Document:

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                                                                    Exhibit 10.1

                               GENAERA CORPORATION

                            (a Delaware corporation)

                        4,400,000 Shares of Common Stock

                           (Par Value $.002 Per Share)

                           PLACEMENT AGENCY AGREEMENT
                           --------------------------

                                                                   April 5, 2002

Wells Fargo Securities, LLC
600 California Street
Suite 1700
San Francisco, California 94108

Ladies and Gentlemen:

         Genaera Corporation, a Delaware corporation (the "Company"), confirms
its agreement with Wells Fargo Securities, LLC ("Wells Fargo" or the "Placement
Agent"), to act as placement agent for the Company with respect to the issue and
sale by the Company to the Buyers (as defined) of up to 4,400,000 shares of
common stock of the Company, par value $.002 per share (the "Securities").

         In acting as the Placement Agent for the Company, Wells Fargo will seek
to place the Securities with buyers identified by Wells Fargo (excluding those
persons or entities listed on Schedule A hereto to whom or to which the Company
                              ----------
may directly sell shares of its common stock)(collectively, the "Buyers") on a
best efforts basis, acting as the Company's agent and not as a principal in the
placement of the Securities.

         The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-73798), which was
declared effective on December 7, 2001 (the "Effective Date"), covering the
registration of, among other things, the Securities under the Securities Act of
1933, as amended (the "1933 Act") and including the related preliminary
prospectus. Promptly after execution and delivery of this Agreement, the Company
will prepare and file with the Commission a prospectus supplement specifically
relating to the Securities (the "Prospectus Supplement") pursuant to Rule 424(b)
of the rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"). The registration statement, as amended to the date of this
Agreement and including the exhibits thereto, schedules, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time that it became effective, is herein called the
"Registration Statement." The prospectus included in the Registration Statement
on the Effective Date is herein called the "Base Prospectus." Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The Base Prospectus and the Prospectus Supplement, including the

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documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, are herein called, collectively, the "Prospectus." For
purposes of this Agreement, all references to the Registration Statement, the
Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include any copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").

         All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (or other references of like import)
shall be deemed to mean and include all such financial statements and schedules
and other information which is 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 or the
Prospectus shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by
reference in the Registration Statement or the Prospectus, as the case may be.

     SECTION 1. Representations and Warranties.
                ------------------------------

          (a) Representations and Warranties by the Company. The Company
     represents and warrants to Wells Fargo as of the date hereof and agrees
     with Wells Fargo, as follows:

               (i) Compliance with Registration Requirements. The Company met
                   -----------------------------------------
          the requirements for use of Form S-3 under the 1933 Act at the time
          the Registration Statement was filed and at the time the most recent
          Form 10-K was filed. Each of the Registration Statement and any Rule
          462(b) Registration Statement has become effective under the 1933 Act,
          and no stop order suspending the effectiveness of the Registration
          Statement or any Rule 462(b) Registration Statement has been issued
          under the 1933 Act, and no proceedings for that purpose have been
          instituted or are pending or, to the knowledge of the Company, are
          contemplated by the Commission, and any request on the part of the
          Commission for additional information has been complied with.

               At the respective times the Registration Statement, any Rule
          462(b) Registration Statement and any post-effective amendments
          thereto became effective and at the Closing Time, the Registration
          Statement, the Rule 462(b) Registration Statement and any amendments
          and supplements thereto complied and will comply in all material
          respects with the requirements of the 1933 Act and the 1933 Act
          Regulations and did not and 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 statements therein not misleading.
          Neither the Prospectus nor any amendments or supplements thereto, as
          of the date of the Prospectus or any such amendment or supplement was
          issued and at the Closing Time, included or will include an untrue
          statement of a material fact or omitted or will 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 in this subsection
          shall not apply to statements in

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          or omissions from the Registration Statement or Prospectus made in
          reliance upon and in conformity with information furnished to the
          Company in writing by Wells Fargo expressly for use in the
          Registration Statement or Prospectus.

               The prospectus filed as part of the Registration Statement as
          originally filed or as part of any amendment thereto, or filed
          pursuant to Rule 424 under the 1933 Act, complied as to form when so
          filed in all material respects with the 1933 Act Regulations and the
          Base Prospectus delivered to Wells Fargo for use in connection with
          this offering was identical in all material respects to the
          electronically transmitted copies thereof filed with the Commission
          pursuant to EDGAR, except to the extent permitted or required by
          Regulation S-T.

