Document:

Exhibit
10.40

     

    ENGLISH
TRANSLATION OF EMPLOYMENT AGREEMENT

     

    EMPLOYMENT
AGREEMENT

     

    This employment
agreement (the “Agreement”) is
entered into as of January 24, 2011 by and between Fujian Xing Gang
Port Service Co., Ltd. (“Party A”) and Mr.
Fangjie Gu (the “Party B”) (collectively
the “Parties”;
individually a “Party”).

     

    WHEREAS, China Dredging Group
Co., Ltd., a British Virgin Islands parent company which is indirectly
holding Party A has signed the Employment Agreement with Mr. Fangjie
Gu on August 26, 2010 (hereafter referred to as “Employment
Agreement ”), to
engage him as the Chief Operating Officer (the “COO”) of China
Dredging Group Co., Ltd.

     

    WHEREAS, China Dredging Group
Co., Ltd. desires to designate Party B to be the General Manager of Party A and
Party B desires to accept such designation, and the Parties intend to
enter into the agreement on the to set forth employment related
matters.

     

    NOW, THEREFORE, based on the
principle of equality, voluntariness and unanimity through consultation,the Parties agree
as follows:

     

    1.      
 Term of
Employment. The term of the Agreement is from January 1, 2011 to
January 1, 2014 (“Term”), unless the employment is terminated prior to the
expiration of such three-year period pursuant to the provisions
hereunder.

     

    2.   
    Position. Party B
shall render services to Party A in the position of general manager and perform
all services appropriate to that position as well as other services as may
reasonably be assigned by Party A.  Party B’s domestic principal place of
employment shall be at Fuzhou or any other place as agreed by the Parties from
time to time. 

     

    3.  
     Remuneration.  During
the Term, Party B shall be entitled to the following remuneration :

     

    (1) Salary. 
Pursuant to the stipulations of Employment Agreement and Supplemental Employment
Agreement signed by Party B and the China Dredging Group Co., Ltd, Party B is
entitled to the base salary paid by Party A. Party B’s annual base salary is RMB
96,000 by monthly payment (the “Monthly Salary”). The
Monthly Salary should be paid before the fifth day of the next month during the
term of the Employment.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    (2) Bonus. 
China Dredging Group Co., Ltd. shall pay Party B the any payable bonus (the
“Annual Bonus”) pursuant to the provisions of Employment Agreement.

     

    4.  
     Benefits. During the
Term, Party B shall be entitled to the following benefits:

     

    (1) Employee Benefit
Plans. Party B shall be granted any standard employee benefit that
currently exists in Party A or may be established by Party A in the future,
including, but not limited to, any retirement plan, and travel holiday
policy.

     

    (2)
Expenses. Party A shall reimburse Party B for reasonable and
necessary business expenses incurred by Party B in connection with the
performance of the working content as set forth herein during the Term; provided Party B shall
provide reasonable supporting documentation with respect to such expenses, if
requested.

     

    (3)
Indemnification.  Party A shall fully indemnify Party B for any
losses incurred in his capacity as an officer of Party A. Such indemnification
should be sufficient to cover all the losses incurred in Party B’s capacity as
an officer of Party A pursuant to the PRC laws. However, Party A shall not be
responsible for any losses caused by or attributable to the Party B’s gross
negligence or willful misconducts, except as otherwise required by the
laws.

     

    5.       
Duties and
responsibilities. Party B shall devote all of his working time, attention
and skill to the discharge of his duties of his office and shall faithfully and
diligently perform such duties and exercise such powers as may from time to time
be assigned to or vested in him, and shall observe and comply with all
resolutions and directions from time to time made or given by the Board of
Directors of Party A (the “Board”).  The
Party B shall at all times keep the Board promptly and fully informed of his
conduct relating to material matters, decisions and transactions affecting or
involving Party A or its related companies, including but not limited to, China
Dredging Group Co., Ltd. and each of its subsidiaries and variable interest
entities (the “Related
Company”), and provide such explanations as may reasonably be
required.  Insofar as the internal rules and regulations of Party A
and the Related Companies are applicable to Party B, Party B undertakes to abide
by such rules and regulations.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    6.      
Early Termination by
Party A.  Party A may dismiss Party B for cause at any time as
provided by the PRC Labor Law without any liability. “Cause” shall include: (a)
Party B materially breaches Party A’s rules and regulations or any agreement
with the Company or a Related Company; (b) Party B causes substantial loss to
Party A due to his serious dereliction of duty or engagement in graft for
personal gain; (c) Party B establishes an employment relationship with another
employer simultaneously which materially affects the completion of his task with
Party A, or he refuses to rectify the situation after being cautioned by Party A
unless Party B is employed by a Related Company or obtains approval from Party
A; (d) through fraud, coercion or exploitation of the other party’s
disadvantageous position, Party B causes Party A to conclude or amend the
Agreement against the latter’s true intent; or (e) Party B is subject to
criminal liability in accordance with PRC law. In addition, Party A may dismiss
Party B by serving Party B three (3) months’ prior written notice. 
During such notice period, Party B shall continue to diligently perform all of
Party B’s duties hereunder.  In the event of dismissal without Cause, Party
B will be eligible to receive an amount equal to the Monthly Salary multiplied
by (M + 3), where M shall mean the number of years Party B has been employed by
Party A  after this Agreement coming into effect, payable in full
immediately following the receipt by Party B of such written
notice.

