Transaction Documents (including, without limitation, this Agreement (without
      the schedules), the form of Warrant and the Registration Rights Agreement)
      as
      exhibits to such filing (including all attachments, the "8-K
      Filing").
      From
      and after the issuance of the Press Release, the Buyer shall not be in
      possession of any material, nonpublic information received from the Company,
      any
      of its Subsidiaries or any of its respective officers, directors, employees
      or
      agents, that is not disclosed in the Press Release. The Company shall not,
      and
      shall cause each of its Subsidiaries and each of their respective officers,
      directors, employees and agents, not to, provide the Buyer with any material,
      nonpublic information regarding the Company or any of its Subsidiaries from
      and
      after the filing of the Press Release without the express written consent of
      the
      Buyer pursuant to a Confidentiality and Nondisclosure Agreement. 

     

    
      
        
        

      

      
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    (j) Reservation
      of Shares.
      The
      Company shall at all times have authorized, and reserved for the purpose of
      issuance, from and after the Closing Date, the number of shares of Common Stock
      issuable upon exercise of the Warrant being issued at the Closing (reduced
      from
      time to time by the number of shares of Common Stock that shall have been
      previously exercised under the Warrant) in conformity with
      Section 3(c).

     

    (k) Conduct
      of Business.
      The
      Company shall use commercially reasonable efforts to conduct its business to
      avoid violations of any law, ordinance or regulation of any governmental entity,
      except where such violations would not, either individually or in the aggregate,
      be reasonably expected to result in a Material Adverse Effect.

     

    (l) Additional
      Issuances of Securities.

     

    (i)For
      purposes of this Section 4(m), the following definitions shall
      apply.

     

    "Convertible
      Securities"
      means
      any stock or securities (other than Options) convertible into or exercisable
      or
      exchangeable for shares of Common
      Stock.

     

    "Options"
      means
      any rights, warrants or options to subscribe for or purchase shares of
Common
      Stock or
      Convertible Securities.

     

    "Common
      Stock Equivalents"
      means,
      collectively, Options and Convertible Securities.

     

    (ii)From
      the
      date hereof until the date that is the later of (A) seventy-five (75) days
      from
      the Closing Date and (b) the Effective Date (as defined in the Registration
      Rights Agreement) (the "Trigger
      Date"),
      other
      than in respect of the shares described on Schedule 4(m), the Company will
      not,
      directly or indirectly, file any registration statement with the SEC other
      than
      the Registration statement (as defined in the Registration Rights Agreement).
      From the date hereof until the Trigger Date, the Company will not, other than
      with respect to the transactions described on Schedule 4(m), directly or
      indirectly, offer, sell, grant any option to purchase, or otherwise dispose
      of
      (or announce any offer, sale, grant or any option to purchase or other
      disposition of) any of its or its Subsidiaries' equity or equity equivalent
      securities, including without limitation any debt, preferred stock or other
      instrument or security that is, at any time during its life and under any
      circumstances, convertible into or exchangeable or exercisable for shares of
      Common Stock or Common Stock Equivalents (any such offer, sale, grant,
      disposition or announcement being referred to as a "Subsequent
      Placement").
      

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    5. TRANSFER
      RESTRICTIONS; TRANSFER AGENT INSTRUCTIONS.

     