               (ii) Incorporated Documents. The documents incorporated or deemed
                    ---------------------
          to be incorporated by reference in the Registration Statement and the
          Prospectus, when they became effective or at the time they were or
          hereafter are filed with the Commission, complied (in the case of
          previously filed documents) and will comply (in the case of documents
          to be filed) in all material respects with the requirements of the
          1933 Act and the 1933 Act Regulations or the 1934 Act and the rules
          and regulations of the Commission thereunder (the "1934 Act
          Regulations"), as applicable, and, when read together with the other
          information in the Prospectus, at the time the Registration Statement
          became effective, as of the date of the Prospectus and at the Closing
          Time (in each case taking into account such documents as were filed as
          of such times or dates), did not and 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 statements therein not
          misleading.

               (iii) Good Standing of the Company. The Company has been duly
                     ----------------------------
          incorporated and is validly existing as a corporation in good standing
          under the laws of the State of Delaware and has corporate power and
          authority to own, lease and operate its properties and to conduct its
          business as described in the Prospectus and to enter into and perform
          its obligations under this Agreement; and the Company is duly
          qualified as a foreign corporation to transact business and is in good
          standing in each other jurisdiction in which such qualification is
          required, whether by reason of the ownership or leasing of property or
          the conduct of business, except where the failure so to qualify or to
          be in good standing would not result in a Material Adverse Effect. The
          Company has no subsidiaries.

               (iv)  Authorization of Agreement. This Agreement has been duly
                     --------------------------
          authorized, executed and delivered by the Company.

               (v)   Authorization of Securities. The Securities have been duly
                     ---------------------------
          authorized for issuance and sale to the Buyers and, when issued and
          delivered by the Company against payment of the consideration set
          forth on the cover of the Prospectus, will be validly issued, fully
          paid and non-assessable.

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               (vi)  Completeness of Exhibits. There are no contracts or
                     ------------------------
          documents which are required to be filed as exhibits thereto (other
          than this Agreement which will be filed as an exhibit to a Form 8-K
          after the date hereof) which have not been so filed as required.

          (b) Officer's Certificates. Any certificate signed by any officer of
     the Company delivered to Wells Fargo or to counsel for Wells Fargo shall be
     deemed a representation and warranty by the Company to Wells Fargo as to
     the matters covered thereby.

     SECTION 2. Placement Agent Fees.
                --------------------

          (a) On the basis of the representations and warranties herein
     contained and subject to the terms and conditions herein set forth, the
     Company agrees to pay Wells Fargo a fee (the "Fee"), based in part upon the
     aggregate amount of Securities sold to the Buyers, as calculated in
     accordance with the provisions of this Section for its services pursuant to
     this Agreement. The Fee (i) will be equal to 7% of the purchase price of
     all Securities sold to the Buyers pursuant to this Agreement and (ii) also
     will include warrants to purchase 100,000 shares of the Company's common
     stock with an exercise price of $2.75 per share, a five (5) year term,
     without any reset or repricing provisions (and, without limiting the
     foregoing, the warrants shall not contain any antidilution provisions
     relating to the future sale of any securities by the Company), and
     piggyback registration rights provisions and such other provisions to be
     mutually agreed upon by the parties (the "Warrants").

          (b) On the date the Buyers purchase the Securities from the Company in
     accordance with this Agreement (the "Closing Time"), the Company shall pay
     the percentage portion of the Fee to the Placement Agent in cash by wire
     transfer of immediately available funds to a bank account designated by the
     Placement Agent immediately following the Company's receipt of the purchase
     price of the Securities from the Buyers. After the Closing Time, the
     Company and the Agent will negotiate in good faith the definitive terms and
     conditions of the Warrants (subject to the general terms and conditions
     described in Section 2(a)(ii) above) and, upon the conclusion of such
     negotiations, the Company will execute a deliver the Warrants to the Agent.

