Document:

Unassociated Document

     

    Shore
      Bancshares, Inc.

    2007
      Management Incentive Plan

     

    ARTICLE
      I

    OBJECTIVE
      OF THE PLAN

    

    The
      purpose of this 2007 Management Incentive Plan ("Plan") is to reward executives
      of Shore Bancshares, Inc. (hereafter, the "Company") for creating value for
      the
      Company by maximizing Company, Divisional and / or Individual performance
      goals.

     

    ARTICLE
      II

    PLAN
      ADMINISTRATION

    

    The
      Compensation Committee of the Board shall administer the Plan and have final
      authority on all matters and or disputes pertaining to this Plan.

    

    The
      Plan
      is an annual Plan and is effective January 1, 2007 and shall remain in effect
      until the Committee deems otherwise. A new Plan year shall commence on the
      first
      business day of the fiscal year.

     

    ARTICLE
      III

    PARTICIPANTS

    

    Participation
      is limited to those executives recommended by the President & CEO and
      approved by the Committee each Plan year

     

    ARTICLE
      IV

    PERFORMANCE
      OBJECTIVES

    

    Prior
      to
      or at the beginning of each fiscal year, the Committee shall
      establish:

    

    (i)
      Plan
      performance objectives for the Company, subsidiary or business unit of the
      Company based on such criteria as may be recommended by the President & CEO,
      and

    

    (ii)
      the
      award formula or matrix by which all incentive awards under this Plan shall
      be
      calculated for Committee review and approval.

    

    The
      Chairman & CEO shall establish individual performance objectives for each
      Plan participant and evaluate each participant’s performance against those
      pre-established individual objectives. 

     

    ARTICLE
      V

    AWARD
      CALCULATIONS

    

    Each
      executive shall be assigned an incentive award target, calculated as a
      percentage of year-end base salary, which shall be awarded if the Company and
      the executive achieve targeted performance goals. Target awards shall be
      leveraged up when performance exceeds expectations, or down if performance
      is
      below expectations. Following are the target awards and weights by executive
      position.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Target
      awards shall be weighted between 1) Company Net Income and 2) Division /
      Individual Goals. Goals and weightings shall be established and measured by
      the
      Compensation Committee. Company and Division / Individual Goal weightings and
      Award Calculations follow: 

    

    Schedule
      A:  Award
      Percentages and Performance Measure Weightings

    

    
      	
               

              Position/Title

            	
              Incentive

              Award

              Target

            	 	
              Company

              Net
                Income

              Weight

              (1)

            	
               

              +

            	
              Division/
                Individual

              Performance

              Weight

              (2)

            
	
              President
                & CEO, Shore Bancshares 

            	
              75%

            	 	
              80%

            	
              +

            	
              20%

            
	
              COO,
                Shore Bancshares

            	
              40%

            	 	
              80%

            	
              +

            	
              20%

            
	
              CFO,
                Shore Bancshares

            	
              40%

            	 	
              40%

            	
              +

            	
              60%

            
	
              President,
                Talbot Bank

            	
              50%

            	 	
              30%

            	
              +

            	
              70%

            
	
              President,
                CNB

            	
              25%

            	 	
              30%

            	
              +

            	
              70%

            
	
              President,
                Felton Bank

            	
              20%

            	 	
              30%

            	
              +

            	
              70%

            
	
              Senior
                Lender, Talbot

            	
              35%

            	 	
              20%

            	
              +

            	
              80%

            
	
              Senior
                Lender, CNB

            	
              20%

            	 	
              20%

            	
              +

            	
              80%

            
	
              Secretary,
                Shore Bancshares

            	
              20%

            	 	
              20%

            	
              +

            	
              80%

            
	
              CEO,
                Insurance Division

            	
              5%

            	 	
              20%

            	
              +

            	
              80%

            

    

     

    Schedule
      B:  Award
      Leverage Schedule:

    

    
      	
              Percent
                of Company 

              Performance

            	
              Percent
                of Company

              Incentive
                Award

            	 	
              Percent
                of

              Division
                / Individual

              Goal
                Performance

            	
              Percent
                of

              Division
                / Individual

              Incentive
                Award

            
	
              120%

            	
              150%

            	 	
              120%
                or (Exceeded
                All Goals)

            	
              150%

            
	
              110%

            	
              120%

            	 	
              110%
                or (Met
                All and Exceeded Some Goals)

            	
              120%

            
	
              100%

            	
              100%

            	 	
              100%
                or (Met
                Most Goals)

            	
              100%

            
	
              90%

            	
              50%

            	 	
              90%
                or (Met
                Some Goals)

            	
              50%

            
	
              Less
                than 90%

            	
              0%

            	 	
              Less
                than 90% or (Did
                Not Meet Goals)

            	
              0%

            

    

    

     

    Award
      Calculation Formula:

     

    The
      calculation example below assumes an executive has a base salary of $150,000
      with a target award opportunity of 25% and goal weights of 60%
      on
      Company Net Income, and 40%
      on
      Division / Individual goals. In addition, the example assumes Net Income results
      are 110% of target performance and Division / Individual goals are met. Please
      refer to Schedule B above when determining appropriate leverage
      percentages.

     

    (Base
      Salary) x ((Company Award x Leverage %) + (Division / Individual Award x
      Leverage %))

     

    
      	
            	Example:	
              ($150,000)
                x ((25% x 60%) + (25% x 40%)) =

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ($150,000)
      x ((15%) + (10%)) =

     

    ($150,000)
      x ((15% x 1.20) + (10% x 1.00)) =

     

    ($150,000)
      x ((18%) + (10%)) =

     

    ($150,000)
      x (28%) = $42,000
      Total Annual Incentive Award

     

    ARTICLE
      VI

    ADMINISTRATIVE
      MATTERS

    

    The
      Committee reserves the right to withhold awards provided that the Committee
      gives written explanation to participants within a reasonable period of time
      following their decision to withhold.

    

    Incentive
      awards shall be paid as soon as practicable following the end of the fiscal
      year, however in no event shall awards be paid later than March 15th of the
      subsequent fiscal year.

    

    In
      the
      event of death, permanent disability, retirement or involuntary termination
      without cause, unpaid awards shall be calculated on a pro-rated basis by taking
      the number of full months, including the month in which the terminating event
      occurred, and dividing those months by twelve. Prorated awards will be payable
      at the same time that normal award distributions occur.

     

    Except
      in
      the case of death, disability or retirement, a participant shall forfeit his
      right to receive any Plan award in the event of voluntary or involuntary
      termination for cause during the Plan year. 

    

    Interpolation
      shall be used to calculate incentive awards when Company and Division /
      Individual performance falls between levels detailed in Schedules
      B.

     

    ARTICLE
      VII

    NO
      ENTITLEMENT TO BONUS

    

    Plan
      participants are entitled to a distribution under this Plan only upon the
      approval of the award by the Committee and no participant shall be entitled
      to
      an award under the Plan unless the award is subject to the attainment of
      performance objectives defined under the Plan. 

     

    ARTICLE
      VIII

    TERMINATION
      OF PLAN

    

    The
      Committee reserves the right to amend or terminate the Plan at any time within
      thirty days written notice to Plan participants. In the event of a Plan
      termination, participants shall continue to be eligible for incentive awards,
      if
      earned, for the current Plan year. Incentive awards shall be calculated as
      of
      the date of the Plan termination and payable as soon as practicable after the
      end of the Plan year.

     

    ARTICLE
      IX

    PARTICIPANT'S
      RIGHT OF ASSIGNABILITY

    

    Participant
      awards shall not be subject to assignment, pledge or other disposition, nor
      shall such amounts be subject to garnishment, attachment, transfer by operation
      of law, or any legal process.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Nothing
      contained in this Plan shall confer upon participants any right to continued
      employment, nor interfere with the right of the Company to terminate a
      participant’s employment from the Company. Participation in the Plan does not
      confer rights to participation in other company programs, including annual
      or
      long-term incentive plans, non-qualified retirement or deferred compensation
      plans or other perquisite programs.

    

    ARTICLE
      X

    GOVERNING
      LAW

    

    The
      laws
      of the State of Maryland shall govern the validity, construction, performance
      and effect of the Plan.

     

    IN
      WITNESS WHEREOF, the parties have executed this Plan on the date written
      below.

    

      
        	
                /s/
                  W. Moorhead Vermilye

              	 	
                March
                  28, 2007

              
	
                President
                  & CEO

              	 	
                Date

              
	 	 	 
	 	 	 
	
                /s/
                  Christopher F. Spurry

              	 	
                March
                  28, 2007

              
	
                Chairman,
                  Compensation Committee

              	 	
                Date

              

      

    
      
        
        

      

      
        4Unassociated Document

    
      Exhibit
        10.1

       

    

    14,050,000
      Shares

     

    Discovery
      Laboratories, Inc.

     

    Common
      Stock

     

    PLACEMENT
      AGENCY AGREEMENT

     

     

    April
      2,
      2007

    

    JEFFERIES
      & COMPANY, INC. 

    LAZARD
      CAPITAL MARKETS LLC

    c/o
      Jefferies & Company, Inc.

    520
      Madison Avenue

    New
      York, New York 10022

     

    Ladies
      and Gentlemen:

     

     

    Introductory.
      Discovery Laboratories, Inc., a Delaware corporation (the “Company”),
      proposes to issue and sell an aggregate of 14,050,000 shares (the “Offered
      Shares”)
      of its
      common stock, par value $0.001 per share (the “Shares”),
      pursuant to the terms of the Subscription Agreements in the form of Exhibit
      G
      attached
      hereto (the “Subscription
      Agreements”)
      entered into with the purchasers identified therein (each a “Purchaser”
and
      collectively, the “Purchasers”).
      The
      Company hereby confirms its agreement with Jefferies & Company, Inc. and
      Lazard Capital Markets LLC (“LCM”)
      to act
      as Placement Agents (each a “Placement
      Agent”
and
      collectively the “Placement
      Agents”)
      in
      accordance with the terms and conditions of this Placement Agent Agreement
      (this
“Agreement”).
      Jefferies & Company, Inc. is acting as the representative of the Placement
      Agents, and in such capacity is hereinafter referred to as the ‘‘Representative.’’ 

     

    The
      Company has prepared and filed with the Securities and Exchange Commission
      (the
“Commission”)
      a
      shelf registration statement on Form S-3 (File No. 333-128929), which
      contains a form of prospectus to be used in connection with the public offering
      and sale of the Offered Shares. Such
      registration statement, as amended, including the financial statements, exhibits
      and schedules thereto, in the form in which it was declared effective by the
      Commission under the Securities Act of 1933, as amended, and the rules and
      regulations promulgated thereunder (collectively, the “Securities
      Act”),
      including all documents incorporated or deemed to be incorporated by reference
      therein and any information deemed to be a part thereof at the time of
      effectiveness pursuant to Rule 430B under the Securities Act or the Securities
      Exchange Act of 1934, as amended, and the rules and regulations promulgated
      thereunder (collectively, the “Exchange
      Act”),
      is called the “Registration
      Statement.”
      Any
      registration statement filed by the Company pursuant to Rule 462(b) under the
      Securities Act that relates to the Registration Statement is called the
“Rule
      462(b) Registration Statement,”
and
      from and after the date and time of filing of the Rule 462(b) Registration
      Statement the term “Registration Statement” shall include the Rule 462(b)
      Registration Statement. Such
      prospectus, in the form first used to confirm sales of the Offered Shares,
      is
      called the “Prospectus.”
      As
      used herein,“Applicable
      Time”
      is 6:00 p.m. (New York time) on April
      2, 2007. As
      used
      herein, “free
      writing prospectus”
has
      the
      meaning set forth in Rule 405 under the Securities Act, and “Time
      of Sale Prospectus”
means
      the preliminary prospectus, as amended or supplemented immediately prior to
      the
      Applicable Time, together with the free writing prospectuses, if any, identified
      in Schedule A
      hereto,
      and each “road show” (as defined in Rule 433 under the Securities Act), if any,
      related to the offering of the Offered Shares contemplated hereby that is a
      “written communication” (as defined in Rule 405 under the Securities Act) (each
      such road show, a “Road
      Show”).
      As
      used herein, the terms “Registration Statement,”“Rule
      462(b) Registration Statement”, “preliminary
      prospectus,” “Time of Sale Prospectus” and “Prospectus” shall include the
      documents incorporated and deemed to be incorporated by reference therein.
      All
      references in this Agreement to financial statements and schedules and other
      information which are “contained,”
      “included”
      or “stated”
      in the Registration Statement, the Rule 462(b) Registration Statement, any
      preliminary prospectus, the Time of Sale Prospectus or the Prospectus (and
      all
      other references of like import) shall be deemed to mean and include all such
      financial statements and schedules and other information which is or is deemed
      to be incorporated by reference in the Registration Statement or the Prospectus,
      as the case may be; and all references in this Agreement to amendments or
      supplements to the Registration Statement, the Rule 462(b) Registration
      Statement, any preliminary prospectus, the Time of Sale Prospectus or the
      Prospectus, as the case may be, and all references in this Agreement to
      amendments or supplements to the Registration Statement, the Rule 462(b)
      Registration Statement, any preliminary prospectus, the Time of Sale Prospectus
      or the Prospectus shall be deemed to mean and include the filing of any document
      under the Exchange Act which is or is deemed to be incorporated by reference
      in
      the Registration Statement, the Rule 462(b) Registration Statement, any
      preliminary prospectus, the Base Prospectus, the Time of Sale Prospectus or
      the
      Prospectus, as the case may be. All
      references in this Agreement to (i) the
      Registration Statement, the 462(b) Registration Statement, any preliminary
      prospectus, or the Prospectus, or any amendments or supplements to any of the
      foregoing, shall include any copy thereof filed with the Commission pursuant
      to
      its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”)
      and (ii) the Prospectus shall be deemed to include the “electronic
      Prospectus”
      provided for use in connection with the offering of the Offered Shares as
      contemplated by Section 4(n) of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    In
      the
      event that the Company has only one subsidiary, then all references herein
      to
“subsidiaries” of the Company shall be deemed to refer to such single
      subsidiary, mutatis mutandis.

     

    The
      Company hereby confirms its agreement as follows:

     

    Section
      1.   Agreement to Act As Placement Agent; Placement
      of Securities.
      On the basis of the representations, warranties and agreements of the Company
      herein contained, and subject to all the terms and conditions of this
      Agreement:

     

    (a)
      The Company hereby authorizes the Placement Agents to act as its exclusive
      agents to solicit offers for the purchase of all or part of the Offered Shares
      from the Company in connection with the proposed offering of the Offered Shares
      (the ‘‘Offering’’).
      Until the Closing Date (as hereinafter defined) or earlier upon termination
      of
      this Agreement (as hereinafter provided), the Company shall not, without the
      prior written consent of the Representative, solicit or accept offers to
      purchase Offered Shares otherwise than through the Placement Agents. LCM may
      utilize the expertise of Lazard Frères
      &
      Co. LLC in connection with LCM’s placement agent activities.

     

    (b)
      The Placement Agents agree, as agents of the Company, to use their best efforts
      to solicit offers to purchase the Offered Shares from the Company. The Placement
      Agents shall use commercially reasonable efforts to assist the Company in
      obtaining performance by each Purchaser whose offer to purchase Offered Shares
      has been solicited by the Placement Agents and accepted by the Company, but
      the
      Placement Agents shall not, except as otherwise provided in this Agreement,
      be
      obligated to disclose the identity of any potential purchaser or have any
      liability to the Company in the event any such purchase is not consummated
      for
      any reason. Under no circumstances will the Placement Agents be obligated to
      underwrite or purchase any Offered Shares for their own accounts and, in
      soliciting purchases of Offered Shares, the Placement Agents shall act solely
      as
      the Company’s agents and not as principals. Notwithstanding the foregoing and
      except as otherwise provided in Section 1(b), it is understood and agreed that
      the Placement Agents (or their affiliates) may, solely at their discretion
      and
      without any obligation to do so, purchase Offered Shares as
      principals.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (c)
      Subject to the provisions of this Section 1, offers for the purchase of Offered
      Shares may be solicited by the Placement Agents as agents for the Company at
      such times and in such amounts as the Placement Agents deem advisable. Each
      Placement Agent shall communicate to the Company, orally or in writing, each
      reasonable offer to purchase Offered Shares received by it as agent of the
      Company. The Company shall have the sole right to accept offers to purchase
      the
      Offered Shares and may reject any such offer, in whole or in part. Each
      Placement Agent shall have the right, in its discretion reasonably exercised,
      without notice to the Company, to reject any offer to purchase Offered Shares
      received by it, in whole or in part, and any such rejection shall not be deemed
      a breach of its agreement contained herein.

     

    (d)
      The Offered Shares are being sold to the Purchasers at a price of $2.15 per
      Offered Share. The purchases of the Offered Shares by the Purchasers shall
      be
      evidenced by the execution of Subscription Agreements by each of the Purchasers
      and the Company.

     

    (e)
      As compensation for services rendered, on the Closing Date, the Company shall
      pay to the Placement Agents by wire transfer of immediately available funds
      to
      an account or accounts designated by the Representative, an aggregate amount
      equal to six percent (6.0%) of the gross proceeds received by the Company from
      the sale of the Offered Shares on such Closing Date.

     

    (f)
      No Offered Shares which the Company has agreed to sell pursuant to this
      Agreement shall be deemed to have been purchased and paid for, or sold by the
      Company, until such Offered Shares shall have been delivered to the Purchaser
      thereof against payment by such Purchaser. If the Company shall default in
      its
      obligations to deliver Offered Shares to a Purchaser whose offer it has
      accepted, the Company shall indemnify and hold the Placement Agents harmless
      against any loss, claim, damage or expense arising from or as a result of such
      default by the Company in accordance with the procedures set forth in Section
      9
      herein.

     

    Section
      2.   Representations
      and Warranties of
      the Company.

     

    The
      Company hereby represents and warrants, as of the date of this Agreement, as
      of
      the Closing Date (as hereinafter defined), and covenants as
      follows:

     

    (a)  Compliance
      with Registration Requirements.
      The Registration Statement and any Rule 462(b) Registration Statement have
      been declared effective by the Commission under the Securities Act. The Company
      has complied to the Commission’s satisfaction with all requests of the
      Commission for additional or supplemental information. No stop order suspending
      the effectiveness of the Registration Statement or any Rule 462(b)
      Registration Statement is in effect and no proceedings for such purpose have
      been instituted or are pending or, to the best knowledge of the Company, are
      contemplated or threatened by the Commission.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Each
      preliminary prospectus and the Prospectus when filed complied in all material
      respects with the Securities Act and, if filed by electronic transmission
      pursuant to EDGAR (except as may be permitted by Regulation S-T under the
      Securities Act), was identical to the copy thereof delivered to the Placement
      Agents for use in connection with the offer and sale of the Offered Shares.
      Each
      of the Registration Statement, any Rule 462(b) Registration Statement and
      any post-effective amendment thereto, at the time it became effective and at
      all
      subsequent times, complied and will comply through the completion of the
      distribution of the Offered Shares in all material respects with the Securities
      Act and did not and will not through the completion of the distribution of
      the
      Offered Shares contain any untrue statement of a material fact or omit to state
      a material fact required to be stated therein or necessary to make the
      statements therein not misleading. As of the Applicable Time, the Time of Sale
      Prospectus did not, and at the time of sale of the Offered Shares and at the
      Closing Date (as defined in Section 3), the Time of Sale Prospectus, as then
      amended or supplemented by the Company, if applicable, will not, contain any
      untrue statement of a material fact or omit to state a material fact necessary
      to make the statements therein, in the light of the circumstances under which
      they were made, not misleading. The Prospectus,
      as amended or supplemented, as of its date and at all subsequent times through
      the completion of the distribution of the Offered Shares, did not and will
      not
      contain any untrue statement of a material fact or omit to state a material
      fact
      necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading. The representations
      and warranties set forth in the three immediately preceding sentences do not
      apply to statements in or omissions from the Registration Statement, any
      Rule 462(b) Registration Statement, or any post-effective amendment
      thereto, or the Prospectus or the Time of Sale Prospectus, or any amendments
      or
      supplements thereto, made in reliance upon and in conformity with information
      relating to any Placement Agents furnished to the Company in writing by the
      Placement Agents expressly for use therein, it
      being understood and agreed that the only such information furnished by the
      Placement Agents to the Company consists of the information described in Section
      9(b) below.
      There are no contracts or other documents required to be described in the Time
      of Sale Prospectus or the Prospectus or to be filed as exhibits to the
      Registration Statement which have not been described or filed as
      required.