     

    7.        Early Termination by Party
B.

     

    (1) If
Party B selects to terminate the Agreement for Good Reason (as hereinafter
defined), the Party B will be eligible to receive an amount equal to the Monthly
Salary multiplied by (M + 3), where M shall mean the number of years Party B has
been employed by Party A after this Agreement coming into effect, payable in
full immediately following Party A’s receipt of such termination notice, except
as otherwise required by the laws.  No Annual Bonus shall be payable upon
such termination.  Thereafter (subject to Section 15 hereof) all
obligations of Party A under this Agreement shall cease. For the purpose of this
Agreement, “Good Reason” shall mean any of the following events if the
event is effected by Party A without the consent of Party B and (ii) such
event is not rectified within twenty (20) days by Party A to Party B’s
reasonable satisfaction:

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (a)   a
significant change in Party B’s position with Party A or a change to his duties
or responsibilities which materially reduces Party B’s level of responsibility;
or

     

    (b)   Party
A fails to perform this Agreement or violates the relevant labor laws,
regulations or infringes upon any of Party B’s rights or interests;
or

     

    (c)   the
imposition by the Board on Party B of any action or responsibility involving the
commission of (i) a felony, (ii) criminal dishonesty, (iii) any crime involving
moral turpitude or (iv) fraud; or

     

    (d)   any
action by the Board requiring Party B to breach Party B’s obligations and
responsibilities under this Agreement; or

     

    (e)   any
action of the Board constituting a constructive discharge or an unreasonable
interference with Party B’s ability to fulfill Party B’s obligations under this
Agreement; or

     

    (f)    a
Change of Control of Party A (For purposes of this Agreement, a “Change of
Control of Party A” shall mean (i) the sale of all or substantially all of the
assets of Party A in a transaction or series of transactions, (ii) any
transaction or series of transactions in which an unaffiliated third party
acquires all or substantially all the issued and outstanding capital stock of
Party A, or (iii) any merger, consolidation or reorganization to which Party A
is a party, except for a merger, consolidation or reorganization in which, after
giving effect to such merger, consolidation or reorganization, the stockholders
holding a majority of the outstanding voting power of Party A immediately prior
to the merger, consolidation or reorganization of Party A have at least a
majority of the outstanding voting power of the surviving entity after the
merger, consolidation or reorganization. In the circumstance of Change of
Control of Party A, Party B may terminate the Agreement without any liability
regardless whether the duties in his capacity ceases.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (2)  Termination other than for
Good Reason. Party B may terminate employment with Party A at any
time for any reason other than Good Reason or for no reason at all, upon Party
B’s delivery to Party A three (3) months’ advance written notice. 
Upon a termination other than for Good Reason, the Party B shall not be entitled
to any compensation. No Annual Bonus shall be payable upon such
termination.  During such notice period the Party B shall continue to
diligently perform all of its duties hereunder.  Party A shall have the
option, in its sole discretion, to make the Party B’s termination effective at
any time prior to the end of such notice period as long as Party A pays the
Party B all compensation under Section 3 and 4 hereof to which the Party B
is entitled through the last day of the three (3) month notice
period.