    (a) Transfer
      Restrictions.
      The
      legend set forth in Section 2(h) shall be removed and the Company shall issue
      a
      certificate without such legend or any other legend to the holder of the
      applicable Securities upon which the legend is stamped, if (i) such Securities
      are registered for resale under the 1933 Act, (ii) in connection with a sale,
      assignment or other transfer, such holder provides the Company with an opinion
      of counsel, in a generally acceptable form, to the effect that such sale,
      assignment or transfer of such Securities may be made without registration
      under
      the applicable requirements of the 1933 Act, or (iii) such holder provides
      the
      Company with reasonable assurance (in form acceptable to the Company) that
      such
      Securities can be sold, assigned or transferred pursuant to Rule
      144.
      The
      Company shall use commercially reasonable efforts to cause Company Counsel
      (as
      defined below) to issue the legal opinion included in the Irrevocable Transfer
      Agent Instructions to the Company’s transfer agent within five business days of
      the Effective Date. Following the Effective Date or at such earlier time as
      a
      legend is no longer required for certain Securities, the Company will no later
      than five Business Days following the delivery by the Buyer to the Company
      or
      the Company’s transfer agent of a legended certificate representing such
      Securities, instruct its transfer agent to deliver to the Buyer a certificate
      representing such Securities that is free from all restrictive and other
      legends. The Company shall pay all transfer agent and related fees in connection
      with such issuance and provided
      that the Transfer Agent is participating in The Depository Trust Company
      ("DTC")
      Fast
      Automated Securities Transfer Program, upon the request of the Buyer, deliver
      such shares to the Buyer's or its designee's balance account with DTC through
      its Deposit Withdrawal Agent Commission system. Following
      the Effective Date and upon the delivery to the Buyer of any certificate
      representing Securities that is free from all restrictive and other legends,
      the
      Buyer agrees that any sale of such Securities shall be made pursuant to the
      Registration Statement and in accordance with the plan of distribution described
      therein or pursuant to an available exemption from the registration requirements
      of the 1933 Act. The Company may not make any notation on its records or give
      instructions to any transfer agent of the Company that enlarge the restrictions
      on transfer set forth in Section 2(h).

     

    (b) Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates or credit shares to the
      applicable balance accounts at DTC, registered in the name of the Buyer or
      its
      respective nominee(s), for the Warrant Shares in
      such
      amounts as specified from time to time by the Buyer to the Company upon exercise
      of the Warrant (and payment in full for the Warrant Shares) in the form of
      Exhibit
      C
      attached
      hereto (the "Irrevocable
      Transfer Agent Instructions").
      The
      Company represents and warrants that no instruction other than the Irrevocable
      Transfer Agent Instructions referred to in this Section 5, and stop transfer
      instructions to give effect to Section 2(g) hereof, will be given by the Company
      to its transfer agent with respect to the Securities, and that the Securities
      shall otherwise be freely transferable on the books and records of the Company
      as and to the extent provided in this Agreement and the other Transaction
      Documents.

     

    (c) Breach.
      The
      Company acknowledges that a breach by it of its obligations under this Section
      5
      will cause irreparable harm to the Buyer. Accordingly, the Company acknowledges
      that the remedy at law for a breach of its obligations under this Section 5
      will
      be inadequate and agrees, in the event of a breach or threatened breach by
      the
      Company of the provisions of this Section 5, that the Buyer shall be entitled,
      in addition to all other available remedies, to an order and/or injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    6. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Common Shares and
      the
      related Warrant to the Buyer at the Closing is subject to the satisfaction,
      at
      or before the Closing Date, of each of the following conditions, provided that
      these conditions are for the Company's sole benefit and may be waived by the
      Company at any time in its sole discretion by providing the Buyer with prior
      written notice thereof:

     

    (a) 
      The
      Buyer shall have executed each of the Transaction Documents to which it is
      a
      party and delivered the same to the Company.

     

    (b) 
      The
      Buyer shall have delivered to the Company the Purchase Price, less the amounts
      withheld pursuant to Section 4(g), for the Common Shares and the related Warrant
      being purchased by the Buyer at the Closing by wire transfer of immediately
      available funds pursuant to the wire instructions provided by the
      Company.

     

    (c) The
      representations and warranties of the Buyer shall be true and correct in all
      material respects as of the date when made and as of the Closing Date as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Buyer shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Buyer at
      or
      prior to the Closing Date.