     SECTION 3. Covenants of the Company. The Company covenants with Wells
                ------------------------
Fargo as follows:

          (a) Compliance with Securities Regulations and Commission Requests.
     The Company, subject to Section 3(b), will notify Wells Fargo immediately,
     and confirm the notice in writing, during the period when a prospectus is
     required to be delivered under the 1933 Act, (i) when any post-effective
     amendment to the Registration Statement or any Rule 462(b) Registration
     Statement shall become effective or any supplement to the Prospectus, or
     any amended Prospectus shall have been filed, (ii) of the receipt of any
     comments from the Commission, (iii) of any request by the Commission for
     any amendment to the Registration Statement or any Rule 462(b) Registration
     Statement or

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     any amendment or supplement to the Prospectus or for additional
     information, and (iv) of the issuance by the Commission of any stop order
     suspending the effectiveness of the Registration Statement or any Rule
     462(b) Registration Statement or of any order preventing or suspending the
     use of any preliminary prospectus, or of the suspension of the
     qualification of the Securities for offering or sale in any jurisdiction,
     or of the initiation or threatening of any proceedings for any of such
     purposes. The Company will timely effect the filings necessary pursuant to
     Rule 424(b) and, if applicable, will take such steps as it deems necessary
     to ascertain promptly whether the form of prospectus supplement transmitted
     for filing under Rule 424(b) was received for filing by the Commission and,
     in the event that it was not, it will promptly file such prospectus
     supplement. The Company will make every reasonable effort to prevent the
     issuance of any stop order and, if any stop order is issued, to obtain the
     lifting thereof at the earliest possible moment.

          (b) Filing of Amendments. The Company will give Wells Fargo notice of
     its intention to file or prepare any amendment to the Registration
     Statement (including any filing under Rule 462(b)), or any amendment,
     supplement or revision to either the Base Prospectus or to the Prospectus,
     whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish
     Wells Fargo with copies of any such documents a reasonable amount of time
     prior to such proposed filing or use, as the case may be, and will not file
     or use any such document to which Wells Fargo or counsel for Wells Fargo
     shall reasonably and timely object.

          (c) Delivery of Registration Statements. Upon the request of Wells
     Fargo, the Company will deliver to Wells Fargo and counsel for Wells Fargo,
     without charge, signed copies of the Registration Statement as originally
     filed and of each amendment thereto (including exhibits filed therewith or
     incorporated by reference therein and documents incorporated or deemed to
     be incorporated by reference therein) and signed copies of all consents and
     certificates of experts. The copies of the Registration Statement and each
     amendment thereto furnished to Wells Fargo will be identical in all
     material respects to the electronically transmitted copies thereof filed
     with the Commission pursuant to EDGAR, except to the extent permitted or
     required by Regulation S-T.

          (d) Delivery of Prospectuses. The Company will furnish to Wells Fargo,
     without charge, during the period when the Prospectus is required to be
     delivered under the 1933 Act, such number of copies of the Prospectus (as
     amended or supplemented) as Wells Fargo may reasonably request. The
     Prospectus and any amendments or supplements thereto furnished to Wells
     Fargo will be identical in all material respects to the electronically
     transmitted copies thereof filed with the Commission pursuant to EDGAR,
     except to the extent permitted or required by Regulation S-T.

          (e) Continued Compliance with Securities Laws. The Company will comply
     with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the
     1934 Act Regulations so as to permit the completion of the distribution of
     the Securities as contemplated in this Agreement and in the Prospectus. If
     at any time when a prospectus is required by the 1933 Act to be delivered
     in connection with sales of the Securities, any

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     event shall occur or condition shall exist as a result of which it is
     necessary, in the opinion of counsel for Wells Fargo or for the Company, to
     amend the Registration Statement or amend or supplement the Prospectus in
     order that the Prospectus will not include any untrue statements of a
     material fact or omit to state a material fact necessary in order to make
     the statements therein not misleading in the light of the circumstances
     existing at the time it is delivered to a purchaser, or if it shall be
     necessary, in the opinion of such counsel, at any such time to amend the
     Registration Statement or amend or supplement the Prospectus in order to
     comply with the requirements of the 1933 Act or the 1933 Act Regulations,
     the Company will promptly prepare and file with the Commission, subject to
     Section 3(b), such amendment or supplement as may be necessary to correct
     such statement or omission or to make the Registration Statement or the
     Prospectus comply with such requirements, and the Company will furnish to
     Wells Fargo such number of copies of such amendment or supplement as Wells
     Fargo may reasonably request.

          (f) Rule 158. The Company will timely file such reports pursuant to
     the 1934 Act as are necessary in order to make generally available to its
     securityholders an earnings statement for the purposes of, and to provide
     the benefits contemplated by, the last paragraph of Section 11(a) of the
     1933 Act.

          (g) Use of Proceeds. The Company will use the net proceeds received by
     it from the sale of the Securities in the manner specified in the
     Prospectus under "Use of Proceeds."

          (h) Listing. The Company will use its best efforts to effect the
     listing of the Securities on the Nasdaq National Market.