     

    8.      
Termination
Obligations. Party B agrees that on or before termination of
employment, he should promptly return to Party A all documents and materials of
any nature (including any materials in electronic form) pertaining to his work
with Party A, including all originals and copies of all or any part of any
Confidential Information along with any and all equipment and other tangible and
intangible property of Party A.  Party B agrees not to retain any documents
or materials or copies thereof containing any Confidential Information (as
defined below). If this Agreement terminates by the expiration other than any
earlier termination, and without any extension, Party B is not entitled to any
compensation from the Party A , except as otherwise stipulated by PRC
laws.

     

    9.       
Income Tax. Party B should pay the income tax for any payments made by Party A
pursuant to Section 3, 4 or 4 of this Agreement.

     

    10.     
Confidentiality;
Non-Compete; Non-Solicitation; No Conflict;
Non-Disparagement.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (1) Confidentiality
Obligation.  The Party B hereby agrees at all times during the term
of his employment and after termination, to hold in the strictest confidence,
and not to use, except for the benefit of Party A and its related companies, or
to disclose to any person, corporation or other entity without written consent
of Party A, any Confidential Information.  Party B understands that
“Confidential Information” means any proprietary or confidential information of
Party A, its affiliates, their clients, customers or partners, and licensors of
Party A and its related companies, including, without limitation: technical
data, trade secrets, research and development information, product plans,
services, customer lists and customers (including, but not limited to, customers
of Party A and its related companies on whom the Party B called or with whom the
Party B became acquainted during the term of his employment), supplier lists and
suppliers, software, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, personnel
information, marketing, finances, information about the clients, customers,
suppliers, joint ventures, licensors, licensees, distributors and other persons
with whom Party A and its related companies do business, information regarding
the skills and compensation of other employees of Party A and its related
companies or other business information disclosed to the Party B by or obtained
by the Party B from Party A and its related companies, its affiliates, or their
clients, customers, suppliers or partners either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment. 
Notwithstanding the foregoing, Confidential Information shall not include
information that is common knowledge or that the Party B demonstrates was or
became generally available to the public other than as a result of a disclosure
by Party B.

     

    (2)  Non-Compete
and Non-Solicitation.  Party B undertakes to Party A that, he will
not (i) during his term of employment with Party A take up any Party B
position in any company other than Party A and its related companies and will
commit all of his efforts towards the development of the business and operations
of Party A and its related companies and (ii) for a period of twelve (12)
months (or less than twelve (12) months if agreed by the Board) after he
ceases to be employed by Party A and/or its related companies (collectively the
“Non-Compete
Period”):

     

    (a)
either on his own account or in conjunction with or on behalf of any person,
firm or company carry on or be employed, engaged, concerned, provide technical
expertise or be interested directly or indirectly in, any business, whether as
shareholder, director, executive, partner, agent or otherwise, that is, in the
opinion of Party A in competition (whether directly or indirectly) with any
business carried on or proposed to be carried on by Party A and its related
companies from time to time;

     

    (b)  either
on his own account or in conjunction with or on behalf of any other person, firm
or company, solicit or entice away or attempt to solicit or entice away from
Party A and its related companies from time to time, the customer of any person,
firm, company or organization who shall at any time have been a customer,
client, agent or correspondent of the Party A or its related companies or in the
habit of dealing with Party A or its related companies;

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (c)
either on his own account or in conjunction with or on behalf of any other
person, firm or company, solicit or entice away or attempt to solicit or entice
away from Party A and its related companies from time to time, any person who is
an officer, manager or executive of Party A or its related companies whether or
not such person would commit a breach of his contract of or employment by reason
of leaving such employment.

     

    (d) Party
B shall be entitled to monthly compensation in consideration of fulfilling the
obligation under this Section, in an amount equal to the Monthly Salary, for the
period of the Non-Compete Period.

     

    (3) No
Conflict.  The Party B represents and warrants that Party B’s
execution of this Agreement, his employment with Party A, and the performance of
his proposed duties under this Agreement shall not violate any obligations he
may have to any former employer or other party, including any obligations with
respect to proprietary or confidential information or intellectual property
rights of such party.