     

    7. CONDITIONS
      TO BUYER'S OBLIGATION TO PURCHASE.

     

    The
      obligation of the Buyer to purchase the Common Shares and the related Warrant
      at
      the Closing is subject to the satisfaction, at or before the Closing Date,
      of
      each of the following conditions, provided that these conditions are for the
      Buyer's sole benefit and may be waived by the Buyer at any time in its sole
      discretion by providing the Company with prior written notice
      thereof:

     

    (a) The
      Company shall have executed and delivered to the Buyer (i) each of the
      Transaction Documents and (ii) the Common Shares (in such amounts as the Buyer
      shall request) and
      the
      related Warrant (in such amounts as the Buyer shall request) being purchased
      by
      the Buyer at the Closing pursuant to this Agreement.

     

    (b) The
      Company shall have delivered to the Buyer a copy of the Irrevocable Transfer
      Agent Instructions, in the form of Exhibit
      C
      attached
      hereto, which instructions shall have been delivered to and acknowledged in
      writing by the Company's transfer agent.

     

    (c)
       The
      Common Stock (I) shall be listed on the Principal Market and (II) shall not
      have been suspended, as of the Closing Date, by the SEC or the Principal Market
      from trading on the Principal Market nor shall suspension by the SEC or the
      Principal Market have been threatened, as of the Closing Date, either (A) in
      writing by the SEC or the Principal Market or (B) by falling below the minimum
      listing maintenance requirements of the Principal Market.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (d) The
      Company shall have delivered to the Buyer a certificate, executed by the
      Secretary of the Company and dated as of the Closing Date, as to (i) the
      resolutions consistent with Section 3(b) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to the Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
      form attached hereto as Exhibit
      E.

     

    (e) 
      The
      representations and warranties of the Company shall be true and correct as
      of
      the date when made and as of the Closing Date as though made at that time
      (except for representations and warranties that speak as of a specific date)
      and
      the Company shall have performed, satisfied and complied in all respects with
      the covenants, agreements and conditions required by the Transaction Documents
      to be performed, satisfied or complied with by the Company at or prior to the
      Closing Date. The Buyer shall have received a certificate, executed by the
      Chief
      Executive Officer of the Company, dated as of the Closing Date, to the foregoing
      effect and as to such other matters as may be reasonably requested by the Buyer
      in the form attached hereto as Exhibit
      F.

     

    (f) The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Common Shares and the
      Warrant.

     

    (g) The
      Company shall have delivered to the Buyer such other documents relating to
      the
      transactions contemplated by this Agreement as the Buyer or its counsel may
      reasonably request.

     

    8. TERMINATION.
      In
      the
      event that the Closing shall not have occurred with respect to a Buyer on or
      before five (5) days from the date hereof due to the Company's or the Buyer's
      failure to satisfy the conditions set forth in Sections 6 and 7 above (and
      the
      nonbreaching party's failure to waive such unsatisfied condition(s)), the
      nonbreaching party shall have the option to terminate this Agreement with
      respect to such breaching party at the close of business on such date without
      liability of any party to any other party.

     

    9. MISCELLANEOUS.

     

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

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    (e) Entire
      Agreement; Amendments.
      This
      Agreement supersedes all other prior oral or written agreements between the
      Buyer, the Company, their affiliates and Persons acting on their behalf with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor the Buyer makes any representation,
      warranty, covenant or undertaking with respect to such matters. No provision
      of
      this Agreement may be amended other than by an instrument in writing signed
      by
      the Company and the Buyer. No provision hereof may be waived other than by
      an
      instrument in writing signed by the party against whom enforcement is sought.
      No
      such amendment shall be effective to the extent that it applies to less than
      all
      of the holders of the Common Shares then outstanding. 

     

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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    If
      to the
      Company:

     

    Discovery
      Laboratories, Inc.

    2600
      Kelly Road, Suite 100

    Warrington,
      PA 18976

    Telephone: (215)
      488-9300

    Facsimile: (215)
      488-9301

    Attention: John
      G.
      Cooper, CFO

    

    with
      a
      copy to (which shall not constitute notice):

    

    Dickstein
      Shapiro LLP

    1177
      Avenue of the Americas

    New
      York,
      NY 10036-2714

    Telephone: (212)
      277-6686

    Facsimile: (212)
      277-6501

    Attn:
      Ira
      L. Kotel

    

    If
      to the
      Transfer Agent:

     

    Continental
      Stock Transfer & Trust Company

    Attn.:
      Bill Seegraber

    17
      Battery Place, 8th Floor

    New
      York,
      NY 10004

    Telephone:
       (212)
      509-4000

    Facsimile:
       (212)
      509-4000

     

    

     

    If
      to the
      Buyer:

     

    Capital
      Ventures International

    c/o
      Heights Capital Management, Inc.