     

    The
      Company is not an “ineligible issuer” in connection with the offering of the
      Offered Shares pursuant to Rules 164, 405 and 433 under the Securities Act.
      Any
      free writing prospectus that the Company is required to file pursuant to Rule
      433(d) under the Securities Act has been, or will be, filed with the Commission
      in accordance with the requirements of the Securities Act. Each free writing
      prospectus that the Company has filed, or is required to file, pursuant to
      Rule
      433(d) under the Securities Act or that was prepared by or behalf of or used
      or
      referred to by the Company complies or will comply through the completion of
      the
      distribution of the Offered Shares in all material respects with the
      requirements of Rule 433 under the Securities Act including timely filing with
      the Commission or retention where required and legending, and each such free
      writing prospectus, as of its issue date and at all subsequent times through
      the
      completion of the public offer and sale of the Offered Shares did not, does
      not
      and will not through the completion of the distribution of the Offered Shares
      include any information that conflicted, conflicts with or will through the
      completion of the distribution of the Offered Shares conflict with the
      information contained in the Registration Statement, the Prospectus or any
      preliminary prospectus, including any document incorporated by reference
      therein. Except for the free writing prospectuses, if any, identified in
Schedule
      A
      hereto, furnished to the Placement Agents before first use, the Company has
      not
      prepared, used or referred to, and will not, without your prior consent not
      to
      be unreasonably withheld, prepare, use or refer to, any free writing
      prospectus.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b)  Offering
      Materials Furnished to Placement
      Agents.
      The Company has delivered to each Placement Agent one
      complete copy of the Registration Statement, each amendment thereto and any
      Rule
      462(b) Registration Statement and of each consent and certificate of experts
      filed as a part thereof, and conformed copies of the Registration Statement,
      each amendment thereto and any Rule 462(b) Registration Statement (without
      exhibits) and preliminary prospectuses, the Time of Sale Prospectus, the
      Prospectus, as amended or supplemented, and any free writing prospectus reviewed
      and consented to by the Representative, in such quantities and at such places
      as
      such Placement Agent has reasonably requested.

     

    (c)  Distribution
      of Offering Material By the Company.
      The Company has not distributed and will not distribute, prior to the completion
      of the distribution of the Offered Shares, any offering material in connection
      with the offering and sale of the Offered Shares other than a preliminary
      prospectus, the Time of Sale Prospectus, the Prospectus, any free writing
      prospectus reviewed and consented to by the Representative, or the Registration
      Statement. 

     

    (d)  The
      Placement Agency Agreement.
      Each of this Agreement, the Subscription Agreements and that certain Escrow
      Agreement (the “Escrow
      Agreement”)
      dated as of the date hereof has been duly authorized, executed and delivered
      by,
      and is a valid and binding agreement of, the Company, enforceable in accordance
      with its terms, except as rights to indemnification hereunder may be limited
      by
      applicable law and except as the enforcement hereof may be limited by
      bankruptcy, insolvency, reorganization, moratorium or other similar laws
      relating to or affecting the rights and remedies of creditors or by general
      equitable principles.

     

    (e)  Authorization
      of the Offered Shares.
      The Offered Shares have been duly authorized for issuance and sale pursuant
      to
      this Agreement and, when issued and delivered by the Company pursuant to this
      Agreement, will be validly issued, fully paid and nonassessable, and the
      issuance and sale of the Offered Shares is not subject to any preemptive rights,
      rights of first refusal or other similar rights to subscribe for or purchase
      the
      Offered Shares. 

     

    (f)  No
      Applicable Registration or Other Similar Rights.
      There are no persons with registration or other similar rights to have any
      equity or debt securities registered for sale under the Registration Statement
      or included in the offering contemplated by this Agreement.

     

    (g)  No
      Material Adverse Change.
      Except as otherwise disclosed in the Time of Sale Prospectus, subsequent to
      the
      respective dates as of which information is given in Time of Sale Prospectus:
      (i)  there has been no material adverse change, or any development that
      could reasonably be expected to result in a material adverse change, in the
      condition, financial or otherwise, or in the earnings, business, operations
      or
      prospects, whether or not arising from transactions in the ordinary course
      of
      business, of the Company and its subsidiaries, considered as one entity (any
      such change is called a “Material
      Adverse Change”);
      (ii) the Company and its subsidiaries, considered as one entity, have not
      incurred any material liability or obligation, indirect, direct or contingent,
      not in the ordinary course of business nor entered into any material transaction
      or agreement not in the ordinary course of business; and (iii) there has
      been no dividend or distribution of any kind declared, paid or made by the
      Company or, except for dividends paid to the Company or other subsidiaries,
      any
      of its subsidiaries on any class of capital stock or repurchase or redemption
      by
      the Company or any of its subsidiaries of any class of capital
      stock.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (h)  Independent
      Accountants.
      Ernst
      & Young LLP, who have expressed their opinion with respect to the financial
      statements (which term as used in this Agreement includes the related notes
      thereto) and supporting schedules filed with the Commission as a part of the
      Registration Statement and included in the Prospectus and Time of Sale
      Prospectus (each, an “Applicable
      Prospectus”
      and collectively, the “Applicable
      Prospectuses”),
      are (i) independent public or certified public accountants as required by the
      Securities Act and the Exchange Act,
      and (ii) a registered public accounting firm as defined by the Public Company
      Accounting Oversight Board (the “PCAOB”).

     

    (i)  Preparation
      of the Financial Statements.
      The financial statements filed with the Commission as a part of the Registration
      Statement and included in the Time of Sale Prospectus and the Prospectus present
      fairly the consolidated financial position of the Company and its subsidiaries
      as of and at the dates indicated and the results of their operations and cash
      flows for the periods specified. The supporting schedules included in the
      Registration Statement present fairly the information required to be stated
      therein. Such financial statements and supporting schedules have been prepared
      in conformity with generally accepted accounting principles as applied in the
      United States
      applied on a consistent basis throughout the periods involved, except as may
      be
      expressly stated in the related notes thereto. No other financial statements
      or
      supporting schedules are required to be included in the Registration Statement
      or any Applicable Prospectus.
      No person who has been suspended or barred from being associated with a
      registered public accounting firm, or who has failed to comply with any sanction
      pursuant to Rule 5300 promulgated by the PCAOB, has participated in or otherwise
      aided the preparation of, or audited, the financial statements, supporting
      schedules or other financial data filed with the Commission as a part of the
      Registration Statement and included in any Applicable Prospectus. The
      Company’s ratios of earnings to fixed charges set forth in the Prospectus under
      the caption “Ratio of Earnings to Fixed Charges” and in Exhibit 12 to the
      Registration Statement have been calculated in compliance with Item 503(d)
      of Regulation S-K under the Securities Act.

     

    (j)  Company’s
      Accounting System.
      The Company and each of its subsidiaries make and keep accurate books and
      records and 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 authorization;
      (ii)  transactions are recorded as necessary to permit preparation of
      financial statements in conformity with generally accepted accounting principles
      as applied in the United States and to maintain accountability for assets;
      (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 existing assets at reasonable intervals and appropriate
      action is taken with respect to any differences.
      There
      has not been and is no material weakness in the Company’s internal control
      over financial reporting (whether or not remediated) and since December 31,
      2006, there has been no change in the Company’s internal control over
      financial reporting that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (k)  Incorporation
      and Good Standing of the Company and its Subsidiaries.
      Each of the Company and its subsidiaries has been duly incorporated or
      organized, as the case may be, and is validly existing as a corporation,
      partnership or limited liability company, as applicable, in good standing under
      the laws of the jurisdiction of its incorporation or organization and has the
      power and authority (corporate or other) to own, lease and operate its
      properties and to conduct its business as described in each Applicable
      Prospectus and, in the case of the Company, to enter into and perform its
      obligations under this Agreement. Each of the Company and each subsidiary is
      duly qualified as a foreign corporation, partnership or limited liability
      company, as applicable, to transact business and is in good standing in the
      State of Pennsylvania and each other jurisdiction in which such qualification
      is
      required, whether by reason of the ownership or leasing of property or the
      conduct of business. All of the issued and outstanding capital stock or other
      equity or ownership interests of each subsidiary have been duly authorized
      and
      validly issued, are fully paid and nonassessable and are owned by the Company,
      directly or through subsidiaries, free and clear of any security interest,
      mortgage, pledge, lien, encumbrance or adverse claim. The Company does not
      own
      or control, directly or indirectly, any corporation, association or other entity
      other than (i) the subsidiaries listed in Exhibit 21
      to the Company’s Annual Report on Form 10-K for the fiscal year ended December
      31, 2006 and (ii) such other entities omitted from Exhibit 21 which, when such
      omitted entities are considered in the aggregate as a single subsidiary, would
      not constitute a “significant subsidiary” within the meaning of Rule 1-02(w) of
      Regulation S-X. 

     

    (l)  Capitalization
      and Other Capital Stock Matters.
      The authorized, issued and outstanding capital stock of the Company is as set
      forth in each Applicable Prospectus under the caption “Capitalization” (other
      than for subsequent issuances, if any, pursuant to employee benefit plans
      described in the Time of Sale Prospectus or upon the exercise of outstanding
      options or warrants described in each Applicable Prospectus). The Shares
      (including the Offered Shares) conform in all material respects to the
      description thereof contained in the Time of Sale Prospectus. All of the issued
      and outstanding Shares have been duly authorized and validly issued, are fully
      paid and nonassessable and have been issued in compliance with federal and
      state
      securities laws. None of the outstanding Shares was issued in violation of
      any
      preemptive rights, rights of first refusal or other similar rights to subscribe
      for or purchase securities of the Company. There are no authorized or
      outstanding options, warrants, preemptive rights, rights of first refusal or
      other rights to purchase, or equity or debt securities convertible into or
      exchangeable or exercisable for, any capital stock of the Company or any of
      its
      subsidiaries other than those accurately described in each Applicable
      Prospectus. The description of the Company’s stock option, stock bonus and other
      stock plans or arrangements, and the options or other rights granted thereunder,
      set forth in each Applicable Prospectus accurately and fairly presents the
      information required to be shown with respect to such plans, arrangements,
      options and rights. Except
      as
      described in the Prospectus, the Company has not sold or issued any Shares
      during the six-month period preceding the date of the Prospectus, including
      any
      sales pursuant to Rule 144A under, or Regulations D or S of, the Securities
      Act
      other than Shares issued pursuant to employee benefit plans, qualified stock
      options plans or other employee compensation plans or pursuant to outstanding
      options, rights or warrants.

     

    (m)  Stock
      Exchange Listing.
      The
      Shares are registered pursuant to Section 12(b) of the Exchange Act and are
      listed on the Nasdaq Global Market, and the Company has taken no action designed
      to, or likely to have the effect of, terminating the registration of the Shares
      under the Exchange Act or delisting the Shares from the Nasdaq Global Market,
      nor has the Company received any notification or have any reason to
      believe that it will or is reasonably likely to receive
      a
      notification that the Commission or the Nasdaq Global Market is contemplating
      terminating such registration or listing, including without limitation for
      any
      violation of Nasdaq Marketplace Rule 4350(i)(1)(D) in connection with this
      Offering or otherwise. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (n)  Non-Contravention
      of Existing Instruments; No Further Authorizations or Approvals
      Required.
      Neither the Company nor any of its subsidiaries is in violation of its charter
      or by-laws, partnership agreement or operating agreement or similar
      organizational document, as applicable, or is in default (or, with the giving
      of
      notice or lapse of time, would be in default) (“Default”)
      under any indenture, mortgage, loan or credit agreement, note, contract,
      franchise, lease or other instrument to which the Company or any of its
      subsidiaries is a party or by which it or any of them may be bound (including,
      without limitation, any credit agreement, indenture, pledge agreement, security
      agreement or other instrument or agreement evidencing, guaranteeing, securing
      or
      relating to indebtedness of the Company or any of its subsidiaries ),
      or to which any of the property or assets of the Company or any of its
      subsidiaries is subject (each, an “Existing
      Instrument”),
      except for such Defaults as would not, individually or in the aggregate, result
      in a Material Adverse Change. The Company’s execution, delivery and performance
      of each of this Agreement, the Subscription Agreements and the Escrow Agreement,
      the consummation of the transactions contemplated hereby and by each Applicable
      Prospectus and the issuance and sale of the Offered Securities (i) have
      been duly authorized by all necessary corporate action and will not result
      in
      any violation of the provisions of the charter or by-laws, partnership agreement
      or operating agreement or similar organizational document of the Company or
      any
      subsidiary, as applicable, (ii) will not conflict with or constitute a
      breach of, or Default under,
      or result in the creation or imposition of any lien, charge or encumbrance
      upon
      any property or assets of the Company or any of its subsidiaries pursuant to,
      or
      require the consent of any other party to, any Existing Instrument and
      (iii) will not result in any violation of any law, administrative
      regulation or administrative or court decree applicable to the Company or any
      subsidiary. No consent, approval, authorization or other order of, or
      registration or filing with, any court or other governmental or regulatory
      authority or agency, is required for the Company’s execution, delivery and
      performance of this Agreement, the Subscription Agreements and the Escrow
      Agreement and consummation of the transactions contemplated hereby and by each
      Applicable Prospectus, except such
      as have been obtained or made by the Company and are in full force and effect
      under the Securities Act, applicable state securities or blue sky laws and
      from
      the NASD.

     

    (o)  No
      Material Actions or Proceedings.
      Except as otherwise disclosed in each Applicable Prospectus, there are no legal
      or governmental actions, suits or proceedings pending or, to the Company’s
      knowledge, threatened (i) against or affecting the Company or any of its
      subsidiaries, (ii) which have as the subject thereof any officer or
      director of, or property owned or leased by, the Company or any of its
      subsidiaries or (iii) relating to environmental or discrimination matters,
      where in any such case (A) there is a reasonable possibility that such
      action, suit or proceeding might be determined adversely to the Company, such
      subsidiary or such officer or director, (B) any such action, suit or
      proceeding, if so determined adversely, would reasonably be expected to result
      in a Material Adverse Change or adversely affect the consummation of the
      transactions contemplated by this Agreement or (C) any such action, suit or
      proceeding is or would be material in the context of the sale of Shares. No
      material labor dispute with the employees of the Company or any of its
      subsidiaries exists or, to the Company’s knowledge, is threatened or
      imminent.

     

    (p)  Intellectual
      Property Rights.
      The
      Company and its subsidiaries own or possess sufficient trademarks, trade names,
      patent rights, copyrights, domain names, licenses, approvals, trade secrets
      and
      other similar rights (collectively, “Intellectual
      Property Rights”)
      reasonably necessary to conduct their businesses as now conducted; and the
      expected expiration of any of such Intellectual Property Rights would not result
      in a Material Adverse Change. Neither the Company nor any of its subsidiaries
      has received, or has any reason to believe that it will receive, any notice
      of
      infringement or conflict with asserted Intellectual Property Rights of others.
      The Company is not a party to or bound by any options, licenses or agreements
      with respect to the Intellectual Property Rights of any other person or entity
      that are required to be set forth in the Prospectus and are not described
      therein. (The Time of Sale Prospectus contains in all material respects the
      same
      description of the matters set forth in the preceding sentence contained in
      the
      Prospectus.) None of the technology employed by the Company or any of its
      subsidiaries has been obtained or is being used by the Company or any of its
      subsidiaries in violation of any contractual obligation binding on the Company
      or any of its subsidiaries or, to the Company’s knowledge, any of its or its
      subsidiaries’ officers, directors or employees or otherwise in violation of the
      rights of any persons. 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (q)  All
      Necessary Permits, etc.The
      Company and each subsidiary possess such valid and current certificates,
      authorizations or permits issued by the appropriate state, federal or foreign
      regulatory agencies or bodies necessary to conduct their respective businesses,
      and neither the Company nor any subsidiary has received, or has any reason
      to
      believe that it will receive, any notice of proceedings relating to the
      revocation or modification of, or non-compliance with, any such certificate,
      authorization or permit which, singly or in the aggregate, if the subject of
      an
      unfavorable decision, ruling or finding, could result in a Material Adverse
      Change. 

     

    (r)  Title
      to Properties.
      Except as otherwise disclosed in each Applicable Prospectus, the Company and
      each of its subsidiaries has good and marketable title to all of the real and
      personal property and other assets reflected as owned in the financial
      statements referred to in Section 2 (i) above (or elsewhere in any
      Applicable Prospectus), in each case free and clear of any security interests,
      mortgages, liens, encumbrances, equities, adverse claims and other defects,
      except such as do not materially and adversely affect the value of such property
      and do not materially interfere with the use made or proposed to be made of
      such
      property by the Company or such subsidiary. The real property, improvements,
      equipment and personal property held under lease by the Company or any
      subsidiary are held under valid and enforceable leases, with such exceptions
      as
      are not material and do not materially interfere with the use made or proposed
      to be made of such real property, improvements, equipment or personal property
      by the Company or such subsidiary.

     

    (s)  Tax
      Law Compliance.
      The Company and its consolidated subsidiaries have filed all necessary federal,
      state and foreign income and franchise tax returns and have paid all taxes
      required to be paid by any of them and, if due and payable, any related or
      similar assessment, fine or penalty levied against any of them. The Company
      has
      made adequate charges, accruals and reserves in the applicable financial
      statements referred to in Section 2
      (i) above in respect of all federal, state and foreign income and franchise
      taxes for all periods as to which the tax liability of the Company or any of
      its
      consolidated subsidiaries has not been finally determined.

     

    (t)  Company
      Not an “Investment Company”.
      The Company has been advised of the rules and requirements under the Investment
      Company Act of 1940, as amended (the “Investment
      Company Act”).
      The Company is not, and will not be, either after receipt of payment for the
      Offered Shares or after the application of the proceeds therefrom as described
      under “Use of Proceeds” in each Applicable Prospectus, an “investment
      company”
      within the meaning of Investment Company Act.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (u)  Insurance.
      Each of the Company and its subsidiaries are insured pursuant to policies in
      such amounts and with such deductibles and covering such risks as are generally
      deemed adequate and customary for their businesses including, but not limited
      to, policies covering real and personal property owned or leased by the Company
      and its subsidiaries against theft, damage, destruction, acts of vandalism
      and
      policies covering the Company and its subsidiaries for product liability claims
      and clinical trial liability claims. The Company has no reason to believe that
      it or any subsidiary will not be able (i) to renew its existing insurance
      coverage as and when such policies expire or (ii) to obtain comparable
      coverage from similar institutions as may be necessary or appropriate to conduct
      its business as now conducted and at a cost that would not result in a Material
      Adverse Change. Neither of the Company nor any subsidiary has been denied any
      insurance coverage which it has sought or for which it has applied.

     

    (v)  No
      Price Stabilization or Manipulation;
      Compliance with Regulation M.
      The Company has not taken, directly or indirectly, any action designed to or
      that might be reasonably expected to cause or result in stabilization or
      manipulation of the price of the Shares or any other “reference
      security”
      (as
      defined in Rule 100 of Regulation M under the Exchange Act (“Regulation
      M”))
      whether to facilitate the sale or resale of the Offered Shares or otherwise,
      and
      has taken no action which would directly or indirectly violate Regulation
      M. 

     

    (w)  Related
      Party Transactions.
      There
      are no business relationships or related-party transactions involving the
      Company or any of its subsidiaries or any other person required to be described
      in each Applicable Prospectus which have not been described as required.
(The
      Time
      of Sale Prospectus contains in all material respects the same description of
      the
      matters set forth in the preceding sentence contained in the
      Prospectus.)