     

    (4) Provisions reasonable
for protection of legitimate interest.  The Parties agree that the
restrictions in paragraph (1) and (2) under this Section are considered to
be reasonable in all circumstances.  Notwithstanding the foregoing, it is
agreed between the Parties that if any one or more of such restrictions shall,
either by itself or together with other restrictions, be adjudged to go beyond
what is reasonable in all the circumstances for the protection of the legitimate
interest of Party A and its Related Companies from time to time, but would be
adjudged reasonable if any particular restriction or restrictions were deleted
or if any part or parts of the wording thereof were deleted, restricted or
limited in any particular manner then the restrictions shall apply with such
deletions, restrictions or limitations, as the case may be.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (5) Non-Disparagement.
Following the date hereof, Party B shall not, directly or indirectly, in
person or through an agent or intermediary, disparage or make negative,
derogatory or defamatory statements about Party A and any of its officers,
directors employees or stockholders or their respective business activities or
the business activities of any of their affiliates or their respective officers,
directors, managers, employees or stockholders to any other person or entity,
whether true or not.

     

    11.  
 Intellectual Property

     

    The Party
B agrees with and undertakes to Party A that:

     

    (1)  he
will not divulge, use (other than for the purpose and benefit of Party A and its
related companies) or infringe the trade marks, logos, inventions, know-how,
technology, proprietary information and other intellectual property rights of
Party A and its related companies; and

     

    (2)  all
trademarks, logos, inventions, know-how, technology, proprietary information and
other intellectual property rights developed, acquired or filed by Party B in
the course of his work or employment shall belong solely to Party A. Party B
agrees he will, upon demand by Party A, execute any documents reasonably
necessary to transfer any such intellectual property rights to Party
A.

     

    12.  
 Survival.  The Parties’ obligations under Sections 10 and
11 hereof shall survive and continue in effect after the termination of this
Supplementary Agreement, whatever the reason for such termination.

     

    13.  
 Continuing Obligations. The obligations in this Agreement will
continue in the event that Party B is hired, renders services to or for the
benefit of or is otherwise retained at any time by any present or future Related
Company of Party A.

     

    14.  Governing Law and Dispute
Resolution. The execution, validity, interpretation and performance
of and resolution of disputes under the Agreement shall be governed by and
construed in accordance with the laws of the PRC. 

     

    Any
disputes or claims relating to the Agreement or the interpretation, breach,
termination or validity hereof shall be resolved through friendly consultations,
commencing upon written notice given by one Party to the other Party of the
existence of such a claim or dispute.  If the dispute or claim cannot be
resolved after thirty (30) days of such notice, either Party may request
arbitration by a labor dispute arbitration committee established in accordance
with the labor law of the PRC.  If either Party disagrees with the arbitral
award of the labor dispute arbitration committee, such Party may institute legal
proceedings with the authorized people’s court within 15 days after notification
of the arbitral award, except as otherwise required by the
laws.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    15. Assignability. The
terms of the Agreement will remain in effect and shall be binding upon any
successor in interest of Party A including any entity with which Party A may
merge or consolidate or to which all or substantially all of its assets may be
transferred.  A reference to Party A shall include its successors. 
Except as set forth in the preceding sentence, the Agreement may not be assigned
by a Party to any third party, without the prior consent of the other
Party.

     

    16. Social Insurance. Party
A shall handle the social insurance for Party B pursuant to related laws and
regulations.

     

    17. Notices. Notices
under the Agreement shall be given in writing to the relevant Party at the
address stated herein (or to such other address as it shall have notified the
other Party previously in writing).

    
       

      to Party
A at:

      

      Floor 18,
Tower A Zhongshan Building

      No. 154
Hudong Road, Gulou District

      Fuzhou City 350003
P.R.C.                        

      

      Attention:
The legal representative or the authorized representative

       

      Lin
Qing                                                                           

       

      to Party
B at:

       

      Room
1805, Building 4, Ronghuijiangshan Building

      No. 289
Yangqiaoxi Road, Gulou District

      Fuzhou City 350003
P.R.C.         

      

      Gu
Fangjie                                                                      

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    18.  Miscellaneous

     

    (1) This
Agreement shall be executed in two (2) original copies. Each Party shall receive
one (1) original copy, all of which shall be equally valid and
enforceable.

     

    (2) This
Agreement shall become effective as of the date that the legal representatives
or authorized representatives of Party A and Party B sign and affix the seals
respectively.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK AND SIGNATURE PAGE

    FOLLOWS]

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    IN WITNESS WHEREOF, the
undersigned has hereunto caused this Agreement to be executed as of the day and
year first above written.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	 	Party
      A: Fujian Xing Gang Port Service Co., Ltd.
	 	