          (i) Reporting Requirements. The Company, during the period when the
     Prospectus is required to be delivered under the 1933 Act, will file all
     documents required to be filed with the Commission pursuant to the 1934 Act
     within the time periods required by the 1934 Act and the 1934 Act
     Regulations.

          (j) No Manipulation of Market for Securities. Except for the
     authorization of actions permitted to be taken by the Placement Agent as
     contemplated herein or in the Prospectus, the Company will not take,
     directly or indirectly, any action designed to cause or to result in, or
     that might reasonably be expected to constitute, the stabilization or
     manipulation of the price of any security of the Company to facilitate the
     offering made by the Prospectus Supplement.

     SECTION 4. Payment of Expenses.
                -------------------

          (a) Expenses. The Company will pay all expenses incident to the
     performance of its obligations under this Agreement, including (i) the
     preparation, printing and filing of the Registration Statement (including
     financial statements and exhibits) as originally filed and of each
     amendment thereto, (ii) the preparation, printing and delivery to Wells
     Fargo of this Agreement, (iii) the preparation, issuance and delivery of
     the certificates for the Securities to the Buyers, including any stock or
     other
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     transfer taxes and any stamp or other duties payable upon the sale,
     issuance or delivery of the Securities to the Buyers, (iv) the fees and
     disbursements of the Company's counsel, accountants and other advisors, (v)
     the printing and delivery to Wells Fargo of copies of the Prospectus and
     any amendments or supplements thereto and (vi) the fees and expenses
     incurred in connection with the inclusion of the Securities in the Nasdaq
     National Market.

          (b) Termination of Agreement. If this Agreement is terminated by Wells
     Fargo in accordance with the provisions of Section 5(f) or Section 9(a)(i)
     hereof, the Company shall reimburse Wells Fargo for all of their
     accountable out-of-pocket expenses, including the reasonable fees and
     disbursements of counsel for Wells Fargo reasonably incurred by Wells Fargo
     in connection with this Agreement or the offering contemplated hereunder up
     to a maximum of $50,000. The Company shall not be responsible for the
     reimbursement of Wells Fargo for any expenses in the event this Agreement
     is terminated by Wells Fargo in accordance with the provisions of Sections
     9(a)(ii)-(iv).

          (c) Expense Allowance. At Closing Time, the Company shall pay to Wells
     Fargo an expense allowance equal to 2% of the purchase price of all
     Securities sold to the Buyers, plus legal fees and expenses of its counsel
     up to a maximum of $75,000.

     SECTION 5. Conditions of Placement Agent's Obligations. The obligations of
                -------------------------------------------
Wells Fargo hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 1 hereof or in certificates of
any officer of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:

          (a) Effectiveness of Registration Statement. The Registration
     Statement, including any Rule 462(b) Registration Statement, shall have
     become effective not later than 5:30P.M. on the date hereof and at Closing
     Time no stop order suspending the effectiveness of the Registration
     Statement or any Rule 462(b) Registration Statement shall have been issued
     under the 1933 Act or proceedings therefor initiated or threatened by the
     Commission, and any request on the part of the Commission for additional
     information shall have been complied with to the reasonable satisfaction of
     counsel to Wells Fargo.

          (b) Opinion of Counsel for Company. At Closing Time, Wells Fargo shall
     have received the favorable opinion, dated as of Closing Time, of Morgan,
     Lewis & Bockius LLP, counsel for the Company, in form and substance
     satisfactory to counsel for Wells Fargo, to the effect set forth in
     Schedule B hereto.
     ----------

          (c) Officers' Certificate. At Closing Time, there shall not have been,
     since the date hereof or since the respective dates as of which information
     is given in the Prospectus, any material adverse change in the condition,
     financial or otherwise, or in the earnings, business affairs or operations
     of the Company, whether or not arising in the ordinary course of business,
     and Wells Fargo shall have received a certificate of the

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     President or a Vice President of the Company and of the chief financial or
     chief accounting officer of the Company, dated as of Closing Time, to the
     effect that (i) there has been no such material adverse change, (ii) the
     representations and warranties in Section 1(a) hereof are true and correct
     in all material respects with respect to those representations and
     warranties not qualified as to materiality and in all respects as to those
     representations qualified as to materiality with the same force and effect
     as though expressly made at and as of Closing Time, (iii) the Company has
     complied with all agreements and satisfied all conditions on its part to be
     performed or satisfied at or prior to Closing Time, and (iv) to the
     knowledge of such officers, no stop order suspending the effectiveness of
     the Registration Statement has been issued and no proceedings for that
     purpose have been instituted or are pending or are contemplated by the
     Commission.