     

    (x)  NASD
      Matters.
      All
      of the information provided to the Placement Agents or to counsel for the
      Placement Agents by the Company, its officers and directors and the holders
      of
      any securities (debt or equity) or options to acquire any securities of the
      Company in connection with letters, filings or other supplemental information
      provided to NASD Regulation Inc. pursuant to NASD Conduct Rule 2710 or
      2720, if any, is true, complete and correct.

     

    (y)  Parties
      to Lock-Up Agreements.
      Each of
      the Company’s directors and executive officers listed in Exhibit C
      has
      executed and delivered to the Placement Agents a lock-up agreement substantially
      in the form of Exhibit D
      hereto.
Exhibit C
      hereto contains a true, complete and correct list of all directors and executive
      officers of the Company. If any additional persons shall become directors or
      executive
      officers
      of the Company prior to the end of the Company Lock-up Period (as defined
      below), the Company shall cause each such person,
      prior
      to or contemporaneously with their appointment or election as a director or
      executive officer of the Company,
      to execute and deliver to the Placement Agents an agreement in the form attached
      hereto as Exhibit
      D.

     

    (z)  Statistical
      and Market-Related Data.
      The
      statistical, demographic and market-related data included in the Registration
      Statement and each Applicable Prospectus are based on or derived from sources
      that the Company believes to be reliable and accurate or represent the Company’s
      good faith estimates that are made on the basis of data derived from such
      sources.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (aa)
      S-3 Eligibility. At
      the
      time the Registration Statement was originally declared effective and at the
      time the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2006 (the “Annual
      Report”)
      was
      filed with the Commission, the Company met the then applicable requirements
      for
      use of Form S-3 under the Securities Act. The Company meets the
      requirements for use of Form S-3 under the Securities Act specified in
      Conduct Rule 2710(b)(7)(C)(i) of the National Association of Securities
      Dealers Inc. (the “NASD”).

     

    (bb)
      Exchange Act Compliance.The
      documents incorporated or deemed to be incorporated by reference in the
      Prospectus, at the time they were or hereafter are filed with the Commission,
      complied and will comply in all material respects with the requirements of
      the
      Exchange Act, and, when read together with the other information in the
      Prospectus, at the time the Registration Statement and any amendments thereto
      become effective and at the Closing Date will not contain an untrue statement
      of
      a material fact or omit to state a material fact required to be stated therein
      or necessary to make the fact required to be stated therein or necessary to
      make
      the statements therein, in the light of the circumstances under which they
      were
      made, not misleading.

     

      (cc)
       No
      Unlawful Contributions or Other Payments.
      Neither the Company nor any of its subsidiaries nor, to the Company’s knowledge,
      any employee or agent of the Company or any subsidiary, has made any
      contribution or other payment to any official of, or candidate for, any federal,
      state or foreign office in violation of any law or of the character required
      to
      be disclosed in the Registration
      Statement and each Applicable Prospectus.

     

    (dd) 
      Disclosure
      Controls and Procedures; Deficiencies in or Changes to Internal Control Over
      Financial Reporting.
      The Company has established and maintains disclosure controls and procedures
      (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)),
      which (i) are designed to ensure that material information relating to the
      Company, including its consolidated subsidiaries, is made known to the Company’s
      principal executive officer and its principal financial officer by others within
      those entities, particularly during the periods in which the periodic reports
      required under the Exchange Act are being prepared; (ii) have been evaluated
      by
      management of the Company for effectiveness as of the
      end
      of the Company’s most recent fiscal quarter;
      and (iii) are effective in all material respects to perform the functions for
      which they were established. The Company is not aware of (i) any significant
      deficiencies or material weaknesses in the design or operation of internal
      control over financial reporting which are reasonably likely to adversely affect
      the Company’s ability to record, process, summarize and report financial
      information or (ii) any fraud, whether or not material, that involves management
      or other employees who have a significant role in the Company’s internal control
      over financial reporting.
      The Company is not aware of any change in its internal control over financial
      reporting that has occurred during its most recent fiscal quarter that has
      materially affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.  

     

    (ee)
        Compliance with Environmental Laws.
      Except
      as
      described in each
      Applicable Prospectus
      and
      except as would not, singly or in the aggregate, result in a Material Adverse
      Change, (i) neither the Company nor any of its subsidiaries is in violation
      of
      any federal, state, local or foreign statute, law, rule, regulation, ordinance,
      code, policy or rule of common law or any judicial or administrative
      interpretation thereof, including any judicial or administrative order, consent,
      decree or judgment, relating to pollution or protection of human health, the
      environment (including, without limitation, ambient air, surface water,
      groundwater, land surface or subsurface strata) or wildlife, including, without
      limitation, laws and regulations relating to the release or threatened release
      of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
      substances, petroleum or petroleum products (collectively, “Hazardous
      Materials”)
      or to
      the manufacture, processing, distribution, use, treatment, storage, disposal,
      transport or handling of Hazardous Materials (collectively, “Environmental
      Laws”),
      (ii)
      the Company and its subsidiaries have all permits, authorizations and approvals
      required under any applicable Environmental Laws and are each in compliance
      with
      their requirements, (iii) there are no pending or, to the Company’s knowledge,
      threatened administrative, regulatory or judicial actions, suits, demands,
      demand letters, claims, liens, notices of noncompliance or violation,
      investigation or proceedings relating to any Environmental Law against the
      Company or any of its subsidiaries and (iv) there are no events or circumstances
      that might reasonably be expected to form the basis of an order for clean-up
      or
      remediation, or an action, suit or proceeding by any private party or
      governmental body or agency, against or affecting the Company or any of its
      subsidiaries relating to Hazardous Materials or any Environmental
      Laws.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (ff)  ERISA
      Compliance.
      The Company and its subsidiaries and any “employee
      benefit plan”
      (as defined under the Employee Retirement Income Security Act of 1974, as
      amended, and the regulations and published interpretations thereunder
      (collectively, “ERISA”))
      established or maintained by the Company, its subsidiaries or their
“ERISA
      Affiliates”
      (as defined below) are in compliance in all material respects with ERISA.
“ERISA
      Affiliate”
      means, with respect to the Company or a subsidiary, any member of any group
      of
      organizations described in Sections 414(b),(c),(m) or (o) of the Internal
      Revenue Code of 1986, as amended, and the regulations and published
      interpretations thereunder (the “Code”)
      of which the Company or such subsidiary is a member. No “reportable
      event”
      (as defined under ERISA) has occurred or is reasonably expected to occur with
      respect to any “employee
      benefit plan”
      established or maintained by the Company, its subsidiaries or any of their
      ERISA
      Affiliates. No “employee
      benefit plan”
      established or maintained by the Company, its subsidiaries or any of their
      ERISA
      Affiliates, if such “employee
      benefit plan”
      were terminated, would have any “amount
      of unfunded benefit liabilities”
      (as defined under ERISA). Neither the Company, its subsidiaries nor any of
      their
      ERISA Affiliates has incurred or reasonably expects to incur any liability
      under
      (i) Title IV of ERISA with respect to termination of, or withdrawal
      from, any “employee
      benefit plan”
      or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
“employee
      benefit plan”
      established or maintained by the Company, its subsidiaries or any of their
      ERISA
      Affiliates that is intended to be qualified under Section 401(a) of the
      Code is so qualified and nothing has occurred, whether by action or failure
      to
      act, which would cause the loss of such qualification. 

     

    (gg)  Brokers.
      Except
      for the fees payable to the Placement Agents as described in
      the Time
      of
      Sale Prospectus and the Prospectus, there is no broker, finder or other party
      that is entitled to receive from the Company any brokerage or finder’s fee or
      other fee or commission as a result of any transactions contemplated by this
      Agreement.

     

    (hh)
        No
      Outstanding Loans or Other Extensions of Credit.Since
      the
      adoption of Section 13(k) of the Exchange Act, neither the Company nor any
      of
      its subsidiaries has extended or maintained credit, arranged for the extension
      of credit, or renewed any extension of credit, in the form of a personal loan,
      to or for any director or executive officer (or equivalent thereof) of the
      Company and/or such subsidiary except for such extensions of credit as are
      expressly permitted by Section 13(k) of the Exchange Act.

     

    (ii)
        Compliance
      with Laws.
      The
      Company has not been advised, and has no reason to believe, that it and each
      of
      its subsidiaries are not conducting business in compliance with all applicable
      laws, rules and regulations of the jurisdictions in which it is conducting
      business, except where failure to be so in compliance would not result in a
      Material Adverse Change. 

     

    
      
        
        

      

      
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    (jj)
        Foreign
      Corrupt Practices Act.
      Neither
      the Company nor any of its subsidiaries nor, to the knowledge of the Company,
      any director, officer, agent, employee, affiliate or other person acting on
      behalf of the Company or any of its subsidiaries is aware of or has taken any
      action, directly or indirectly, that has resulted or would result in a violation
      of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and
      regulations thereunder (the “FCPA”),
      including, without limitation, making use of the mails or any means or
      instrumentality of interstate commerce corruptly in furtherance of an offer,
      payment, promise to pay or authorization of the payment of any money, or other
      property, gift, promise to give, or authorization of the giving of anything
      of
      value to any “foreign official” (as such term is defined in the FCPA) or any
      foreign political party or official thereof or any candidate for foreign
      political office, in contravention of the FCPA; and the Company and its
      subsidiaries and, to the knowledge of the Company, the Company’s affiliates have
      conducted their respective businesses in compliance with the FCPA.

     

    (kk)
        OFAC.
      Neither
      the Company nor any of its subsidiaries nor, to the knowledge of the Company,
      any director, officer, agent, employee, affiliate or person acting on behalf
      of
      the Company or any of its subsidiaries is currently subject to any U.S.
      sanctions administered by the Office of Foreign Assets Control of the U.S.
      Treasury Department (“OFAC”);
      and
      the Company will not directly or indirectly use the proceeds of this offering,
      or lend, contribute or otherwise make available such proceeds to any subsidiary,
      joint venture partner or other person or entity, for the purpose of financing
      the activities of any person currently subject to any U.S. sanctions
      administered by OFAC.

     

    Any
      certificate signed by any officer of the Company or any of its subsidiaries
      and
      delivered to the Placement Agents or to counsel for the Placement Agents shall
      be deemed a representation and warranty by the Company to the Placement Agents
      as to the matters covered thereby.

     

    The
      Company acknowledges that the Placement Agents and, for purposes of the opinions
      to be delivered pursuant to Section 7 hereof, counsel to the Company and counsel
      to the Placement Agents, will rely upon the accuracy and truthfulness of the
      foregoing representations and hereby consents to such reliance.

     

    
      
        
        

      

      
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    Section
      3.   Purchase,
      Sale and Delivery of the Offered Shares.

     

     (a)
      The
      Offered Shares.
      The Company agrees to issue and sell to the Purchasers the Offered Shares upon
      the terms set forth in the Subscription Agreements. The purchase price per
      Offered Share to be paid by the Purchasers to the Company shall be $2.15 per
      share.

     

    (b)
      The
      Closing Date.
      Delivery of certificates for the Offered Shares to be purchased by the
      Purchasers and payment therefor shall be made at the offices of the
      Representative, 520 Madison Avenue, New York, New York  (or such other
      place as may be agreed to by the Company and the Placement Agent) at 9:00 a.m.
      New York time, on April
      5, 2007
      (the time and date of such closing are called the “Closing
      Date”).
      The Company hereby acknowledges that circumstances under which the
      Representative may provide notice to postpone the Closing Date as originally
      scheduled include, but are in no way limited to, any determination by the
      Company or the Placement Agents to recirculate to the public copies of an
      amended or supplemented Prospectus.

     

    (c)
      Payment
      for the Offered Shares.
      Payment
      for the Offered Shares shall be made at the Closing Date by wire transfer of
      immediately available funds to the order of the Company. 

     

     (d)
      Delivery
      of the Offered Shares.
      The Company shall deliver, or cause to be delivered, to the Purchasers
      certificates for the Offered Shares at the Closing Date, against the irrevocable
      release of a wire transfer of immediately available funds for the amount of
      the
      purchase price therefor. The certificates for the Offered Shares shall be in
      definitive form and registered in such names and denominations as the Purchsers
      shall have requested at least two full business days prior to the Closing Date
      and shall be made available for inspection on the business day preceding the
      Closing Date at a location in New York City as the Representative may designate.
      Time shall be of the essence, and delivery at the time and place specified
      in
      this Agreement is a further condition to the obligations of the
      Purchasers.

     

    Section
      4.   Additional
      Covenants. 

     

    The
      Company further covenants and agrees with each Placement Agent as
      follows:

     

    (a)  Delivery
      of Registration Statement, Time of Sale Prospectus and
      Prospectus.
      Upon
      request, the Company shall furnish to the Representative, without charge, two
      copies of the Registration Statement, any amendments thereto and any Rule 462(b)
      Registration Statement (including exhibits thereto) and for delivery to the
      other Placement
      Agent
      a conformed copy of the Registration Statement, any amendments thereto and
      any
      Rule 462(b) Registration Statement (without exhibits thereto) and shall furnish
      to the Placement
      Agents
      in New York City, without charge, prior to 10:00 a.m. New York City time on
      the
      business day next succeeding the date of this Agreement and during the period
      mentioned in Section 4(e) or 4(f) below, as many copies of the Time of Sale
      Prospectus, the Prospectus and any supplements and amendments thereto or to
      the
      Registration Statement as the Placement
      Agents
      may reasonably request.

     

    (b)
        Placement
      Agents’ Review of Proposed Amendments and Supplements.
      Prior
      to amending or supplementing the Registration Statement (including any
      registration statement filed under Rule 462(b) under the Securities Act),
      any preliminary prospectus, the Time of Sale Prospectus or the Prospectus
      (including any amendment or supplement through incorporation of any report
      filed
      under the Exchange Act) , the Company shall furnish to the Placement
      Agents
      for review, a reasonable amount of time prior to the proposed time of filing
      or
      use thereof, a copy of each such proposed amendment or supplement, and the
      Company shall not file or use any such proposed amendment or supplement without
      the Representative’s consent (which shall not be unreasonably withheld), and to
      file with the Commission within the applicable period specified in Rule 424(b)
      under the Securities Act any prospectus required to be filed pursuant to such
      Rule.

     

    
      
        
        

      

      
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    (c)  Free
      Writing Prospectuses.
      The
      Company shall furnish to the Placement
      Agents
      for review, a reasonable amount of time prior to the proposed time of filing
      or
      use thereof, a copy of each proposed free writing prospectus or any amendment
      or
      supplement thereto to be prepared by or on behalf of, used by, or referred
      to by
      the Company and the Company shall not file, use or refer to any proposed free
      writing prospectus or any amendment or supplement thereto without the
      Representative’s consent. Upon request, the
      Company shall furnish to each Placement Agent, without charge, as many copies
      of
      any free writing prospectus prepared by or on behalf of, or used by the Company,
      as such Placement Agentmay reasonably request. If at any time when a prospectus
      is required by the Securities Act (including, without limitation, pursuant
      to
      Rule 173(d)) to be delivered in connection with sales of the Offered Shares
      (but in any event if at any time through and including the Closing Date) there
      occurred or occurs an event or development as a result of which any free writing
      prospectus prepared by or on behalf of, used by, or referred to by the Company
      conflicted or would conflict with the information contained in the Registration
      Statement or included or would include an untrue statement of a material fact
      or
      omitted or would omit to state a material fact necessary in order to make the
      statements therein, in the light of the circumstances prevailing at that
      subsequent time, not misleading, the Company shall promptly amend or supplement
      such free writing prospectus to eliminate or correct such conflict or so that
      the statements in such free writing prospectus as so amended or supplemented
      will not include an untrue statement of a material fact or omit to state a
      material fact necessary in order to make the statements therein, in the light
      of
      the circumstances prevailing at such subsequent time, not misleading, as the
      case may be; provided, however, that prior to amending or supplementing any
      such
      free writing prospectus, the Company shall furnish to the Placement Agents
      for
      review, a reasonable amount of time prior to the proposed time of filing or
      use
      thereof, a copy of such proposed amended or supplemented free writing prospectus
      and the Company shall not file, use or refer to any such amended or supplemented
      free writing prospectus without the Representative’s consent.

     

    (d)  Filing
      of Free Writing Prospectuses.
      The
      Company shall not to take any action that would result in a Placement
      Agent
      or the Company being required to file with the Commission pursuant to Rule
      433(d) under the Securities Act a free writing prospectus prepared by or on
      behalf of the Placement
      Agents
      that the Placement
      Agents
      otherwise would not have been required to file thereunder.

     

    (e)  Amendments
      and Supplements to Time of Sale Prospectus.
      If
      the Time of Sale Prospectus is being used to solicit offers to buy the Shares
      at
      a time when the Prospectus is not yet available to prospective purchasers and
      any event shall occur or condition exist as a result of which it is necessary
      to
      amend or supplement the Time of Sale Prospectus so
      that
      the Time of Sale Prospectus does not include an untrue statement of a material
      fact or omit to state a material fact necessary in
      order to make the statements therein, in the light of the circumstances
when
      delivered to a prospective purchaser,
      not misleading, or if any event shall occur or condition exist as a result
      of
      which the Time of Sale Prospectus conflicts with the information contained
      in
      the Registration Statement, or if, in the opinion of counsel for the
Placement
      Agents,
      it is necessary to amend or supplement the Time of Sale Prospectus to comply
      with applicable law, including the Securities Act, the Company shall (subject
      to
      Sections 4(b) and 4(c)) forthwith prepare, file with the Commission and furnish,
      at its own expense, to the Placement
      Agents
      and to any dealer upon request, either amendments or supplements to the Time
      of
      Sale Prospectus so that the statements in the Time of Sale Prospectus as so
      amended or supplemented will not
      include
      an untrue statement of a material fact or omit to state a material fact
      necessary in order to make the statements therein,
      in the light of the circumstances when delivered to a prospective purchaser,
      not
      misleading or so that the Time of Sale Prospectus, as amended or supplemented,
      will no longer conflict with the Registration Statement, or so that the Time
      of
      Sale Prospectus, as amended or supplemented, will comply with applicable law
      including the Securities Act.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (f)  Securities
      Act Compliance.
      After the date of this Agreement, the Company shall promptly advise the
Placement
      Agents
      in writing (i) of the receipt of any comments of, or requests for additional
      or
      supplemental information from, the Commission, (ii) of the time and date of
      any
      filing of any post-effective amendment to the Registration Statement, any Rule
      462(b) Registration Statement or any amendment or supplement to any Prospectus,
      the Time of Sale Prospectus, any free writing prospectus or the Prospectus,
      (iii) of the time and date that any post-effective amendment to the Registration
      Statement or any Rule 462(b) Registration Statement becomes effective and (iv)
      of the issuance by the Commission of any stop order suspending the effectiveness
      of the Registration Statement or any post-effective amendment thereto, any
      Rule
      462(b) Registration Statement or any amendment or supplement to any preliminary
      prospectus, the Time of Sale Prospectus or the Prospectus or of any order
      preventing or suspending the use of any preliminary prospectus, the Time of
      Sale
      Prospectus, any free writing prospectus or the Prospectus, or of any proceedings
      to remove, suspend or terminate from listing or quotation the Shares from any
      securities exchange upon which they are listed for trading or included or
      designated for quotation, or of the threatening or initiation of any proceedings
      for any of such purposes. If the Commission shall enter any such stop order
      at
      any time, the Company will use its best efforts to obtain the lifting of such
      order at the earliest possible moment. Additionally, the Company agrees that
      it
      shall comply with the provisions of Rule 424(b), Rule 433 and Rule 430A, as
      applicable, under the Securities Act and will use its reasonable efforts to
      confirm that any filings made by the Company under such Rule 424(b) or Rule
      433
      were received in a timely manner by the Commission. 