                                          By:

                                        	
                                          /s/ Lin
      Qing

                                        
	 	 	 
	 	
                                          Name:

                                        	
                                          Lin
      Qing

                                        
	 	 	 
	 	
                                          Title:

                                        	
                                          Legal
      Representative

                                        
	 	 
      	 
      
	 	Party
      B : Fangjie Gu
	 	ID
      No. : 370602197811020736
	 	
                                          By:

                                        	
                                          /s/ Fangjie
      Gu

                                        
	 	
                                           
      

                                        	
                                          Fangjie
      Gu

                                        

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        11Unassociated Document

     

    
      DISCOVERY
LABORATORIES, INC.

      

      Form
of Series I Warrant To Purchase Common Stock

      

      Warrant
No.: [­_____]

      Number of
Shares of Common Stock: [_________]

      Date of
Issuance: February [__], 2011 (“Issuance Date”)

      

      Discovery
Laboratories, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [____________], the registered holder hereof or its
permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the date hereof (the “Exercisability Date”), but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[_________________] [(_______)]1 fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is the Warrant to purchase Common Stock (this
“Warrant”) issued
pursuant to (i) Sections 1 and 2 of that certain
Underwriting Agreement (the “Underwriting Agreement”), dated as of
February 16, 2011 (the “Pricing
Date”), by and among the Company and Lazard Capital Markets
LLC,  Boenning & Scattergood, Inc. and Global Hunter Securities,
LLC, as underwriters, and (ii) the Company’s Registration Statement on Form S-3
(File number 333-151654) (the “Registration
Statement”).

       

      1.      EXERCISE OF
WARRANT.

       

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

      
        

      

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

         

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

      

      (b)           Exercise
Price.  For purposes of this Warrant, “Exercise Price” means $3.20,
subject to adjustment as provided herein.

       

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

       

      (d)           Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if, but only if, a registration
statement covering the issuance of the Warrant Shares that are the subject of
the Exercise Notice (the “Unavailable Warrant Shares”)
is not effective and an exemption from registration for the issuance and resale
of such Unavailable Warrant Shares would only be available if the exercise of
the Warrant were effected pursuant to a Cashless Exercise in accordance with
this Section 1(d), then the Holder may exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless
Exercise”):

       

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

      B

      For purposes of the foregoing
formula:

       

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

      

       

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

      

       

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

        

      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

      

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

      

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

       

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

       

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

       

      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:

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

      (a)           Adjustment upon Issuance of
Shares of Common Stock.  If and whenever on or after the
Issuance Date, the Company issues or sells, or in accordance with this Section 2 is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock issued or deemed to have been
issued by the Company in connection with any Excluded Securities) for a
consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Exercise Price in effect immediately prior to such
issue or sale or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the New Issuance Price.  For
purposes of determining the adjusted Exercise Price under this Section 2(a), the
following shall be applicable:

       

      (i)           Issuance of
Options.  If the Company in any manner grants any Options and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share.  For
purposes of this Section 2(a)(i), the
"lowest price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion, exercise or exchange of such
Convertible Securities issuable upon exercise of any such Option" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise of such
Option.  No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities.

       

      (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 2(a)(ii), the
"lowest price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security.  No further adjustment of the Exercise Price or
number of Warrant Shares shall be made upon the actual issuance of such shares
of Common Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of this Warrant has been or is
to be made pursuant to other provisions of this Section 2(a), no
further adjustment of the Exercise Price or number of Warrant Shares shall be
made by reason of such issue or sale.

       

      (iii)           Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, then
the Exercise Price and the number of Warrant Shares in effect at the time of
such increase or decrease shall be adjusted to the Exercise Price and the number
of Warrant Shares which would have been in effect at such time had such Options
or Convertible Securities provided for such increased or decreased purchase
price, additional consideration or increased or decreased conversion rate, as
the case may be, at the time initially granted, issued or sold.  For
purposes of this Section 2(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such increase or decrease.  No adjustment pursuant to this
Section 2(a)
shall be made if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant Shares.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

      

      (iv)           Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction, (x) the Options will be deemed to have been issued for a
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any shares of
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor.  If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Weighted Average Price of such security on
the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities,
as the case may be.  The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the
Holder.  If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the "Valuation
Event"), the fair value of such consideration will be determined within five (5)
Business Days after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Holder.  The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.

       

      (v)           Record
Date.  If the Company takes a record of the holders of shares
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in shares of Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

       

      (vi)           Voluntary Adjustment By
Company.  The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the
Company.

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

      (c)           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(c) will increase the Exercise Price or decrease the number of Warrant
Shares as otherwise determined pursuant to this Section
2.