    101
      California Street, Suite 3250

    San
      Francisco, CA 94111

    Telephone: (415)
      403-6500

    Facsimile: (415)
      403-6525

    Attention: Martin
      Kobinger

    

     

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

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns.

     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except that the Agent may
      rely upon the representations and warranties contained in Sections 2 and 3
      hereof.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 8, the representations and warranties
      of the Company and the Buyer contained in Sections 2 and 3, the agreements
      and
      covenants set forth in Sections 4, 5 and 9 shall survive the Closing and the
      delivery and exercise of Securities, as applicable. 

     

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

     

    (k) Indemnification.
      In
      consideration of the Buyer's execution and delivery of the Transaction Documents
      and acquiring the Securities thereunder and in addition to all of the Company's
      other obligations under the Transaction Documents, the Company shall defend,
      protect, indemnify and hold harmless the Buyer, any affiliate of Buyer and
      each
      of their respective partners, members, officers, directors, employees and
      investors and any of the foregoing Persons' accounting and legal representatives
      retained in connection with the transactions contemplated by this Agreement
      (collectively, the "Indemnitees")
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys' fees
      and disbursements (the "Indemnified
      Liabilities"),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company in the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby, or (b) any breach of any covenant,
      agreement or obligation of the Company contained in the Transaction Documents
      or
      any certificate, instrument or document contemplated hereby or thereby To the
      extent that the foregoing undertaking by the Company may be unenforceable for
      any reason, the Company shall make the maximum contribution to the payment
      and
      satisfaction of each of the Indemnified Liabilities which is permissible under
      applicable law. Except as otherwise set forth herein, the mechanics and
      procedures with respect to the rights and obligations under this Section 9(k)
      shall be the same as those set forth in Section 6 of the Registration Rights
      Agreement.

     

    (l) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (m) Remedies.
      The
      Buyer shall have all rights and remedies set forth in the Transaction Documents
      and all rights and remedies which such holders have under any law. Any Person
      having any rights under any provision of this Agreement shall be entitled to
      enforce such rights specifically to recover damages by reason of any breach
      of
      any provision of this Agreement and to exercise all other rights granted by
      law.

     

    (n) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to the Buyer hereunder
      or
      pursuant to any of the other Transaction Documents or the Buyer enforces or
      exercises its rights hereunder or thereunder, and such payment or payments
      or
      the proceeds of such enforcement or exercise or any part thereof are
      subsequently invalidated, declared to be fraudulent or preferential, set aside,
      recovered from, disgorged by or are required to be refunded, repaid or otherwise
      restored to the Company, a trustee, receiver or any other Person under any
      law
      (including, without limitation, any bankruptcy law, state or federal law, common
      law or equitable cause of action), then to the extent of any such restoration
      the obligation or part thereof originally intended to be satisfied shall be
      revived and continued in full force and effect as if such payment had not been
      made or such enforcement or setoff had not occurred.

     

    [Signature
      Page Follows]

     

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

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

    

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

            
	 	
              
Name:
              John Cooper
Title: Executive Vice President &
              CFO
	 	 

    

    

      
        
 

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

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

     

    
      

      
        	 	 	 
	 	BUYER:
	 	 
	 	CAPITAL VENTURES
                INTERNATIONAL
	 	BY: Heights Capital Management,
                Inc.,
                its authorized signatory
	 
 	 
 	 
 
	 	By:  	
                /s/
                  Martin Kobinger

              
	 	
                
Name:
                Martin Kobinger 
Title:
                Investment Manager

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