     

    (g)
        Amendments
      and Supplements to the Prospectus and Other Securities Act
      Matters.
      If any event shall occur or condition exist as a result of which it is necessary
      to amend or supplement the Prospectus so that the Prospectus does
      not
      include
      an untrue statement of a material fact or omit to state a material fact
      necessary in
      order to make the statements therein, in the light of the circumstances when
      the
      Prospectus is delivered to a purchaser, not misleading, or if in the reasonable
      opinion of the Representative or counsel for the Placement
      Agents
      it is otherwise necessary to amend or supplement the Prospectus to comply with
      applicable law, including the Securities Act, the Company agrees (subject to
      Section 4(b) and 4(c)) to promptly prepare, file with the Commission and
      furnish at its own expense to the Placement
      Agents
      and to dealers, amendments or supplements to the Prospectus so that the
      statements in the Prospectus as so amended or supplemented will not
      include
      an untrue statement of a material fact or omit to state a material fact
      necessary
      in order to make the statements therein, in the light of the circumstances
      when
      the Prospectus is delivered to a purchaser, not misleading or so that the
      Prospectus, as amended or supplemented, will comply with applicable law
      including the Securities Act. Neither the Representative’s consent to, or
      delivery of, any such amendment or supplement shall constitute a waiver of
      any
      of the Company’s obligations under Sections 4(b) or 4(c).

     

    
      
        
        

      

      
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    (h)  Blue
      Sky Compliance.
      The Company shall cooperate with the Placement
      Agents
      and counsel for the Placement
      Agents
      to qualify or register the Offered Shares for sale under (or obtain exemptions
      from the application of) the state securities or blue sky laws of
      those jurisdictions designated by the Placement
      Agents,
      shall comply with such laws and shall continue such qualifications,
      registrations and exemptions in effect so long as required for the distribution
      of the Offered Shares. The Company shall not be required to qualify as a foreign
      corporation or to take any action that would subject it to general service
      of
      process in any such jurisdiction where it is not presently qualified or where
      it
      would be subject to taxation as a foreign corporation. The Company will advise
      the Placement
      Agents
      promptly of the suspension of the qualification or registration of (or any
      such
      exemption relating to) the Offered Shares for offering, sale or trading in
      any
      jurisdiction or any initiation or threat of any proceeding for any such purpose,
      and in the event of the issuance of any order suspending such qualification,
      registration or exemption, the Company shall use its best efforts to obtain
      the
      withdrawal thereof at the earliest possible moment.

     

    (i)  Use
      of Proceeds.
      The Company shall apply the net proceeds from the sale of the Offered Shares
      sold by it in the manner described under the caption “Use of Proceeds” in each
      Applicable Prospectus.

     

    (j)  Transfer
      Agent.
      The Company shall engage and maintain, at its expense, a registrar and transfer
      agent for the Shares.

     

    (k)  Earnings
      Statement.
      As soon as practicable, but in any event no later than 12 months after the
      date
      of this Agreement, the Company will make generally available to its security
      holders and upon request to the Placement
      Agents
      an earnings statement (which need not be audited) covering a period of at least
      12 months beginning after the date of this Agreement which shall satisfy the
      provisions of Section 11(a) of the Securities Act and the rules and regulations
      of the Commission thereunder.

     

    (l)  Exchange
      Act Compliance.
      During the period when a prospectus is required by the Securities Act to be
      delivered in connection with sales of the Offered Shares (but in any event
      if at
      any time through and including the Closing Date), the Company shall file all
      documents required to be filed with the Commission pursuant to Section 13,
      14 or
      15 of the Exchange Act in the manner and within the time periods required by
      the
      Exchange Act.

     

    (m)  Listing.
      The
      Company will use its best efforts to maintain the listing of the Shares on
      the
      Nasdaq Global Market.

     

    (n)  Company
      to Provide Copy of the Prospectus in Form That May be Downloaded from the
      Internet.
      The
      Company shall cause to be prepared and delivered, at its expense, within one
      business day from the effective date of this Agreement, to the Placement Agents
      an “electronic
      Prospectus”
to
      be
      used by the Placement Agents in connection with the offering and sale of the
      Offered Shares. As used herein, the term “electronic
      Prospectus”
means
      a
      form of Time of Sale Prospectus, and any amendment or supplement thereto, that
      meets each of the following conditions: (i) it shall be encoded in an electronic
      format, satisfactory to the Representative, that may be transmitted
      electronically by the Placement Agents to offerees and purchasers of the Offered
      Shares; (ii) it shall disclose the same information as the paper Time of
      Sale Prospectus, except to the extent that graphic and image material cannot
      be
      disseminated electronically, in which case such graphic and image material
      shall
      be replaced in the electronic Prospectus with a fair and accurate narrative
      description or tabular representation of such material, as appropriate; and
      (iii) it shall be in or convertible into a paper format or an electronic
      format, satisfactory to the Representative, that will allow investors to store
      and have continuously ready access to the Time of Sale Prospectus at any future
      time, without charge to investors (other than any fee charged for subscription
      to the Internet as a whole and for on-line time). The Company hereby confirms
      that it has included or will include in the Prospectus filed pursuant to EDGAR
      or otherwise with the Commission and in the Registration Statement at the time
      it was declared effective an undertaking that, upon receipt of a request by
      an
      investor or his or her representative, the Company shall transmit or cause
      to be
      transmitted promptly, without charge, a paper copy of the Time of Sale
      Prospectus.

     

    
      
        
        

      

      
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    (o)  Agreement
      Not to Offer or Sell Additional Shares.During
      the period commencing on and including the date hereof and ending on and
      including the 60 day following the date of this Agreement (as the same may
      be
      extended as described below, the “Lock-up
      Period”),
      the Company will not, without the prior written consent of the Representative,
      directly or indirectly, sell (including, without limitation, any short sale),
      offer, contract or grant any option to sell, pledge, transfer or establish
      an
      open “put equivalent position” within the meaning of Rule 16a-1(h) under the
      Exchange Act, or otherwise dispose of or transfer, or announce the offering
      of,
      or file any registration statement under the Securities Act in respect of,
      any
      Shares, options, rights or warrants to acquire Shares or securities exchangeable
      or exercisable for or convertible into Shares (other than as contemplated by
      this Agreement with respect to the Offered Shares) or publicly announce the
      intention to do any of the foregoing; provided,
      however,
      that the Company may issue (A) Shares or options to purchase Shares to
      unaffiliated third parties in connection with or pursuant to joint ventures,
      collaborative arrangements, strategic alliances or similar transactions the
      primary purpose of which is not for capital raising, (B) other than during
      the
      30 days following the date of this Agreement, Shares to Kingsbridge Capital
      Limited under the Company’s Committed Equity Financing Facility, and (C) options
      to purchase Shares, or issue Shares upon exercise of options, pursuant to any
      stock option, stock bonus or other stock plan or arrangement described in each
      Applicable Prospectus or subsequently approved by the Company’s stockholders.
      Notwithstanding the foregoing, if (i) during the last 17 days of the Lock-up
      Period, the Company issues an earnings release or material news or a material
      event relating to the Company occurs or (ii) prior to the expiration of the
      Lock-up Period, the Company announces that it will release earnings results
      during the 16-day period beginning on the last day of the Lock-up Period, then
      in each case the Lock-up Period will be extended until the expiration of the
      18-day period beginning on the date of the issuance of the earnings release
      or
      the occurrence of the material news or material event, as applicable,
      unless
      the Representative waives, in writing, such extension, except that such
      extension will not apply if, within three business days prior to the
      15th
      calendar
      day before the last day of the Lock-up Period, the Company delivers a
      certificate, signed by the Chief Financial Officer or Chief Executive Officer
      of
      the Company, certifying on behalf of the Company that (i) the Shares are
“actively traded securities” (as defined in Regulation M), (ii) the Company
      meets the applicable requirements of paragraph (a)(1) of Rule 139
      under the Securities Act in the manner contemplated by NASD Conduct
      Rule 2711(f)(4), and (iii) the provisions of NASD Conduct
      Rule 2711(f)(4) are not applicable to any research reports relating to the
      Company published or distributed by the Placement Agents during the 15 days
      before or after the last day of the Lock-up Period (before giving effect to
      such
      extension).
      The Company will provide the Placement
      Agents
      with prior notice of any such announcement that gives rise to an extension
      of
      the Lock-up Period. 

     

    (p)
        Investment
      Limitation.
      The Company shall not invest, or otherwise use the proceeds received by the
      Company from its sale of the Offered Shares in such a manner as would require
      the Company or any of its subsidiaries to register as an investment company
      under the Investment Company Act.

     

    
      
        
        

      

      
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    (q)  No
      Stabilization or Manipulation; Compliance with Regulation
      M.
      The
      Company will not take, directly or indirectly, any action designed to or that
      might be reasonably expected to cause or result in stabilization or manipulation
      of the price of the Shares or any other reference security,
      whether
      to facilitate the sale or resale of the Offered Shares or otherwise, and the
      Company will, and shall cause each of its affiliates to, comply with all
      applicable provisions of Regulation M. If
      the
      limitations of Rule 102 of Regulation M (“Rule
      102”)
      do not
      apply with respect to the Offered Shares or any other reference security
      pursuant to any exception set forth in Section (d) of Rule 102, then promptly
      upon notice from the Representative (or, if later, at the time stated in the
      notice), the Company
      will, and shall cause each of its affiliates to,
      comply
      with Rule 102 as though such exception were not available but the other
      provisions of Rule 102 (as interpreted by the Commission) did apply.

     

    (r)  Existing
      Lock-Up Agreements.
      During
      the Lock-up Period, the Company will enforce all existing agreements between
      the
      Company and any of its security holders that prohibit the sale, transfer,
      assignment, pledge or hypothecation of any of the Company’s securities. In
      addition, the Company will direct the transfer agent to place stop transfer
      restrictions upon any such securities of the Company that are bound by such
      existing “lock-up” agreements for the duration of the periods contemplated in
      such agreements, including, without limitation, “lock-up” agreements entered
      into by the Company’s officers and directors pursuant to Section 7(h).

     

    The
      Representative may, in its sole discretion, waive in writing the
      performance
      by the Company of any one or more of the foregoing covenants or extend the
      time
      for their performance.

     

    Section
      5.   Payment
      of Expenses.
      The Company agrees to pay, or reimburse if paid by the Placement Agents, all
      costs, fees and expenses incurred in connection with the performance of its
      obligations hereunder and in connection with the transactions contemplated
      hereby, including without limitation (i) all expenses incident to the
      issuance and delivery of the Offered Shares (including all printing and
      engraving costs), (ii) all fees and expenses of the registrar and transfer
      agent of the Shares, (iii) all necessary issue, transfer and other stamp
      taxes in connection with the issuance and sale of the Offered Shares to the
      Purchasers, (iv) all fees and expenses of the Company’s counsel,
      independent public or certified public accountants and other advisors,
      (v) all costs and expenses incurred in connection with the preparation,
      printing, filing, shipping and distribution of the Registration Statement
      (including financial statements, exhibits, schedules, consents and certificates
      of experts), the Time of Sale Prospectus, the Prospectus, any free writing
      prospectus prepared by or on behalf of, used by, or referred to by the Company,
      and each preliminary prospectus, and all amendments and supplements thereto,
      and
      this Agreement, (vi) all filing fees, reasonable attorneys’ fees and
      expenses incurred by the Company or the Placement
      Agents
      in connection with qualifying or registering (or obtaining exemptions from
      the
      qualification or registration of) all or any part of the Offered Shares for
      offer and sale under the state securities or blue sky laws, and, if requested
      by
      the Representative, preparing and printing a “Blue
      Sky Survey”
      or memorandum, and any supplements thereto, advising the Placement
      Agents
      of such qualifications, registrations, determinations and exemptions, which
      fees
      shall not exceed $5,000, (vii) the fees and expenses associated with
listing
      the Shares on the Nasdaq Global Market, (viii) the fees and expenses of counsel
      to the Placement Agents, not to exceed $75,000, excluding any fees incurred
      in
      connection with clause (vi) above and (ix) all other fees, costs and
      expenses of the nature referred to in Item 14 of Part II of the
      Registration Statement.
      Except as provided in this Section 5, Section 8, Section 9 and
      Section 10 hereof, the Placement Agents shall pay their own expenses,
      including the fees and disbursements of their counsel in excess of the amounts
      described above. 

     

    
      
        
        

      

      
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    Section
      6.   Covenant
      of the Placement Agents.
      The Placement Agents covenant with the Company not to take any action that
      would
      result in the Company being required to file with the Commission pursuant to
      Rule 433(d) under the Securities Act a free writing prospectus prepared by
      or on
      behalf of the Placement Agent that otherwise would not be required to be filed
      by the Company thereunder, but for the action of the Placement
      Agent.

     

    Section
      7.   Conditions
      of the Obligations of the Placement
      Agents.
      The obligations of the Placement Agents hereunder and the Purchasers under
      the
      Subscription Agreements, shall be subject to the accuracy of the representations
      and warranties on the part of the Company set forth in Section 2 hereof as
      of the date hereof and as of the Closing Date as though then made, to the timely
      performance by the Company of its covenants and other obligations hereunder,
      and
      to each of the following additional conditions:

     

    (a)  Accountants’
      Comfort Letter; Chief Financial Officer Certificate.
      On the date hereof, the Placement Agents shall have received from Ernst &
Young LLP, independent public or certified public accountants for the Company,
      (i) a letter dated the date hereof addressed to the Placement Agents, in
      form and substance satisfactory to the Placement Agents, containing statements
      and information of the type ordinarily included in accountant’s “comfort
      letters” to underwriters, delivered according to Statement of Auditing Standards
      No. 72 (or any successor bulletin), with respect to the audited and unaudited
      financial statements and certain financial information contained in the
      Registration Statement, Time of Sale Prospectus, and each free writing
      prospectus, if any, and, with respect to each letter dated the date hereof
      only,
      the Prospectus, and (ii) confirming that they are (A) independent public or
      certified public accountants as required by the Securities Act and the Exchange
      Act and (B) in compliance with the applicable requirements relating to the
      qualification of accountants under Rule 2-01 of Regulation S-X. On
      the
      date hereof, the Company shall have furnished to the Placement Agents a
      certificate, dated the date hereof, of its Chief Financial Officer in the form
      set forth in Exhibit
      E
      attached
      hereto.

     

    (b)  Compliance
      with Registration Requirements; No Stop Order; No Objection from
      NASD.
      For
      the period from and after effectiveness of this Agreement and prior to the
      Closing Date:

     

    (i)  the
      Company shall have filed the Prospectus with the Commission (including the
      information previously omitted from the Registration Statement pursuant to
      Rule
      430B under the Securities Act) in the manner and within the time period required
      by Rule 424(b) under the Securities Act; or the Company shall have filed a
      post-effective amendment to the Registration Statement containing the
      information previously omitted pursuant to such Rule 430B, and such
      post-effective amendment shall have become effective;

     

    (ii)  no
      stop order suspending the effectiveness of the Registration Statement, any
      Rule 462(b) Registration Statement, or any post-effective amendment to the
      Registration Statement, shall be in effect and no proceedings for such purpose
      shall have been instituted or threatened by the Commission; and

     

    
      
        
        

      

      
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    (iii)  the
      NASD shall have raised no objection to the fairness and reasonableness of the
      compensation allowable or payable to the Placement Agents as described in the
      Prospectus.

     

    (c)  No
      Material Adverse Change or Ratings Agency Change.
      For the
      period from and after the date of this Agreement and through and including
      the
      Closing Date, in the judgment of the Representative there shall not have
      occurred any Material Adverse Change.

     

    (d)
        Opinion
      of Counsel for the Company.
      On the Closing Date the Placement Agents shall have received (i) the opinion
      of
      Dickstein Shapiro LLP, corporate counsel for the Company, dated as of such
      Closing Date, the form of which is attached as Exhibit A
      and to such further effect as counsel for the Placement Agents shall reasonably
      request and (ii) the opinion of Drinker,
      Biddle & Reath LLP, intellectual property counsel
      for the Company, dated as of such Closing Date, the form of which is attached
      as
Exhibit B
      and to such further effect as counsel for the Placement Agents shall reasonably
      request. 

     

    (e)  Opinion
      of Counsel for the Placement
      Agents.
      On the Closing Date the Placement Agents shall have received the opinion of
      Goodwin Procter LLP, counsel for the Placement Agents, in form and substance
      satisfactory to the Representative, dated as of the Closing Date.

     

    (f)
        Officers’
      Certificate.
      On the Closing Date the Placement Agents shall have received a written
      certificate executed by the Chief Executive Officer or President of the Company
      and the Chief Financial Officer of the Company, on behalf of the Company, dated
      as of such Closing Date, to the effect set forth in subsections (b)(ii) of
      this Section 7, and further to the effect that:

     

    (i)  for
      the period from and including the date of this Agreement through and including
      such Closing Date, there has not occurred any Material Adverse
      Change;

     

    (ii)  the
      representations, warranties and covenants of the Company set forth in
      Section 2 of this Agreement are true and correct with the same force and
      effect as though expressly made on and as of such Closing Date;
      and

     

    (iii)  the
      Company has complied with all the agreements hereunder and satisfied all the
      conditions on its part to be performed or satisfied hereunder at or prior to
      such Closing Date.

     

    (g)  Bring-down
      Comfort Letter; Bring-down Chief Financial Officer
      Certificate.
      On the Closing Date the Placement Agents shall have received from Ernst &
Young LLP, independent public or certified public accountants for the Company,
      a
      letter dated such date, in form and substance satisfactory to the
      Representative, to the effect that they reaffirm the statements made in the
      letter furnished by them pursuant to subsection (a) of this Section 7,
      except that the specified date referred to therein for the carrying out of
      procedures shall be no more than three business days prior to the Closing Date.
      On the Closing Date,
      the
      Company shall have furnished to the Placement Agents a certificate, dated the
      date hereof, of its Chief Financial Officer in the form set forth in
Exhibit
      F
      attached
      hereto.

     

    (h)
        Subscription Agreements.
      The Company shall have entered into the Subscription Agreements with each of
      the
      Purchasers and such agreements shall be in full force and effect.

     

    
      
        
        

      

      
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    (i)
        Escrow Agreement. The Company shall have entered into the
      Escrow Agreement and such agreement shall be in full force and
      effect.

     

    (j)  Lock-Up
      Agreement from Certain Securityholders of the Company. On or prior to the
      date hereof, the Company shall have furnished to the Placement Agents an
      agreement in the form of Exhibit D hereto from the persons listed on
Exhibit C hereto, and such agreement shall be in full force and effect
      on
      the Closing Date.

     

    (k)
      Rule 462(b)
      Registration Statement.
      In the
      event that a Rule 462(b) Registration Statement is filed in connection with
      the offering contemplated by this Agreement, such Rule 462(b) Registration
      Statement shall have been filed with the Commission on the date of this
      Agreement and shall have become effective automatically upon such
      filing.

     

    (k) Additional
      Documents.
      On or before the Closing Date, the Placement Agents and counsel for the
      Placement Agents shall have received such information, documents and opinions
      as
      they may reasonably request for the purposes of enabling them to pass upon
      the
      issuance and sale of the Offered Shares as contemplated herein, or in order
      to
      evidence the accuracy of any of the representations and warranties, or the
      satisfaction of any of the conditions or agreements, herein contained; and
      all
      proceedings taken by the Company in connection with the issuance and sale of
      the
      Offered Shares as contemplated herein and in connection with the other
      transactions contemplated by this Agreement shall be satisfactory in form and
      substance to the Represenative and counsel for the Placement
      Agents.

     

    If
      any condition specified in this Section 7 is not satisfied when and as required
      to be satisfied, this Agreement may be terminated by the Representative by
      notice to the Company at any time on or prior to the Closing Date, which
      termination shall be without liability on the part of any party to any other
      party, except that Section 5, Section 7 and Section 9 shall at all
      times be effective and shall survive such termination.

     

    Section
      8.   Reimbursement
      of Placement Agents’ Expenses.
      If this Agreement is terminated by the Representative pursuant to Section 7
      or Section 11, or if the sale of the Offered Shares on the Closing Date is
      not
      consummated because of any refusal, inability or failure on the part of the
      Company to perform any agreement herein or to comply with any provision hereof,
      the Company agrees to reimburse the Placement Agents upon demand for all
      reasonable out-of-pocket expenses that shall have been reasonably incurred
      by
      the Placement Agents in connection with the proposed purchase and the offering
      and sale of the Offered Shares, including but not limited to fees and
      disbursements of counsel, printing expenses, travel expenses, postage, facsimile
      and telephone charges. 