       

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

       

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

       

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

       

      4.      PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

         

      

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

       

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

       

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

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

      

      7.      REISSUANCE OF
WARRANTS.

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

      
        (a)  
if to the
Company, to:

      

       

      Discovery
Laboratories, Inc.

      2600
Kelly Road

      Warrington,
Pennsylvania 18976

      Attention:  John
G. Cooper

      Facsimile:  215-488-9301

      

      with copies
to:

      

      SNR
Denton US LLP

      Two World
Financial Center

      New York,
New York 10281

      Attention:  Ira
L. Kotel, Esq.

      Facsimile:  212-768-6800

      

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

      

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

       

      10.           GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accor­dance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

       

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

       

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

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

         

      

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

       

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

       

      (a)           "Black Scholes Value" means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg using (i) a price per share of
Common Stock equal to the Weighted Average Price of the Common Stock for the
Trading Day immediately preceding the date of consummation of the
applicable  Fundamental Transaction, (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of the date of consummation of the applicable Fundamental
Transaction and (iii) an expected volatility equal to the thirty (30) day
volatility obtained from the HVT function on Bloomberg determined as of the
Trading Day immediately following the public announcement of the applicable
Fundamental Transaction.

       

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

       

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

       

      (f)           “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.

       

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

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

         

      

      (i)       
    “Excluded Securities” means
shares of Common Stock issued pursuant to (a) the exercise of stock options, (b)
the issuance of restricted stock upon the vesting of restricted stock awards and
stock purchase rights under the Company’s equity incentive plans and employee
stock purchase plan, (c) the exercise of warrants outstanding prior to the
Issuance Date, (d) shares of Common Stock issued pursuant to the existing
committed equity financing facilities entered into with Kingsbridge Capital
Limited, (e) the issuance of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (and the issuance of Common Stock
pursuant to the terms of such securities convertible into or exercisable or
exchangeable for Common Stock) in connection with strategic alliances involving
the Company and other entities, including without limitation, joint venture,
licensing and collaboration arrangements and (f) the issuance of shares of
Common Stock or securities convertible into, or exercisable or exchangeable for
shares of Common Stock, to consultants or other providers of services or
products to the Company.

       

      (j)       
    “Expiration Date” means the
date five (5) years following the Issuance Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that
is not a Holiday.

       

      (k)           “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.

       

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

       

      (m)           “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.

       

      (n)           “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.

       

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

       

      (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).

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

      

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

       

      [Signature
Page Follows]

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

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

       

      
        
          	 	

                  DISCOVERY
      LABORATORIES, INC.

                	 
	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

       EXHIBIT
A

      

      EXERCISE
NOTICE

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

      

      DISCOVERY
LABORATORIES, INC.

      

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

      

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

      

      
        	
                 
      

              	
                ____________

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

              

      

      

      
        	
                 
      

              	
                ____________

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

              

      

      

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

      

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

      

      _______________________________

      

      _______________________________

      

      _______________________________

      

      Date:
_______________ __, ______

      

      

      _____________________________________

         Name
of Registered Holder

      

      

      
        	
                By: 

              	
                ______________________________ 

              

      

      Name:

      Title:

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      ACKNOWLEDGMENT

      

      

      The Company hereby acknowledges this
Exercise Notice and hereby directs Continental Stock Transfer & Trust
Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated
[    ], 2011 from the Company and acknowledged and agreed to
by Continental Stock Transfer & Trust Company.

      
         

        
          
            	 	

                    DISCOVERY
      LABORATORIES, INC.

                  	 
	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	 	 
	 	 	
                    Name:

                  	 
	 	 	
                    Title:

                  	 
	 	 	 	 

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

      

      EXHIBIT
B

      ASSIGNMENT
FORM

      

      (To
assign the foregoing warrant, execute

      this form
and supply required information.

      Do not
use this form to exercise the warrant.)

       

      

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

       

      

      _______________________________________________
whose address is

      

      _______________________________________________________________.

       

      _______________________________________________________________

      

      Dated:  ______________,
_______

      

      

      
        	
              	
                Holder’s
      Signature: 

              	
                _____________________________

              

      

      

      
        	
              	
                Holder’s
      Address: 

              	
                _____________________________

              

      

      

      _____________________________

       

      

      Signature
Guaranteed:  ___________________________________________

      

      

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00184-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00184-of-00352.parquet"}]]