     

    Section
      9.   Indemnification.

     

    (a)  Indemnification
      of the Placement
      Agents.
      The Company agrees to indemnify and hold harmless the Placement Agents, its
      officers and employees, affiliates, members and agents (including without
      limitation Lazard
      Frères & Co. LLC (which will provide service to LCM) and its affiliates, and
      each of its directors, officers, members, employees, representatives and agents
      and each person, if any, who controls Lazard Frères & Co. LLC within the
      meaning of the Securities Act or the Exchange Act),
      and each person, if any, who controls the Placement Agents within the meaning
      of
      the Securities Act or the Exchange Act (collectively the “Placement
      Agent Indemnified Parties,”
      and each a “Placement
      Agent Indemnified Party”)
      against any loss, claim, damage, liability or expense, as incurred, to which
      such Placement Agent Indemnified
      Party may become subject, under the Securities Act, the Exchange Act, other
      federal or state statutory law or regulation or
      at common law or otherwise (including in settlement of any litigation, if such
      settlement is effected in accordance with this Agreement), insofar as such
      loss,
      claim, damage, liability or expense (or actions in respect thereof as
      contemplated below) arises out of or is based upon
      (i) any
      untrue statement or alleged untrue statement of a material fact contained in
      the
      Registration Statement, or any amendment thereto, including any information
      deemed to be a part thereof pursuant to Rule 430A under the Securities Act,
      or the omission or alleged omission therefrom of a material fact required to
      be
      stated therein or necessary to make the statements therein not misleading;
      or
      (ii) any untrue statement or alleged untrue statement of a material fact
      contained in any preliminary prospectus, the
      Time
      of Sale Prospectus, any free writing prospectus that the Company has used,
      referred to or filed, or is required to file, pursuant to Rule 433(d) of the
      Securities Act
      or the Prospectus (or any amendment or supplement thereto),
      or the omission or alleged omission therefrom of a material fact necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading; or (iii) any act or failure to act or
      any
      alleged act or failure to act by the Placement Agent Indemnified Parties in
      connection with, or relating in any manner to, the Shares or the offering
      contemplated hereby, and which is included as part of or referred to in any
      loss, claim, damage, liability or action arising out of or based upon any matter
      covered by clause (i) or (ii) above, provided that the Company shall not be
      liable under this clause (iii) to the extent that a court of competent
      jurisdiction shall have determined by a final judgment that such loss, claim,
      damage, liability or action resulted directly from any such acts or failures
      to
      act undertaken or omitted to be taken by the Placement Agents through its bad
      faith or willful misconduct;
      and to reimburse the Placement Agent Indemnified Parties for any and all
      reasonable expenses (including the fees and disbursements of counsel chosen
      by
      the Placement Agents) as such expenses are incurred by the Placement Agents
      or
      such officer, employee or controlling person in connection with investigating,
      defending, settling, compromising or paying any such loss, claim, damage,
      liability, expense or action; provided, however, that the foregoing indemnity
      agreement shall not apply to any loss, claim, damage, liability or expense
      to
      the extent, but only to the extent, arising out of or based upon any untrue
      statement or alleged untrue statement or omission or alleged omission made
      in
      reliance upon and in conformity with written information furnished to the
      Company by the Placement Agents expressly for use in the Registration Statement,
      any preliminary prospectus, the Time of Sale Prospectus, any such free writing
      prospectus or the Prospectus (or any amendment or supplement thereto), it being
      understood and agreed that the only such information furnished by the Placement
      Agents to the Company consists of the information described in subsection (b)
      below; provided,
      further, that with respect to the preliminary prospectus only and not any free
      writing prospectus or any other writing or instrument, the foregoing indemnity
      agreement shall not inure to the benefit of the Placement Agent Indemnified
      Parties from whom the person asserting any loss, claim, damage, liability or
      expense purchased Offered Shares, if a copy of the Time of Sale Prospectus
      or
      the Prospectus (in each case, as then amended or supplemented if the Company
      shall have furnished any amendments or supplements thereto) was not sent or
      given by or on behalf of the Placement Agents to such person, if required by
      law
      so to have been delivered, at or prior to the written confirmation of the sale
      of the Offered Shares to such person, and if the Time of Sale Prospectus or
      the
      Prospectus (in each case, as so amended or supplemented), as applicable, would
      have cured the defect giving rise to such loss, claim, damage, liability or
      expense, unless such failure is the result of noncompliance by the Company
      with
      Section 4(a) hereof.
      The indemnity agreement set forth in this Section 9(a) shall be in addition
      to any liabilities that the Company may otherwise have. 

     

    
      
        
        

      

      
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    (b)  Indemnification
      of the Company, its Directors and Officers.
      The Placement Agents agree to indemnify and hold harmless the Company, each
      of
      its directors, each of its officers who signed the Registration Statement and
      each person, if any, who controls the Company within the meaning of the
      Securities Act or the Exchange Act, against any loss, claim, damage, liability
      or expense, as incurred, to which the Company, or any such director, officer
      or
      controlling person may become subject, under the Securities Act, the Exchange
      Act, or other federal or state statutory law or regulation, or at common law
      or
      otherwise (including in settlement of any litigation,
      if such settlement is effected with the written consent of the Placement
      Agents), insofar as such loss, claim, damage, liability or expense (or actions
      in respect thereof as contemplated below) arises out of or is based upon any
      untrue statement or alleged untrue statement of a material fact contained in
      the
      Registration Statement, any preliminary prospectus the
      Time
      of Sale Prospectus, any free writing prospectus that the Company has used,
      referred to or filed, or is required to file, pursuant to Rule 433(d) of the
      Securities Act
      or the Prospectus (or such amendment or supplement thereto), or arises out
      of or
      is based upon the omission or alleged omission to state therein a material
      fact
      required to be stated therein or necessary to make the statements therein not
      misleading, in each case to the extent, but only to the extent, that such untrue
      statement or alleged untrue statement or omission or alleged omission was made
      in the Registration Statement, such preliminary prospectus, the
      Time
      of Sale Prospectus, such free writing prospectus that the Company has used,
      referred to or filed, or is required to file, pursuant to Rule 433(d) of the
      Securities Act,
      the Prospectus (or such amendment or supplement thereto), in reliance upon
      and
      in conformity with written information furnished to the Company by the Placement
      Agents expressly for use therein; and to reimburse the Company, or any such
      director, officer or controlling person for any and all reasonable expenses
      (including
      the fees and disbursements of counsel chosen by the Company, or any such
      director, officer or controlling person, as applicable) as such expenses are
      incurred
      by the Company, or any such director, officer or controlling person in
      connection with investigating, defending, settling, compromising or paying
      any
      such loss, claim, damage, liability, expense or action. The Company hereby
      acknowledges that the only information that the Placement Agents has furnished
      to the Company expressly for use in the Registration Statement, any preliminary
      prospectus, the
      Time
      of Sale Prospectus, any free writing prospectus that the Company has filed,
      or
      is required to file, pursuant to Rule 433(d) of the Securities Act
      or the Prospectus (or any amendment or supplement thereto) are the statements
      set forth in
      the last paragraph on the cover page of the Prospectus concerning the terms
      of
      the offering by the Placement Agents and the statements concerning the Placement
      Agents contained in the first paragraph under the caption “Plan of
      Distribution”. The indemnity agreement set forth in this Section 9(b) shall
      be in addition to any liabilities that the Placement Agents may otherwise
      have.

     

    
      
        
        

      

      
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    (c)  Notifications
      and Other Indemnification Procedures.
      Promptly after receipt by an indemnified party under this Section 9 of
      notice of the commencement of any action, such indemnified party will, if a
      claim in respect thereof is to be made against an indemnifying party under
      this
      Section 9, notify the indemnifying party in writing of the commencement
      thereof, but the omission so to notify the indemnifying party will not relieve
      it from any liability which it may have to any indemnified party for
      contribution or otherwise than under the indemnity agreement contained in this
      Section 9 or to the extent it is not materially prejudiced as a proximate
      result of such failure. In case any such action is brought against any
      indemnified party and such indemnified party seeks or intends to seek indemnity
      from an indemnifying party, the indemnifying party will be entitled to
      participate in, and, to the extent that it shall elect, jointly with all other
      indemnifying parties similarly notified, by written notice delivered to the
      indemnified party promptly after receiving the aforesaid notice from such
      indemnified party, to assume the defense thereof with counsel reasonably
      satisfactory to such indemnified party; provided, however, if the defendants
      in
      any such action include both the indemnified party and the indemnifying party
      and the indemnified party shall have reasonably concluded that a conflict may
      arise between the positions of the indemnifying party and the indemnified party
      in conducting the defense of any such action or that there may be legal defenses
      available to it and/or other indemnified parties which are different from or
      additional to those available to the indemnifying party, the indemnified party
      or parties shall have the right to select separate counsel to assume such legal
      defenses and to otherwise participate in the defense of such action on behalf
      of
      such indemnified party or parties. Upon receipt of notice from the indemnifying
      party to such indemnified party of such indemnifying party’s election so to
      assume the defense of such action and approval by the indemnified party of
      counsel, the indemnifying party will not be liable to such indemnified party
      under this Section 9 for any legal or other expenses subsequently incurred
      by such indemnified party in connection with the defense thereof unless
      (i) the indemnified party shall have employed separate counsel in
      accordance with the proviso to the preceding sentence (it being understood,
      however, that the indemnifying party shall not be liable for the fees and
      expenses of more than one separate counsel (together with local counsel),
      representing the indemnified parties who are parties to such action)
      , which
      counsel (together with any local counsel) for the indemnified parties shall
      be
      selected by the Placement Agents (in the case of counsel for the indemnified
      parties referred to in Section 9(a) above) or by the Company (in the case
      of counsel for the indemnified parties referred to in Section 9(b)
      above))
      or (ii) the indemnifying party shall not have employed counsel satisfactory
      to the indemnified party to represent the indemnified party within a reasonable
      time after notice of commencement of the action, in each of which cases the
      fees
      and expenses of counsel shall be at the expense of the indemnifying party and
      shall be paid as they are incurred.

     

    
      
        
        

      

      
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    (d)  Settlements.
      The indemnifying party under this Section 9 shall not be liable for any
      settlement of any proceeding effected without its written consent, but if
      settled with such consent or if there be a final judgment for the plaintiff,
      the
      indemnifying party agrees to indemnify the indemnified party against any loss,
      claim, damage, liability or expense by reason of such settlement or judgment.
      Notwithstanding the foregoing sentence, if at any time an indemnified party
      shall have requested an indemnifying party to reimburse the indemnified party
      for fees and expenses of counsel as contemplated by Section 9(c) hereof,
      the indemnifying party agrees that it shall be liable for any settlement of
      any
      proceeding effected without its written consent if (i) such settlement is
      entered into more than 30 days after receipt by such indemnifying party of
      the aforesaid request and (ii) such indemnifying party shall not have
      reimbursed the indemnified party in accordance with such request prior to the
      date of such settlement. No indemnifying party shall, without the prior written
      consent of the indemnified party, effect any settlement, compromise or consent
      to the entry of judgment in any pending or threatened action, suit or proceeding
      in respect of which any indemnified party is or could have been a party and
      indemnity was or could have been sought hereunder by such indemnified party,
      unless such settlement, compromise or consent (i) includes an unconditional
      release of such indemnified party from all liability on claims that are the
      subject matter of such action, suit or proceeding and (ii) does not include
      a
      statement as to or an admission of fault, culpability or any failure to act,
      by
      or on behalf of the indemnified party. 

     

    Section
      10.   Contribution.
      If
      the indemnification provided for in Section 9 is for any reason held to be
      unavailable to or otherwise insufficient to hold harmless an indemnified party
      in respect of any losses, claims, damages, liabilities or expenses referred
      to
      therein, then each indemnifying party shall contribute to the aggregate amount
      paid or payable by such indemnified party, as incurred, as a result of any
      losses, claims, damages, liabilities or expenses referred to therein (i) in
      such proportion as is appropriate to reflect the relative benefits received
      by
      the Company, on the one hand, and the Placement Agents, on the other hand,
      from
      the offering of the Offered Shares pursuant to this Agreement or (ii) if
      the allocation provided by clause (i) above is not permitted by applicable
      law, in such proportion as is appropriate to reflect not only the relative
      benefits referred to in clause (i) above but also the relative fault of the
      Company, on the one hand, and the Placement Agents, on the other hand, in
      connection with the statements or omissions which resulted in such losses,
      claims, damages, liabilities or expenses, as well as any other relevant
      equitable considerations. The relative benefits received by the Company, on
      the
      one hand, and the Placement Agents, on the other hand, in connection with the
      offering of the Offered Shares pursuant to this Agreement shall be deemed to
      be
      in the same respective proportions as the total net proceeds from the offering
      of the Offered Shares pursuant to this Agreement (after deducting the aggregate
      placement agents’ fees but before deducting expenses) received by the Company,
      and the aggregate placement agents’ fees received by the Placement Agents, in
      each case as set forth on the front cover page of the Prospectus bear to the
      aggregate public offering price of the Offered Shares as set forth on such
      cover. The relative fault of the Company, on the one hand, and the Placement
      Agents, on the other hand, shall be determined by reference to, among other
      things, whether any such untrue or alleged untrue statement of a material fact
      or omission or alleged omission to state a material fact relates to information
      supplied by the Company, on the one hand, or the Placement Agents, on the other
      hand, and the parties’ relative intent, knowledge, access to information and
      opportunity to correct or prevent such statement or omission.

     

    
      
        
        

      

      
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    The
      amount paid or payable by a party as a result of the losses, claims, damages,
      liabilities and expenses referred to above shall be deemed to include, subject
      to the limitations set forth in Section 9(c), any legal or other fees or
      expenses reasonably incurred by such party in connection with investigating
      or
      defending any action or claim. The provisions set forth in Section 9(c)
      with respect to notice of commencement of any action shall apply if a claim
      for
      contribution is to be made under this Section 10; provided,
      however,
      that no additional notice shall be required with respect to any action for
      which
      notice has been given under Section 9(c) for purposes of
      indemnification.

     

    The
      Company and the Placement Agents agree that it would not be just and equitable
      if contribution pursuant to this Section 10 were determined by pro rata
      allocation (even if the Placement Agents were treated as one entity for such
      purpose) or by any other method of allocation which does not take account of
      the
      equitable considerations referred to in this Section 10.

     

    Notwithstanding
      the provisions of this Section 10, the Placement Agents shall not be
      required to contribute any amount in excess of the aggregate placement agents’
fees received by the Placement Agents in connection with the Offered Shares.
      No
      person guilty of fraudulent misrepresentation (within the meaning of
      Section 12(f) of the Securities Act) shall be entitled to contribution from
      any person who was not guilty of such fraudulent misrepresentation. For purposes
      of this Section 10, each Placement Agent Indemnified Party shall have the
      same rights to contribution as the Placement Agents, and each director of the
      Company, each officer of the Company who signed the Registration Statement,
      and
      each person, if any, who controls the Company with the meaning of the Securities
      Act and the Exchange Act shall have the same rights to contribution as the
      Company.

     

    Section
      11.   Termination
      of this Agreement.
      Prior to the purchase of the Offered Shares by the Purchasers on the Closing
      Date this Agreement may be terminated by the Representative by notice given
      to
      the Company if at any time (i) trading or quotation in any of the Company’s
      securities shall have been suspended or limited by the Commission or by the
      Nasdaq Global Market,
      or trading in securities generally on either the Nasdaq Stock Market or the
      New
      York Stock Exchange shall have been suspended or limited, or minimum or maximum
      prices shall have been generally established on any of such stock exchanges
      by
      the Commission or the NASD; (ii) a general banking moratorium shall have
      been declared by any of federal or New York; (iii) there shall have
      occurred any outbreak or escalation of national or international hostilities
      or
      any crisis or calamity, or any change in the United States or international
      financial markets, or any substantial change or development involving a
      prospective substantial change in United States’ or international political,
      financial or economic conditions, as in the judgment of the Representative
      is
      material and adverse and makes it impracticable to market the Offered Shares
      in
      the manner and on the terms described in the Time of Sale Prospectus or to
      enforce contracts for the sale of securities; (iv) in the judgment of the
      Representative there shall have occurred any Material Adverse Change; or (v)
      the
      Company shall have sustained a loss by strike, fire, flood, earthquake, accident
      or other calamity of such character as in the judgment of the Representative
      may
      interfere materially with the conduct of the business and operations of the
      Company regardless of whether or not such loss shall have been insured. Any
      termination pursuant to this Section 11 shall be without liability on the
      part of (a) the Company to any Placement Agent, except that the Company
      shall be obligated to reimburse the expenses of the Placement Agents pursuant
      to
      Sections 5 and 8 hereof, (b)  any Placement Agent to the Company,
      or (c) of any party hereto to any other party except that the provisions of
      Section 9 and Section 10 shall at all times be effective and shall
      survive such termination.

     

    
      
        
        

      

      
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    Section
      12.   No
      Advisory or Fiduciary Relationship. The
      Company acknowledges and agrees that (a) the purchase and sale of the Offered
      Shares by the Purchasers, including the determination of the public offering
      price of the Offered Shares and any related discounts and commissions, is an
      arm’s-length commercial transaction between the Company, on the one hand, and
      the Placement Agents, on the other hand, (b) in connection with the offering
      contemplated hereby and the process leading to such transaction each Placement
      Agents
      and Lazard Frères & Co. LLC
      is and
      has been acting solely as a principal and is not the agent or fiduciary of
      the
      Company, or its stockholders, creditors, employees or any other party, (c)
      no
      Placement Agent
      or Lazard Frères & Co. LLC
      has
      assumed or will assume an advisory or fiduciary responsibility in favor of
      the
      Company with respect to the offering contemplated hereby or the process leading
      thereto (irrespective of whether such Placement Agent or
      Lazard Frères & Co. LLC
      has
      advised or is currently advising the Company on other matters) and no Placement
      Agent or
      Lazard Frères & Co. LLC
      has any
      obligation to the Company with respect to the offering contemplated hereby
      except the obligations expressly set forth in this Agreement, (d) the Placement
      Agents
      and Lazard Frères & Co. LLC
      and each
      of their respective affiliates may be engaged in a broad range of transactions
      that involve interests that differ from those of the Company, and (e) the
      Placement Agents
      and Lazard Frères & Co. LLC
      have not
      provided any legal, accounting, regulatory or tax advice with respect to the
      offering contemplated hereby and the Company has consulted its own legal,
      accounting, regulatory and tax advisors to the extent it deemed
      appropriate. 

     

    Section
      13.   Representations
      and Indemnities to Survive Delivery.
      The respective indemnities, agreements, representations, warranties and other
      statements of the Company, of its officers and of the Placement Agents set
      forth
      in or made pursuant to this Agreement will remain in full force and effect,
      regardless of any investigation made by or on behalf of the Placement Agents
      or
      the Company or any of its or their partners, officers or directors or any
      controlling person, as the case may be, and, anything herein to the contrary
      notwithstanding, will survive delivery of and payment for the Offered Shares
      sold hereunder and any termination of this Agreement.

     

    
      
        
        

      

      
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    Section
      14.   Notices.
      All communications hereunder shall be in writing and shall be mailed, hand
      delivered or telecopied and confirmed to the parties hereto as
      follows:

     

    If
      to the Placement Agents:

    

    c/o
      Jefferies & Company, Inc.

    520
      Madison Avenue

    New
      York, New York 10022

    Facsimile:
      (212) 284-2280 

    Attention:
      General Counsel

    

    with
      a copy to:

    

    Jefferies
      & Company, Inc.

    520
      Madison Avenue

    New
      York, New York 10022

    Facsimile:
      (212) 284-2280 

    Attention:
      General Counsel

     

    and

     

    Goodwin
      Procter LLP

    Exchange
      Place

    Boston,
      Massachusetts 02109

    Facsimile:
      (617) 523-1231

    Attention:
      Mitchell S. Bloom, Esq.

    

    If
      to the Company:

    

    Discovery
      Laboratories, Inc.

    2600
      Kelly Road, Suite 100

    Warrington,
      Pennsylvania 18976

    Facsimile:
      215-488-9301 

    Attention:
      John G. Cooper 

     

    and

     

    Dickstein
      Shapiro LLP

    1177
      Avenue of the Americas, 47th Floor

    New
      York, New York 10036-2714

    Facsimile:
      212-299-8686

    Attention:
      Ira L. Kotel, Esq.

    

    Any
      party hereto may change the address for receipt of communications by giving
      written notice to the others.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Section
      15.   Successors;
      Persons Entitled to Benefit of Agreement.
      This Agreement will inure to the benefit of and be binding upon the parties
      hereto, Lazard
      Frères & Co. LLC
      and to the benefit of the employees, officers and directors and controlling
      persons referred to in Section 9 and Section 10, and in each case
      their respective successors, and no other person will have any right or
      obligation hereunder. This Agreement shall also inure to the benefit of the
      Purchasers, and each of their respective successors and assigns, which shall
      be
      third party beneficiaries hereof. 

     

    Section
      16.   Partial
      Unenforceability.
      The invalidity or unenforceability of any Section, paragraph or provision of
      this Agreement shall not affect the validity or enforceability of any other
      Section, paragraph or provision hereof. If any Section, paragraph or provision
      of this Agreement is for any reason determined to be invalid or unenforceable,
      there shall be deemed to be made such minor changes (and only such minor
      changes) as are necessary to make it valid and enforceable.

     

    Section
      17.   Governing
      Law Provisions.
      This Agreement shall be governed by and construed in accordance with the
      internal laws of the State of New York applicable to agreements made and to
      be
      performed in such state. Any legal suit, action or proceeding arising out of
      or
      based upon this Agreement or the transactions contemplated hereby may be
      instituted in the federal courts of the United States of America located in
      the
      Borough of Manhattan in the City of New York or the courts of the State of
      New
      York in each case located in the Borough of Manhattan in the City of New York
      (collectively, the “Specified
      Courts”),
      and each party irrevocably submits to the exclusive jurisdiction (except for
      proceedings instituted in regard to the enforcement of a judgment of any such
      court, as to which such jurisdiction is non-exclusive) of such courts in any
      such suit, action or proceeding. Service of any process, summons, notice or
      document by mail to such party’s address set forth above shall be effective
      service of process for any suit, action or other proceeding brought in any
      such
      court. The parties irrevocably and unconditionally waive any objection to the
      laying of venue of any suit, action or other proceeding in the Specified Courts
      and irrevocably and unconditionally waive and agree not to plead or claim in
      any
      such court that any such suit, action or other proceeding brought in any such
      court has been brought in an inconvenient forum. 

     

    Section
      18.   General
      Provisions.
      This Agreement constitutes the entire agreement of the parties to this Agreement
      and supersedes all prior written or oral and all contemporaneous oral
      agreements, understandings and negotiations with respect to the subject matter
      hereof. This Agreement may be executed in two or more counterparts, each one
      of
      which shall be an original, with the same effect as if the signatures thereto
      and hereto were upon the same instrument. This Agreement may not be amended
      or
      modified unless in writing by all of the parties hereto, and no condition herein
      (express or implied) may be waived unless waived in writing by each party whom
      the condition is meant to benefit. The Table of Contents and the Section
      headings herein are for the convenience of the parties only and shall not affect
      the construction or interpretation of this Agreement.

     

    Each
      of the parties hereto acknowledges that it is a sophisticated business person
      who was adequately represented by counsel during negotiations regarding the
      provisions hereof, including, without limitation, the indemnification provisions
      of Section 9 and the contribution provisions of Section 10, and is
      fully informed regarding said provisions. Each of the parties hereto further
      acknowledges that the provisions of Sections 9 and 10 hereto fairly
      allocate the risks in light of the ability of the parties to investigate the
      Company, its affairs and its business in order to assure that adequate
      disclosure has been made in the Registration Statement, any preliminary
      prospectus, the Time of Sale Prospectus, each free writing prospectus and the
      Prospectus (and any amendments and supplements thereto), as required by the
      Securities Act and the Exchange Act. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    If
      the foregoing is in accordance with your understanding of our agreement, kindly
      sign and return to the Company the enclosed copies hereof, whereupon this
      instrument, along with all counterparts hereof, shall become a binding agreement
      in accordance with its terms.

     

    
      	 	 	 
	 	
              Very
                truly yours,

              DISCOVERY
                LABORATORIES, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/John G. Cooper
	 	
              
Name:
              John G. Cooper
	 	Title:
              Executive Vice President and
Chief Financial
              Officer 

    

    

    The
      foregoing Placement Agency Agreement is hereby confirmed and accepted by the
      Placement Agents in New York, New York as of the date first above
      written.

     

    
      	JEFFERIES
              & COMPANY, INC.	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/Raymond J. Minella 	 	 	 
	 	
              
                

              

              Name: Raymond J. Minella

              Title: Managing Director

            	 	 	
            

    

    
       

      
        	LAZARD
                CAPITAL MARKETS LLC	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/Robert Lagay 	 	 	 
	 	
                
                  

                

                Name: Robert Lagay

                Title: General Counsel

              	 	 	
              

      

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

    

      

    SCHEDULE
      A

     

     

    Schedule
      of Free Writing Prospectuses included in the Time of Sale
      Prospectus

     

    
                                                            Filed Pursuant to Rule 433
                              Issuer Free Writing Prospectus dated April 2, 2007
                                   Relating to Prospectus dated October 11, 2005
                                                     Registration No. 333-128929

                                14,050,000 Shares

                          Discovery Laboratories, Inc.

                                  Common Stock

                         ISSUER FREE WRITING PROSPECTUS

Issuer:                         Discovery Laboratories, Inc.

Ticker / Exchange:              DSCO / Nasdaq Global Market

Offering size:                  14,050,000 shares

Public offering price:          $2.15

Net proceeds to Issuer:         We expect the net proceeds from this offering of
                                common stock to be approximately $28.2 million
                                after deducting the estimated placement agents'
                                fees and estimated offering expenses.

Use of Proceeds:                We expect the net proceeds from this offering of
                                common stock to be approximately $28.2 million
                                after deducting the estimated placement agents'
                                fees and estimated offering expenses. Except as
                                described in any prospectus supplement or post
                                effective amendment, we currently anticipate
                                using the net proceeds from the sale of our
                                common stock primarily for:

                                o     Activities to prepare for the
                                      anticipated U.S. commercial launch of
                                      Surfaxin for respiratory distress
                                      syndrome ("RDS") in premature
                                      infants, such as investments in
                                      medical affairs capabilities,
                                      pharmacovigilance, commercialization
                                      and expanded analytical capabilities
                                      through construction of additional
                                      laboratory space;

                                o     Clinical trial costs associated with
                                      filing an Investigational New Drug
                                      application and conducting Phase 2
                                      clinical trials for Aerosurf(TM)
                                      (our precision-engineered aerosolized SRT
                                      administered via nasal continuous positive
                                      airway pressure ("nCPAP") for the
                                      prevention of RDS in premature infants).

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
                                            These costs include costs related to
                                      animal model studies, drug supply,
                                      manufacturing aerosol generator devices
                                      and disposable dose packs, purchasing
                                      nCPAP systems, patient enrollment, site
                                      initiation and the use of consultants and
                                      third-party vendors for data management
                                      and biostatistics;

                                o     Clinical trial costs associated with
                                      conducting a Phase 2 clinical trial for a
                                      potential expanded use of Surfaxin to
                                      address an acute respiratory disorder in
                                      patients in the pediatric intensive care
                                      unit; and

                                o     Investments to support our long-term
                                      manufacturing strategy, including
                                      activities to enhance our manufacturing
                                      facility, optimize quality and analytical
                                      operations, and develop capabilities to
                                      support the manufacture of lyophilized
                                      (dry powder) formulations of our
                                      Surfactant Replacement Therapies ("SRT").

                                The amounts and timing of the expenditures may
                                vary significantly depending on numerous
                                factors, such as the progress of our research
                                and development efforts, technological advances
                                and the competitive environment for Surfaxin and
                                our other SRT drug candidates and their intended
                                uses. Pending the application of the net
                                proceeds, we are investing the proceeds in
                                short-term, interest-bearing instruments or
                                other investment-grade securities.

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      Trade date:                     April 2, 2007

Settlement date:                April 5, 2007

Lead Placement Agent:           Jefferies & Company, Inc.

Co-Placement Agent:             Lazard Capital Markets, LLC

THE ISSUER HAS FILED A REGISTRATION STATEMENT (INCLUDING A PROSPECTUS) WITH THE
SEC FOR THE OFFERING TO WHICH THIS COMMUNICATION RELATES. BEFORE YOU INVEST, YOU
SHOULD READ THE PROSPECTUS IN THAT REGISTRATION STATEMENT AND OTHER DOCUMENTS
THE ISSUER HAS FILED WITH THE SEC FOR MORE COMPLETE INFORMATION ABOUT THE ISSUER
AND THIS OFFERING. YOU MAY GET THESE DOCUMENTS FOR FREE BY VISITING EDGAR ON THE
SEC WEB SITE AT WWW.SEC.GOV. ALTERNATIVELY, THE ISSUER, ANY PLACEMENT AGENT OR
ANY DEALER PARTICIPATING IN THE OFFERING WILL ARRANGE TO SEND YOU THE PROSPECTUS
IF YOU REQUEST IT BY CALLING TOLL-FREE 1-800-538-8524.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

     

    Opinion
      of corporate counsel for the Company to be delivered pursuant to
      Section 7(d)(i) of the Placement Agency Agreement.

     

    i. The
      Company validly exists under the laws of the State of Delaware, with corporate
      power and authority to own, lease and operate its properties and to conduct
      its
      business as described or incorporated by reference in the Prospectus Supplement
      and to enter into and perform its obligations under the Placement Agency
      Agreement and the Subscription Agreement.

     

    ii. The
      Company is in good standing under the laws of the State of Delaware and is
      qualified to do business and is in good standing as a foreign corporation in
      the
      State of California and the Commonwealth of Pennsylvania.

     

    iii. The
      authorized, issued and outstanding capital stock of the Company (including
      the
      Shares) conforms to the descriptions thereof set forth or incorporated by
      reference in the Prospectus Supplement.

     

    iv. No
      stockholder of the Company or any other person has any preemptive right, right
      of first refusal or other similar right to subscribe for or purchase securities
      of the Company (i) arising by operation of the Restated Certificate of
      Incorporation, as amended, or by-laws of the Company or the General Corporation
      Law of the State of Delaware or (ii) to our knowledge, otherwise.

     

    v. The
      Placement Agency Agreement and the Subscription Agreements have been duly
      authorized, executed and delivered by the Company.

     

    vi. The
      Shares to be purchased by the Purchasers from the Company have been duly
      authorized for issuance and sale pursuant to the Subscription Agreements and,
      when issued and delivered by the Company pursuant to the Subscription Agreements
      against payment of the consideration set forth therein, will be validly issued,
      fully paid and nonassessable.

     

    vii. The
      Registration Statement has been declared effective by the Commission under
      the
      Securities Act. To our knowledge, no stop order suspending the effectiveness
      of
      either of the Registration Statement or the Rule 462(b) Registration Statement,
      if any, has been issued under the Securities Act and no proceedings for such
      purpose have been instituted or are pending or are contemplated or threatened
      by
      the Commission. Any required filing of the Prospectus and any supplement thereto
      pursuant to Rule 424(b) under the Securities Act has been made in the manner
      and
      within the time period required by such Rule 424(b).

     

    viii. The
      statements (i) in the Time of Sale Prospectus under the captions “Risk
      Factors--Provisions of our Restated Certificate of Incorporation, Shareholders
      Rights Agreement and Delaware law could defer a change of our management which
      could discourage or delay offers to acquire us,” “Preferred Stock” and “Common
      Stock,” and (ii) in the Registration Statement in Item 15, in each case insofar
      as such statements purport to describe matters of law or certain provisions
      of
      documents, instruments, agreements, statutes or regulations referred to therein,
      are accurate in all material respects.

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    ix. To
      our knowledge, there are no legal or governmental actions, suits or proceedings
      pending or threatened against the Company which are required to be disclosed
      in
      the Registration Statement, other than those disclosed therein.

     

    x. To
      our knowledge, there are no persons with registration or other similar rights
      to
      have any debt or equity securities registered for sale under the Registration
      Statement or included in the offering contemplated by the Placement Agency
      Agreement, except for such rights as have been duly waived.

     

    xi. The
      execution and delivery of the Placement Agency Agreement and the Subscription
      Agreements by the Company, and the performance by the Company of its obligations
      under such agreements (other than performance by the Company of its
      indemnification obligations, as to which no opinion is rendered) will not result
      in any(i) violation of the provisions of the Restated Certificate of
      Incorporation, as amended, or by-laws of the Company; (ii) conflict with or
      result in a breach of any of the terms and provisions of, or constitute a
      default (or an event which with notice or lapse of time, or both, would
      constitute a default) under, or result in the creation or imposition of any
      lien, charge or encumbrance upon any property or assets of the Company or any
      of
      its subsidiaries pursuant to, any of the agreements (the “Material Agreements”)
      that are exhibits contained in filings made by the Company pursuant to the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
      incorporated by reference in the Prospectus Supplement; or (iii) will not result
      in any violation of any federal or New York law or, to our knowledge any
      administrative regulation or administrative or court decree, applicable to
      the
      Company.

     

    xii. No
      consent, approval, authorization or other order of, or registration or filing
      with, any court or other governmental or regulatory authority or agency, is
      required for the consummation of the transactions contemplated by the
      Underwriting Agreement, except such as have been obtained or made by the Company
      and are in full force and effect under the Securities Act, applicable state
      securities or blue sky laws or The Nasdaq Global Market.

     

    xiii. To
      our knowledge, the Company is not in violation of its Restated Certificate
      of
      Incorporation, as amended, or in default under any of the Material Agreements,
      except for such violation or default as would not, individually or in the
      aggregate, result in a Material Adverse Change.

     

    xiv. The
      Company is not, and assuming the accuracy of the section entitled “Use of
      Proceeds” in the Prospectus Supplement, after receipt of payment for the Shares
      will not be, an “investment company” within the meaning of the Investment
      Company Act of 1940.

     

    xv. Each
      document filed pursuant to the Exchange Act (other than the financial statements
      and supporting schedules included therein, as to which no opinion need be
      rendered) and incorporated or deemed to be incorporated by reference in the
      Prospectus Supplement complied when so filed as to form in all material respects
      with the Exchange Act.

     

    In
      our role as special counsel to the Company in connection with the preparation
      by
      the Company of the Registration Statement, the Prospectus, the Time of Sale
      Prospectus and the Prospectus Supplement, we have participated in conferences
      with officers and representatives of the Company, and counsel for the Placement
      Agents, at which time the contents of the Registration Statement, the
      Prospectus, the Time of Sale Prospectus and the Prospectus Supplement, and
      related matters were discussed. The purpose of our professional engagement
      was
      not to establish or confirm factual matters set forth in the Registration
      Statement, the Prospectus, the Time of Sale Prospectus and/or the Prospectus
      Supplement. We have not undertaken any obligation to verify independently any
      of
      the factual matters set forth therein, including the documents incorporated
      by
      reference therein, and any supplements or amendments thereto; moreover, many
      of
      the determinations required to be made in the preparation of the Registration
      Statement, the Prospectus, the Time of Sale Prospectus and/or the Prospectus
      Supplement involve matters of a non-legal issue. On the basis of the facts
      that
      we gained in the course of the foregoing and subject to the qualifications
      and
      limitations set forth herein, we confirm to you that no facts came to our
      attention that have caused us to believe that either (a) the Registration
      Statement, at the time it became effective (including the information deemed
      to
      be part of the Registration Statement at the time of effectiveness pursuant
      to
      Rule 462, Rule 430B or Rule 434, if applicable), contained or incorporated
      by
      reference any untrue statement of a material fact or omitted to state any
      material fact necessary to make the statements therein not misleading, or (b)
      the Prospectus, as of its date (or any amendment thereof or supplement thereto
      made prior to the Closing Date as of the date of such amendment or supplement),
      the Time of Sale Prospectus, as of 6:00 p.m. on April 2, 2007 (or any amendment
      thereof or supplement thereto made prior to the Closing Date as of the date
      of
      such amendment thereof or supplement thereto), or the Prospectus Supplement,
      as
      of the date it was filed by the Company with the Commission and as of the date
      and time of delivery of this letter, contained or incorporated by reference
      any
      untrue statement of a material fact or omitted to state any material fact
      necessary to make the statements therein not misleading in light of the
      circumstances under which they were made.

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

     

    Opinion
      of intellectual property counsel for the Company to be delivered pursuant to
      Section 7(d)(ii) of the Placement Agency Agreement.

     

    1. Having
      reviewed the information in the 2006 Form 10-K relating to U.S. patent matters
      under “Licensing Arrangements; Patents and Proprietary Rights,” we believe that
      the information contains accurate summaries of the patents licensed, or under
      option to license, to the Company in all material respects and, to the extent
      that it constitutes matters of law, summaries of legal matters or legal
      proceedings, or legal conclusions, fairly presents in all material respects
      the
      information called for with respect to such legal matters, documents and
      proceedings and fairly summarizes in all material respects the matters referred
      to therein. We have also reviewed the information in the Prospectus and the
      2006
      Form 10-K relating to U.S. patent matters under “RISK FACTORS” or “Risks Related
      to Our Business,” as enumerated above, and to the extent that the information
      constitutes matters of law, summaries of legal matters or legal proceedings,
      or
      legal conclusions, we believe it fairly presents in all material respects the
      information called for with respect to such legal matters, documents and
      proceedings and fairly summarizes in all material respects the matters referred
      to therein.

     

    2. Having
      reviewed the claims of Company’s Licensed U.S. Patents, Optioned Applications
      and Owned Applications: (i) we believe that each of the Licensed U.S. Patents,
      Optioned Applications and Owned Applications claims patentable subject matter;
      (ii) to our knowledge, without any searches having been conducted or having
      been
      required to have been conducted and without having made any further
      investigation of any kind for the purpose of preparing these statements other
      than to confirm our belief with the Company, there are no legal or governmental
      proceedings pending (other than normal proceedings relating to the maintenance
      of the patents before appropriate government authorities) relating to the
      Licensed U.S. Patents, the Optioned Applications or the Owned Applications;
      and
      (iii) to our knowledge, no such material proceedings are threatened or
      contemplated by governmental authorities or others.

     

    3. Having
      reviewed the License Agreements, the Assignee Search Results and the
      Assignments, without having reviewed the Company’s employment agreements and
      without having made any further investigation of any kind for the purpose of
      preparing these statements other than to confirm our belief with the Company
      that inventors named on the Owned Applications are employees of the Company,
      we
      believe that (i) the inventions described in the Licensed U.S. Patents and
      Optioned Applications are properly licensed or under option to license to the
      company, or are assigned to or under obligation of assignment to the Company;
      and (ii) the Company’s licensors possess record title to the Licensed U.S.
      Patents or Optioned Applications, with the following notations. (1) U.S. Patent
      6,492,490 on its face names Ortho Pharmaceutical Corporation as assignee. The
      Assignee Search did not identify a recorded assignment for this patent, however
      the patent is stated on its face to be related as a divisional of U.S. Patent
      6,013,619, for which an assignment has been recorded, such that it is reasonable
      to infer inclusion of U.S. Patent 6,492,490 in that assignment. (2) An
      assignment for Optioned Application PCT US03/12731 was executed on October
      21,
      2004 and acknowledged by the PCT Receiving Office on October 22, 2004. (3)
      An
      assignment for Optioned Application PCT US04/040665 was sent for execution
      in
      January of 2005, and has not yet been executed. (4) An assignment for Owned
      Application No. US 11/130,783 has been executed and sent for recordation on
      December 14, 2005. (5) An assignment for Owned Application No. US 60/573,570
      is
      recorded with the U.S. Patent and Trademark Office at Reel 105811, Frames
      0558-0563. (6) Assignments for Owned Application Nos. 60/641,805, 11/209,588
      and
      11/274,701 have not yet been executed. (7) Assignments for Owned Application
      Nos. PCT/US2005/107184, US2005/029811 and US2005/041281 will be executed upon
      filing of National Phase patent applications. 

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

    4. We
      have
      no knowledge of any other facts that would preclude the Company from having
      valid and enforceable license rights or clear title to the Company's Licensed
      U.S. Patents, Optioned Applications and Owned Applications or any foreign
      counterparts thereof. In addition, based solely on our review of the licenses
      themselves and representations made by the Company, we believe that no interests
      have been conveyed to third parties, and that the Company’s licenses to the
      Licensed U.S. Patents and Optioned Applications and any foreign counterparts
      thereof are exclusive to the Company, and that all assignments of rights in
      connection with the Owned Applications, or all obligations to assign rights
      in
      the Owned Applications, are solely to the Company.

     

    5. We
      have
      no knowledge that the Company or the Company’s licensors have not complied with
      the duty of candor and disclosure requirements with the PTO and all other
      similar authorities around the world as appropriate, for each of the Licensed
      U.S. Patents, Optioned Applications and Owned Applications, and foreign
      counterparts thereof, and to the best of our knowledge, all pending Optioned
      Applications and Owned Applications are in good standing, and none has been
      finally rejected or abandoned.

     

    6. We
      are
      not aware of any basis for a finding of unenforceability or invalidity of any
      Licensed U.S. Patent, and to the best of our knowledge, without any searches
      having been conducted or having been required to have been conducted and without
      having made any further investigation of any kind for the purpose of preparing
      these statements other than to confirm our belief with the Company, neither
      the
      Company nor its licensors have received any notice of infringement of or
      conflict with rights or claims of others with respect to any Intellectual
      Property owned or used by the Company.

     

    7. We
      have
      no knowledge of any patent rights of others that are or would be infringed
      by
      specific products or processes referred to in the Prospectus, which
      infringement, singly or in the aggregate, if the subject of an unfavorable
      decision, ruling or finding, would result in any material adverse effect on
      the
      condition, financial or otherwise, or in the earnings, business or operations
      of
      the Company.

     

    8. Having
      reviewed the Patent Language contained in one or more of the Prospectus and
      2006
      Form 10-K as listed hereinabove, we have no reason to believe that the Patent
      Language, at the time it was filed with the SEC and as of the date hereof,
      contained or incorporated by reference any untrue statement of a material fact
      or omitted to state any material fact necessary to make the statements therein
      not misleading in light of the circumstances under which they were
      made.

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

     

    9. We
      have
      no knowledge that the Company lacks or will be unable to obtain any rights
      or
      licenses to use all Intellectual Property necessary for the conduct of its
      business as now proposed to be conducted by the Company as described in the
      Prospectus.

     

    10. We
      have
      no knowledge of any asserted or unasserted claims of any persons relating to
      the
      scope or ownership of the Licensed Patents, Optioned Applications or Owned
      Applications, nor do we have any knowledge of any liens having been filed
      against any of the Licensed Patents, Optioned Applications or Owned
      Applications.

     

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      C

    

    LIST
      OF PERSONS EXECUTING LOCK-UPS

     

    W.
      Thomas Amick

    Robert
      J. Capetola 

    John
      G. Cooper 

    Antonio
      Esteve

    Max
      E. Link 

    David
      L. Lopez, Esq. 

    Herbert
      H. McDade, Jr.

    Marvin
      E. Rosenthale 

    Kathyrn
      Cole

    Charles
      F. Katzer

    Kathleen
      McGowan

    Thomas
      F. Miller

    Robert
      Segal

    

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      D

    

    LOCK-UP
      AGREEMENT

    

     

    March
      __,
      2007

    

    Jefferies
      & Company, Inc.

    Lazard
      Capital Markets LLC

    c/o
      Jefferies & Company, Inc.

    520
      Madison Avenue

    New
      York,
      New York 10022

    

    RE: Discovery
      Laboratories Inc. (the “Company”)

    

    Ladies
      & Gentlemen:

    

    The
      undersigned is an owner of record or beneficially of certain shares of common
      stock, par value $.001 per share, of the Company (“Shares”)
      or
      securities convertible into or exchangeable or exercisable for Shares. The
      Company proposes to carry out a “registered direct” public offering of Shares
      (the “Offering”)
      for
      which Jefferies & Company, Inc. (the “Representative”)
      and
      Lazard Capital Markets LLC will act as placement agents (the “Placement
      Agents”).
      The
      undersigned recognizes that the Offering will be of benefit to the undersigned
      and will benefit the Company by, among other things, raising additional capital
      for its operations. The undersigned acknowledges that the Placement Agents
      are
      relying on the representations and agreements of the undersigned contained
      in
      this letter agreement in carrying out their obligations in connection with
      the
      Offering and in entering into a placement agency agreement with the Company
      with
      respect to the Offering.

    

    In
      consideration of the foregoing, the undersigned hereby agrees that the
      undersigned will not (and will cause any spouse or immediate family member
      of
      the spouse or the undersigned living in the undersigned’s household not to),
      without the prior written consent of the Representative (which consent may
      be
      withheld in its sole discretion), directly or indirectly, sell, offer, contract
      or grant any option to sell (including without limitation any short sale),
      pledge, transfer, establish an open “put equivalent position” within the meaning
      of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or
      otherwise dispose of any Shares, options or warrants to acquire Shares, or
      securities exchangeable or exercisable for or convertible into Shares currently
      or hereafter owned either of record or beneficially (as defined in Rule 13d-3
      under the Securities Exchange Act of 1934, as amended) by the undersigned (or
      such spouse or family member), or publicly announce an intention to do any
      of
      the foregoing, for a period commencing on the date hereof and continuing through
      the close of trading on the date 60 days after the date of the Prospectus (as
      defined in the Placement Agency Agreement relating to the Offering to which
      the
      Company is a party)(the “Lock-up
      Period”);
      provided, that if (i) during the last 17 days of the Lock-up Period, the Company
      issues an earnings release or material news or a material event relating to
      the
      Company occurs or (ii) prior to the expiration of the Lock-up Period, the
      Company announces that it will release earnings results during the 16-day period
      beginning on the last day of the Lock-up Period, then in each case the Lock-up
      Period will be extended until the expiration of the 18-day period beginning
      on
      the date of the issuance of the earnings release or the occurrence of the
      material news or material event, as applicable, unless the Representative
      waives, in writing, such extension, except that such extension will not apply
      if, within three days prior to the expiration of the Lock-up Period, the Company
      delivers a certificate, signed by the Chief Financial Officer or Chief Executive
      Officer of the Company, certifying on behalf of the Company that the Company’s
      Shares are “actively traded securities” (as defined in Regulation M); provided,
      further, that the foregoing restrictions shall not apply to (A) the transfer
      of
      any or all of the Shares owned by the undersigned, either during the
      undersigned’s lifetime or upon death, by gift, will or intestate succession to
      the immediate family of the undersigned or to a trust the beneficiaries of
      which
      are exclusively the undersigned and/or a member or members of his immediate
      family; provided, however, that in any such case, it shall be a condition to
      such transfer that the transferee executes and delivers to the Representative
      an
      agreement stating that the transferee is receiving and holding the Shares
      subject to the provisions of this letter agreement, and there shall be no
      further transfer of such Shares, except in accordance with this letter
      agreement, or (B) the sale of up to an aggregate of 200,000 Shares by the
      officers and directors of the Company that have entered into agreements similar
      to this one on the date hereof. The undersigned shall provide at least one
      business day’s advance written notice to the Company of any such proposed
      transacation in order to confirm compliance with the foregoing conditions and
      limitations. The undersigned hereby acknowledges and agrees that written notice
      of any extension of the Lock-up Period pursuant to the preceding sentence will
      be delivered by the Representative to the Company and that any such notice
      properly delivered will be deemed to have been given to, and received by, the
      undersigned. 

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

     

    The
      undersigned also agrees and consents to the entry of stop transfer instructions
      with the Company’s transfer agent and registrar against the transfer of Shares
      or securities convertible into or exchangeable or exercisable for Shares held
      by
      the undersigned during the Lock-up Period except in compliance with the
      foregoing restrictions.

    

    With
      respect to the Offering only, the undersigned waives any registration rights
      relating to registration under the Securities Act of any Shares owned either
      of
      record or beneficially by the undersigned, including any rights to receive
      notice of the Offering.

    

    This
      agreement is irrevocable and will be binding on the undersigned and the
      respective successors, heirs, personal representatives, and assigns of the
      undersigned.

     

    
      	 	 	 	 
	 	 	 	 
	
              
Printed
              Name of Holder	 	 	
            

    

    
       

      
        	 	 	 	 	 
	By:	 	 	 	 
	 	
                
Signature	 	 	
              

      

      
         

        
          	 	 	 	 
	 	 	 	 
	
                  
Printed
                  Name of Person Signing	 	 	
                

        

         

      

    

    (and
      indicate capacity of person signing if 

    signing
      as custodian, trustee, or on behalf 

    of
      an
      entity)

     

    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      E

    

      DISCOVERY
        LABORATORIES, INC.

      

      Chief
        Financial Officer’s Certificate

      Pursuant
        to Section 7(a) of the Placement Agency Agreement

      

      This
        Certificate is delivered to Jefferies & Company, Inc., in its capacity as
        the representative of the Placement Agents named in the Placement Agency
        Agreement, dated as of the date hereof (the “Placement Agency Agreement”), among
Discovery
        Laboratories, Inc.,
        a
        Delaware corporation (the “Company”), Jefferies & Company, Inc. and
Lazard
        Capital Markets LLC.
        I, John
        G. Cooper, Chief Financial Officer of the Company, hereby deliver this
        certificate on behalf of the Company in connection with the offering of the
        Offered Shares (the “Offering”). Capitalized terms used herein and not otherwise
        defined shall have the meanings ascribed to them in the Placement Agency
        Agreement.

      

      Based
        on
        an examination of the Company’s financial records and schedules undertaken by me
        or members of my staff who are responsible for the Company’s financial and
        accounting records, and on our review of the minutes of the Company’s Board of
        Directors and the Audit Committee, Compensation Committee and Nominating
        and
        Corporate Governance Committee of the Board of Directors, I hereby certify
        that
        I have reviewed the amounts identified and enumerated on the copies of certain
        pages of contained or incorporated by reference in the Registration Statement
        and the Time of Sale Prospectus attached hereto as Exhibit
        A
        and have
        verified that such amounts are true and correct. Each such amount has been
        derived from information maintained by the Company or otherwise available
        to
        it.

      

      Each
        of
        the Placement Agents is entitled to rely upon this Certificate in conducting
        and
        documenting its investigations of the affairs of the Company in connection
        with
        the Offering.

      

      [Remainder
        of Page Intentionally Left Blank.]

      

      
        
          
          

        

        
          E-1

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, I have hereunto signed my name on this 2nd day of April,
        2007.

       

      DISCOVERY
        LABORATORIES, INC.

      

      

      By:_______________________________

      Name:
        John G. Cooper

      Title:
        Chief Financial Officer

      

      
        
          
          

        

        
          E-2

          
            

          

        

        
          
          

        

      

      

      Exhibit
        A

       

      
        
          
          

        

        
          E-3

          
            

          

        

        
          
          

        

      

       

    

    EXHIBIT
      F

    

      DISCOVERY
        LABORATORIES, INC.

      

      Chief
        Financial Officer’s Certificate

      Pursuant
        to Section 7(g) of the Placement Agency Agreement

      

      This
        Certificate is delivered to Jefferies & Company, Inc., in its capacity as
        the representative of the Placement Agents named in the Placement Agency
        Agreement, dated as of April 2, 2007 (the “Placement Agency Agreement”), among
Discovery
        Laboratories, Inc.,
        a
        Delaware corporation (the “Company”), Jefferies & Company, Inc. and
Lazard
        Capital Markets LLC.
        I, John
        G. Cooper, Chief Financial Officer of the Company, hereby deliver this
        certificate on behalf of the Company in connection with the offering of the
        Offered Shares (the “Offering”). Capitalized terms used herein and not otherwise
        defined shall have the meanings ascribed to them in the Placement Agency
        Agreement.

      

      Reference
        is made to the certificate dated April 2, 2007 (the “April 2 Certificate”) with
        respect to the procedures carried out by myself or members of my staff who
        are
        responsible for the Company’s financial and accounting records with respect to
        certain information contained or incorporated by reference in the Registration
        Statement and the Prospectus. I have reviewed the amounts identified and
        enumerated on the copies of certain pages of contained or incorporated by
        reference in the Registration Statement and the Time of Sale Prospectus attached
        hereto as Exhibit
        A
        and have
        verified that such amounts are true and correct. Each such amount has been
        derived from information maintained by the Company or otherwise available
        to
        it.

      

      I
        hereby
        reaffirm as of the date hereof, and as though made on the date hereof, all
        statements made in the April 2 Certificate.

      

      Each
        of
        the Placement Agents is entitled to rely upon this Certificate in conducting
        and
        documenting its investigations of the affairs of the Company in connection
        with
        the Offering.

      

      [Remainder
        of Page Intentionally Left Blank.]

      

      

      
        
           

        

        
          F-1

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF, I have hereunto signed my name on this 5th day of April,
        2007.

       

      DISCOVERY
        LABORATORIES, INC.

      

      

      By:_______________________________

      Name:
        John G. Cooper

      Title:
        Chief Financial Officer

      

      

      
        
           

        

        
          F-2

          
            

          

        

        
           

        

      

      Exhibit
        A

     

    
      
        
        

      

      
        F-3

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      G

     

    SUBSCRIPTION
      AGREEMENT

    
       

      

       

      Discovery
        Laboratories, Inc.

      2600
        Kelly Road, Suite 100

      Warrington,
        Pennsylvania 18976-3622

      

      Gentlemen:

      

      The
        undersigned (the “Investor”)
        hereby
        confirms its agreement with you as follows: 

       

      1.  This
        Subscription Agreement (this “Agreement”)
        is
        made as of the date set forth below between Discovery
        Laboratories, Inc.,
        a
        Delaware corporation (the “Company”),
        and
        the Investor.

       

      2.  The
        Company has authorized the sale and issuance to certain investors of up to
        an
        aggregate of [________] shares (each a “Share,”
and
        collectively the “Shares”)
        of its
        common stock, par value $.001 per share (the “Common
        Stock”),
        subject to adjustment by the Company’s Board of Directors, or a committee
        thereof, for a purchase price of $[____] per Share (the “Purchase
        Price”).

       

      3.  The
        offering and sale of the Shares (the “Offering”)
        are
        being made pursuant to (1) an effective Registration Statement on Form S-3
        (including the Prospectus contained therein (the “Base
        Prospectus”),
        the
“Registration
        Statement”)
        filed
        by the Company with the Securities and Exchange Commission (the “Commission”),
        (2)
        if applicable, certain “free writing prospectuses” (as that term is defined in
        Rule 405 under the Securities Act of 1933, as amended), that have or will
        be
        filed with the Commission and delivered to the Investor on or prior to the
        date
        hereof and (3) a Prospectus Supplement (the “Prospectus
        Supplement”
and
        together with the Base Prospectus, the “Prospectus”)
        containing certain supplemental information regarding the Shares and terms
        of
        the Offering that will be filed with the Commission and delivered to the
        Investor (or made available to the Investor by the filing by the Company
        of an
        electronic version thereof with the Commission) along with the Company’s
        counterpart to this Agreement.

       

      4.  The
        Company and the Investor agree that the Investor will purchase from the Company
        and the Company will issue and sell to the Investor the Shares
        set
        forth
        below for the aggregate purchase price set forth below. The Shares shall
        be
        purchased pursuant to the Terms and Conditions for Purchase of Shares attached
        hereto as Annex
        I
        and
        incorporated herein by this reference as if fully set forth herein. The Investor
        acknowledges that the Offering is not being underwritten by the placement
        agents
        (the “Placement
        Agents”)
        named
        in the Prospectus Supplement and that there is no minimum offering
        amount.

       

      5.  The
        manner of settlement of the Shares purchased by the Investor shall be determined
        by such Investor as follows (check
        one):

       

      
        	
                [____]

              	
                A.

              	
                Delivery
                  by electronic book-entry at The Depository Trust Company (“DTC”),
                  registered in the Investor’s name and address as set forth below, and
                  released by Continental Stock Transfer & Trust Company, the Company’s
                  transfer agent (the “Transfer
                  Agent”),
                  to the Investor at the Closing (as defined in Section 3.1 of Annex
                  I
                  hereto). NO
                  LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS AGREEMENT
                  BY
                  THE INVESTOR AND THE COMPANY, THE INVESTOR SHALL:
                  

              

      

       

      
        
          
          

        

        
          G-1

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                (I)

              	
                DIRECT
                  THE BROKER-DEALER AT WHICH THE ACCOUNT OR ACCOUNTS TO BE CREDITED
                  WITH THE
                  SHARES ARE MAINTAINED TO SET UP A DEPOSIT/WITHDRAWAL AT CUSTODIAN
                  (“DWAC”)
                  INSTRUCTING THE TRANSFER AGENT TO CREDIT SUCH ACCOUNT OR ACCOUNTS
                  WITH THE
                  SHARES, AND

              

      

       

      
        	 	
                (II)

              	
                REMIT
                  BY WIRE TRANSFER THE AMOUNT OF FUNDS EQUAL TO THE AGGREGATE PURCHASE
                  PRICE
                  FOR THE SHARES BEING PURCHASED BY THE INVESTOR TO THE FOLLOWING
                  ACCOUNT:

              

      

       

      Deutsche
        Bank Trust Company Americas

      60
        Wall
        Street

      New
        York,
        NY 10005

      ABA
        #:
        021001033

      Account
        Name: Trust and Securities Services

      Account
        Number: 01419647

      FCT
        :
        DISCOVERY LABS INC. JEFFRIES & COMPANY 58407

       

      -
        OR
        -

       

      
        	
                [____]

              	
                B.

              	
                Delivery
                  versus payment (“DVP”)
                  through DTC (i.e., the Company shall deliver Shares registered
                  in the
                  Investor’s name and address as set forth below and released by the
                  Transfer Agent to the Investor through DTC at the Closing directly
                  to the
                  account(s) at Jefferies
                  & Company, Inc.
                  (“Jefferies”)
                  identified by the Investor and simultaneously therewith payment
                  shall be
                  made by Jefferies
                  by
                  wire transfer to the Company). NO
                  LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS AGREEMENT
                  BY
                  THE INVESTOR AND THE COMPANY, THE INVESTOR SHALL:
                  

              

      

       

      
        	 	
                (I)

              	
                NOTIFY
                  JEFFERIES
                  OF THE ACCOUNT OR ACCOUNTS AT JEFFERIES
                  TO BE CREDITED WITH THE SHARES BEING PURCHASED BY SUCH INVESTOR,
                  AND
                  

              

      

       

      
        	 	 	
                (II)

              	
                CONFIRM
                  THAT THE ACCOUNT OR ACCOUNTS AT JEFFERIES
                  TO
                  BE CREDITED WITH THE SHARES BEING PURCHASED BY THE INVESTOR HAVE
                  A MINIMUM
                  BALANCE EQUAL TO THE AGGREGATE PURCHASE PRICE FOR THE SHARES BEING
                  PURCHASED BY THE INVESTOR.

              

      

       

      IT
        IS THE INVESTOR’S RESPONSIBILITY TO (A) MAKE THE NECESSARY WIRE TRANSFER OR
        CONFIRM THE PROPER ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR
        SETTLEMENT BY WAY OF DWAC OR DVP IN A TIMELY MANNER. IF THE INVESTOR DOES
        NOT
        DELIVER THE AGGREGATE PURCHASE PRICE FOR THE SHARES OR DOES NOT MAKE PROPER
        ARRANGEMENTS FOR SETTLEMENT IN A TIMELY MANNER, THE SHARES MAY NOT BE DELIVERED
        AT CLOSING TO THE INVESTOR OR THE INVESTOR MAY BE EXCLUDED FROM THE CLOSING
        ALTOGETHER.

       

      
        
          
          

        

        
          G-2

          
            

          

        

        
          
          

        

      

       

      6. The
        Investor represents that, except as set forth below, (a) it has had no position,
        office or other material relationship within the past three years with the
        Company or persons known to it to be affiliates of the Company, (b) it is
        not a
        NASD member or an Associated Person (as such term is defined under the NASD
        Membership and Registration Rules Section 1011) as of the Closing, and (c)
        neither the Investor nor any group of Investors (as identified in a public
        filing made with the Commission) of which the Investor is a part in connection
        with the Offering of the Shares, acquired, or obtained the right to acquire,
        20%
        or more of the Common Stock (or securities convertible into or exercisable
        for
        Common Stock) or the voting power of the Company on a post-transaction basis.
        Exceptions:

       

        
          

        

      

      (If
        no
        exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

       

      7. The
        Investor represents that it has received (or otherwise had made available
        to it
        by the filing by the Company of an electronic version thereof with the
        Commission) the Base Prospectus, dated October 11, 2005, which is a part
        of the
        Company’s Registration Statement, the documents incorporated by reference
        therein, and any free writing prospectus (collectively, the “Disclosure
        Package”),
        prior
        to or in connection with the receipt of this Agreement and the Prospectus
        Supplement (or the filing by the Company of an electronic version thereof
        with
        the Commission) along with the Company’s counterpart to this
        Agreement.

       

      8. No
        offer
        by the Investor to buy Shares will be accepted and no part of the Purchase
        Price
        will be delivered to the Company until the Company has accepted such offer
        by
        countersigning a copy of this Agreement, and any such offer may be withdrawn
        or
        revoked by the Investor, without obligation or commitment of any kind, at
        any
        time prior to the Company (or the Placement Agents on behalf of the Company)
        sending (orally, in writing, or by electronic mail) notice of its acceptance
        of
        such offer. An indication of interest will involve no obligation or commitment
        of any kind until this Agreement is accepted and countersigned by or on behalf
        of the Company.

       

      
        
          
          

        

        
          G-3

          
            

          

        

        
          
          

        

      

       

      Number
        of
        Share: _______________________________

       

      Purchase
        Price Per Share: $________________________

       

      Aggregate
        Purchase Price: $_______________________

       

      Please
        confirm that the foregoing correctly sets forth the agreement between us
        by
        signing in the space provided below for that purpose.

      

       

      Dated
        as
        of: _____________ __, 2007

       

      

      ____________________________________

      INVESTOR

       

      By:_______________________________________

      Print
        Name:_________________________________

      Title:______________________________________

      Address:___________________________________

       

       

      

      Agreed
        and Accepted

      this
        ___
        day of _________________, 2007:

      

       

      DISCOVERY
        LABORATORIES, INC.

       

      

      By:_______________________________

      Print
        Name

      Title:
        

       

      
        
          
          

        

        
          G-4

          
            

          

        

        
          
          

        

      

       

      ANNEX
        I

       

      TERMS
        AND CONDITIONS FOR PURCHASE OF SHARES

       

      1. Authorization
        and Sale of the Shares. Subject
        to the terms and conditions of this Agreement, the Company has authorized
        the
        sale of the Shares.

       

      2. Agreement
        to Sell and Purchase the Shares; Placement Agents.

       

      2.1 At
        the
        Closing, the Company will sell to the Investor, and the Investor will purchase
        from the Company, upon the terms and conditions set forth herein, the number
        of
        Shares set forth on the last page of the Agreement to which these Terms and
        Conditions for Purchase of Shares are attached as Annex
        I
        (the
“Signature
        Page”)
        for
        the aggregate purchase price therefor set forth on the Signature
        Page.

       

      2.2 The
        Company proposes to enter into substantially this same form of Subscription
        Agreement with certain other investors (the “Other
        Investors”)
        and
        expects to complete sales of Shares to them. The Investor and the Other
        Investors are hereinafter sometimes collectively referred to as the
“Investors,”
and
        this Agreement and the Subscription Agreements executed by the Other Investors
        are hereinafter sometimes collectively referred to as the “Agreements.” 

      

      2.3 Investor
        acknowledges that the Company has agreed to pay Jefferies
        & Company, Inc. and Lazard Capital Markets LLC
        (the
“Placement
        Agents”)
        a fee
        (the “Placement
        Fee”)
        in
        respect of the sale of Shares to the Investor.

      

      2.4 The
        Company has entered into a Placement Agency Agreement, dated April 2, 2007
        (the
“Placement
        Agreement”),
        with
        the Placement Agents that contains certain representations, warranties,
        covenants and agreements of the Company that may be relied upon by the Investor,
        which shall be a third party beneficiary thereof. 

      

      3. Closings
        and Delivery of the Shares and Funds. 

       

      3.1 Closing.
        The
        completion of the purchase and sale of the Shares (the “Closing”)
        shall
        occur at a place and time (the “Closing
        Date”)
        to be
        specified by the Company and the Placement Agents, and of which the Investors
        will be notified in advance by the Placement Agents, in accordance with Rule
        15c6-1 promulgated under the Securities Exchange Act of 1934, as amended
        (the
“Exchange
        Act”).
        At
        the Closing, (a) the Company shall cause the Transfer Agent to deliver to
        the
        Investor the number of Shares set forth on the Signature Page registered
        in the
        name of the Investor or, if so indicated on the Investor Questionnaire attached
        hereto as Exhibit
        A,
        in the
        name of a nominee designated by the Investor and (b) the aggregate purchase
        price for the Shares being purchased by the Investor will be delivered by
        or on
        behalf of the Investor to the Company. 

       

      3.2 Conditions
        to the Company’s Obligations.
        (a)
        The
        Company’s obligation to issue and sell the Shares to the Investor shall be
        subject to: (i) the receipt by the Company of the purchase price for the
        Shares
        being purchased hereunder as set forth on the Signature Page and (ii) the
        accuracy of the representations and warranties made by the Investor and the
        fulfillment of those undertakings of the Investor to be fulfilled prior to
        the
        Closing Date.

      

      
        
          
          

        

        
          G-5

          
            

          

        

        
          
          

        

      

       

      (b) Conditions
        to the Investor’s Obligations.
        The
        Investor’s obligation to purchase the Shares will be subject to the accuracy of
        the representations and warranties made by the Company and the fulfillment
        of
        those undertakings of the Company to be fulfilled prior to the Closing Date,
        including without limitation, those contained in the Placement Agreement,
        and to
        the condition that the Placement Agents shall not have: (a) terminated the
        Placement Agreement pursuant to the terms thereof or (b) determined that
        the
        conditions to the closing in the Placement Agreement have not been satisfied.
        The Investor’s obligations are expressly not conditioned on the purchase by any
        or all of the Other Investors of the Shares that they have agreed to purchase
        from the Company.

      

      3.3 Delivery
        of Funds. 

      

      (a) Delivery
        by Electronic Book-Entry at The Depository Trust Company.
        If the
        Investor elects to settle the Shares purchased by such Investor through delivery
        by electronic book-entry at DTC, no
        later than one (1) business day after the execution of this Agreement by
        the
        Investor and the Company,
        the
        Investor shall remit by wire transfer the amount of funds equal to the aggregate
        purchase price for the Shares being purchased by the Investor to the following
        account designated by the Company and the Placement Agents pursuant to the
        terms
        of that certain Escrow Agreement (the “Escrow
        Agreement”)
        dated
        as of April 2, 2007, by and among the Company, the Placement Agents and Deutsche
        Bank Trust Company Americas (the “Escrow
        Agent”):

      

      Deutsche
        Bank Trust Company Americas

      60
        Wall
        Street

      New
        York,
        NY 10005

      ABA
        #:
        021001033

      Account
        Name: Trust and Securities Services

      Account
        Number: 01419647

      FCT
        :
        DISCOVERY LABS INC. JEFFRIES & COMPANY 58407

       

      

      Such
        funds shall be held in escrow until the Closing and delivered by the Escrow
        Agent on behalf of the Investors to the Company upon the satisfaction, in
        the
        sole judgment of Jefferies, of the conditions set forth in Section
        3.2(b)
        hereof.
        The Placement Agents shall have no rights in or to any of the escrowed funds,
        unless the Placement Agents and the Escrow Agent are notified in writing
        by the
        Company in connection with the Closing that a portion of the escrowed funds
        shall be applied to the Placement Fee. The
        Company agrees to indemnify and hold the Escrow Agent harmless from and against
        any and all losses, costs, damages, expenses and claims (including, without
        limitation, court costs and reasonable attorneys fees) (“Losses”)
        arising under this Section
        3.3
        or
        otherwise with respect to the funds held in escrow pursuant hereto or arising
        under the Escrow Agreement, unless it is finally determined that such Losses
        resulted directly from the willful misconduct or gross negligence of the
        Escrow
        Agent. Anything in this Agreement to the contrary notwithstanding, in no
        event
        shall the Escrow Agent be liable for any special, indirect or consequential
        loss
        or damage of any kind whatsoever (including but not limited to lost profits),
        even if the Escrow Agent has been advised of the likelihood of such loss
        or
        damage and regardless of the form of action.

      

      Investor
        shall also furnish to Jefferies a completed W-9 form (or, in the case of
        an
        Investor who is not a United States citizen or resident, a W-8
        form).

       

      
        
          
          

        

        
          G-6

          
            

          

        

        
          
          

        

      

       

      (b) Delivery
        Versus Payment through The Depository Trust Company.
        If the
        Investor elects to settle the Shares purchased by such Investor by delivery
        versus payment through DTC, no
        later than one (1) business day after the execution of this Agreement by
        the
        Investor and the Company,
        the
        Investor shall confirm that the account or accounts at Jefferies
        to be
        credited with the Shares being purchased by the Investor have a minimum balance
        equal to the aggregate purchase price for the Shares being purchased by the
        Investor. 

      

      3.4 Delivery
        of Shares. 

      

      (a) Delivery
        by Electronic Book-Entry at The Depository Trust Company.
        If the
        Investor elects to settle the Shares purchased by such Investor through delivery
        by electronic book-entry at DTC, no
        later than one (1) business day after the execution of this Agreement by
        the
        Investor and the Company,
        the
        Investor shall direct the broker-dealer at which the account or accounts
        to be
        credited with the Shares being purchased by such Investor are maintained,
        which
        broker/dealer shall be a DTC participant, to set up a Deposit/Withdrawal
        at
        Custodian (“DWAC”)
        instructing Continental Stock Transfer & Trust Company, the Company’s
        transfer agent, to credit such account or accounts with the Shares by means
        of
        an electronic book-entry delivery. Such DWAC shall indicate the settlement
        date
        for the deposit of the Shares, which date shall be provided to the Investor
        by
        Jefferies. Simultaneously with the delivery to the Company by the Escrow
        Agent
        of the funds held in escrow pursuant to Section
        3.3
        above,
        the Company shall direct its transfer agent to credit the Investor’s account or
        accounts with the Shares pursuant to the information contained in the DWAC.
        

      

      (b) Delivery
        Versus Payment through The Depository Trust Company.
        If the
        Investor elects to settle the Shares purchased by such Investor by delivery
        versus payment through DTC, no
        later than one (1) business day after the execution of this Agreement by
        the
        Investor and the Company,
        the
        Investor shall notify Jefferies
        of the
        account or accounts at Jefferies to be credited with the Shares being purchased
        by such Investor. On the Closing Date, the Company shall deliver the Shares
        to
        the Investor through DTC directly to the account or accounts at Jefferies
        identified by Investor and simultaneously therewith payment shall be made
        by
        Jefferies by wire transfer to the Company. 

      

      4. Representations,
        Warranties and Covenants of the Investor.

       

      The
        Investor represents and warrants to, and agrees with, the Company and the
        Placement Agents that:

       

      
        
          
          

        

        
          G-7

          
            

          

        

        
          
          

        

      

       

      4.1 The
        Investor (a) is knowledgeable, sophisticated and experienced in making, and
        is
        qualified to make decisions with respect to, investments in shares presenting
        an
        investment decision like that involved in the purchase of the Shares, including
        investments in securities issued by the Company and investments in comparable
        companies, (b) has answered all questions on the Signature Page and the Investor
        Questionnaire for use in preparation of the Prospectus Supplement and the
        answers thereto are true and correct as of the date hereof and will be true
        and
        correct as of the Closing Date and (c) in connection with its decision to
        purchase the number of Shares set forth on the Signature Page, has received
        and
        is relying solely upon the Disclosure Package and the documents incorporated
        by
        reference therein.

       

      4.2 The
        Investor acknowledges that (a) no action has been or will be taken in any
        jurisdiction outside the United States by the Company or the Placement Agents
        that would permit an offering of the Shares, or possession or distribution
        of
        offering materials in connection with the issue of the Shares in any
        jurisdiction outside the United States where action for that purpose is
        required, (b) if the Investor is outside the United States, it will comply
        with
        all applicable laws and regulations in each foreign jurisdiction in which
        it
        purchases, offers, sells or delivers Shares or has in its possession or
        distributes any offering material, in all cases at its own expense and (c)
        the
        Placement Agents is not authorized to make and has not made any representation,
        disclosure or use of any information in connection with the issue, placement,
        purchase and sale of the Shares, except as set forth or incorporated by
        reference in the Base Prospectus or the Prospectus Supplement.

       

      4.3 The
        Investor acknowledges that (a)
        the
        Investor has full right, power, authority and capacity to enter into this
        Agreement and to consummate the transactions contemplated hereby and has
        taken
        all necessary action to authorize the execution, delivery and performance
        of
        this Agreement, and (b) this Agreement constitutes a valid and binding
        obligation of the Investor enforceable against the Investor in accordance
        with
        its terms, except as enforceability may be limited by applicable bankruptcy,
        insolvency, reorganization, moratorium or similar laws affecting creditors’ and
        contracting parties’ rights generally and except as enforceability may be
        subject to general principles of equity (regardless of whether such
        enforceability is considered in a proceeding in equity or at law) and except
        as
        to the enforceability of any rights to indemnification or contribution that
        may
        be violative of the public policy underlying any law, rule or regulation
        (including any federal or state securities law, rule or
        regulation).

       

      4.4 The
        Investor understands that nothing in this Agreement, the Prospectus or any
        other
        materials presented to the Investor in connection with the purchase and sale
        of
        the Shares constitutes legal, tax or investment advice. The Investor has
        consulted such legal, tax and investment advisors as it, in its sole discretion,
        has deemed necessary or appropriate in connection with its purchase of
        Shares.

       

      4.5 Since
        the
        date on which the Placement Agents first contacted such Investor about the
        Offering, the Investor has not engaged in any transactions in the securities
        of
        the Company (including, without limitation, any Short Sales (as defined below)
        involving the Company’s securities). Each Investor covenants that it will not
        engage in any transactions in the securities of the Company (including Short
        Sales) prior to the time that the transactions contemplated by this Agreement
        are publicly disclosed. Each Investor agrees that it will not use any of
        the
        Shares acquired pursuant to this Agreement to cover any short position in
        the
        Common Stock if doing so would be in violation of applicable securities laws.
        For purposes hereof, “Short Sales” include, without limitation, all “short
        sales” as defined in Rule 200 promulgated under Regulation SHO under the
        Exchange Act, whether or not against the box, and all types of direct and
        indirect stock pledges, forward sales contracts, options, puts, calls, short
        sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the
        Exchange Act) and similar arrangements (including on a total return basis),
        and
        sales and other transactions through non-US broker dealers or foreign regulated
        brokers.

       

      5. Survival
        of Representations, Warranties and Agreements; Third Party Beneficiary.
Notwithstanding
        any investigation made by any party to this Agreement or by the Placement
        Agents, all covenants, agreements, representations and warranties made by
        the
        Company and the Investor herein will survive the execution of this Agreement,
        the delivery to the Investor of the Shares being purchased and the payment
        therefor. The Placement Agents and Lazard Fréres & Co. shall be a third
        party beneficiary with respect to the representations, warranties and agreements
        of the Investor in Section
        4
        hereof.

       

      6. Notices.
        All
        notices, requests, consents and other communications hereunder will be 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 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 electric confirmation of receipt and will be
        delivered and addressed as follows:

       

       
(a)     if
        to the
        Company, to:
         

      

      Discovery
        Laboratories, Inc.

      2600
        Kelly Road, Suite 100

      Warrington,
        Pennsylvania 18976-3622 

      Attention:
        David Lopez, Esq. 

      Facsimile:
        (215) 340-3940

      

       

      with
        copies to:
        

       

      Goodwin
        Procter, LLP

      53
        State
        Street

      Boston,
        MA 02109

      Attention:
        Mitchell S. Bloom, Esq.

      Facsimile:
        (617) 523-1231

       

      (b)    
        if to the Investor, at its address on the Signature Page hereto, or at such
        other address or addresses as may have been furnished to the Company in
        writing.

       

      7. Changes.
        This
        Agreement may not be modified or amended except pursuant to an instrument
        in
        writing signed by the Company and the Investor.

       

      8. Headings.
        The
        headings of the various sections of this Agreement have been inserted for
        convenience of reference only and will not be deemed to be part of this
        Agreement.

       

      
        
          
          

        

        
          G-8

          
            

          

        

        
          
          

        

      

       

      9. Severability.
        In
        case
        any provision contained in this Agreement should be invalid, illegal or
        unenforceable in any respect, the validity, legality and enforceability of
        the
        remaining provisions contained herein will not in any way be affected or
        impaired thereby.

       

      10. Governing
        Law. This
        Agreement will be governed by, and construed in accordance with, the internal
        laws of the State of New York, without giving effect to the principles of
        conflicts of law that would require the application of the laws of any other
        jurisdiction.

       

      11. Counterparts.
        This
        Agreement may be executed in two or more counterparts, each of which will
        constitute an original, but all of which, when taken together, will constitute
        but one instrument, and will become effective when one or more counterparts
        have
        been signed by each party hereto and delivered to the other parties. The
        Company
        and the Investor acknowledge and agree that the Company shall deliver its
        counterpart to the Investor along with the Prospectus Supplement (or the
        filing
        by the Company of an electronic version thereof with the Commission).

       

      12. Confirmation
        of Sale.
        The
        Investor acknowledges and agrees that such Investor’s receipt of the Company’s
        counterpart to this Agreement, together with the Prospectus Supplement (or
        the
        filing by the Company of an electronic version thereof with the Commission),
        shall constitute written confirmation of the Company’s sale of Shares to such
        Investor.

       

      13. Press
        Release.
        The
        Company and the Investor agree that the Company shall issue a press release
        disclosing the material terms of the Offering prior to the opening of the
        financial markets in New York City on the business day immediately after
        the
        date hereof.

       

      14. Termination.
        In the
        event that the Placement Agreement is terminated by the Placement Agents
        pursuant to the terms thereof, this Agreement shall terminate without any
        further action on the part of the parties hereto.

       

      
        
          
          

        

        
          G-9

          
            

          

        

        
          
          

        

      

       

      Exhibit
        A

       

      DISCOVERY
        LABORATORIES,
        INC.

       

      INVESTOR
        QUESTIONNAIRE

       

      Pursuant
        to Section
        3
        of
Annex
        I
        to the
        Agreement, please provide us with the following information:

       

      

      
        	
                1. The
                  exact name that your Shares are to be registered in. You may use
                  a 
                  nominee name if appropriate:

              	__________________________
	
                 

              	 
	
                2. The
                  relationship between the Investor and the registered holder listed
                  in
                  response to item 1 above:

              	__________________________
	
                 

              	 
	
                3. The
                  mailing address of the registered holder listed in response to
                  item 1
                  above:

              	__________________________
	
                 

              	 
	
                4. The
                  Social Security Number or Tax Identification Number of the registered
                  holder listed in the response to item 1 above:

              	__________________________
	
                 

              	 
	
                5. Name
                  of DTC Participant (broker-dealer at which the account or accounts
                  to be
                  credited with the Shares are maintained):

              	__________________________
	
                 

              	 
	
                6. DTC
                  Participant Number:

              	__________________________
	
                 

              	 
	
                7. Name
                  of Account at DTC Participant being credited with the
                  Shares:

              	__________________________
	
                 

              	 
	
                8. Account
                  Number at DTC Participant being credited with the Shares:

              	__________________________

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