          (d) Accountant's Comfort Letter. At Closing Time, Wells Fargo shall
     have received from KPMG LLP a letter dated such date, in form and substance
     satisfactory to Wells Fargo, containing statements and information of the
     type ordinarily included in accountants' "comfort letters" to underwriters
     with respect to the financial statements and certain financial information
     contained in the Registration Statement and the Prospectus.

          (e) Approval of Listing. At Closing Time, the Securities shall have
     been duly listed for quotation in the Nasdaq National Market, subject only
     to official notice of issuance.

          (f) Termination of Agreement. If any condition specified in this
     Section shall not have been fulfilled (through no fault or failure of Wells
     Fargo) when and as required to be fulfilled, this Agreement may be
     terminated by Wells Fargo by notice to the Company at any time at or prior
     to Closing Time and such termination shall be without liability of any
     party to any other party except as provided in Section 4 and except that
     Sections 6, 7 and 12 shall survive any such termination and remain in full
     force and effect.

     SECTION 6. Indemnification.
                ---------------

          (a) Indemnification of Placement Agent. The Company agrees to
     indemnify and hold harmless Wells Fargo and each person, if any, who
     controls Wells Fargo within the meaning of Section 15 of the 1933 Act or
     Section 20 of the 1934 Act as follows:

              (i) against any and all loss, liability, claim, damage and
          expense whatsoever, as incurred, arising out of any untrue statement
          or alleged untrue statement of a material fact contained in the
          Registration Statement (or any amendment thereto), 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
          arising out of any untrue statement or alleged untrue statement of a
          material fact included in any preliminary prospectus 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;

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               (ii)  against any and all loss, liability, claim, damage and
          expense whatsoever, as incurred, to the extent of the aggregate amount
          paid in settlement of any litigation, or any investigation or
          proceeding by any governmental agency or body, commenced or
          threatened, or of any claim whatsoever based upon any such untrue
          statement or omission, or any such alleged untrue statement or
          omission; provided that any such settlement is effected with the
          written consent of the Company; and

               (iii) against any and all expense whatsoever, as incurred
          (including the fees and disbursements of counsel chosen by Wells
          Fargo), reasonably incurred in investigating, preparing or defending
          against any litigation, or any investigation or proceeding by any
          governmental agency or body, commenced or threatened, or any claim
          whatsoever based upon any such untrue statement or omission, or any
          such alleged untrue statement or omission, to the extent that any such
          expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by
Wells Fargo expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).

          (b) Indemnification of Company, Directors and Officers. Wells Fargo
     agrees to indemnify and hold harmless the Company, its directors, each of
     its officers who signed the Registration Statement, and each person, if
     any, who controls the Company within the meaning of Section 15 of the 1933
     Act or Section 20 of the 1934 Act against any and all loss, liability,
     claim, damage and expense described in the indemnity contained in
     subsection(a) of this Section, as incurred, but only with respect to untrue
     statements or omissions, or alleged untrue statements or omissions, made in
     the Registration Statement (or any amendment thereto), or any preliminary
     prospectus or the Prospectus (or any amendment or supplement thereto) in
     reliance upon and in conformity with written information furnished to the
     Company by Wells Fargo expressly for use in the Registration Statement (or
     any amendment thereto) or such preliminary prospectus or the Prospectus (or
     any amendment or supplement thereto).

          (c) Actions against Parties; Notification. Each indemnified party
     shall give notice as promptly as reasonably practicable to each
     indemnifying party of any action commenced against it in respect of which
     indemnity may be sought hereunder, but failure to so notify an indemnifying
     party shall not relieve such indemnifying party from any liability
     hereunder to the extent it is not materially prejudiced as a result thereof
     and in any event shall not relieve it from any liability which it may have
     otherwise than on account of this indemnity agreement. In the case of
     parties indemnified pursuant to Section 6(a) above, counsel to the
     indemnified parties shall be selected by Wells Fargo, and shall be
     reasonably satisfactory to the Company, and, in the case of parties
     indemnified pursuant to Section 6(b) above, counsel to the indemnified
     parties shall be selected by the Company, and shall be reasonably
     satisfactory to Wells Fargo. An

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     indemnifying party may participate at its own expense in the defense of any
     such action; provided, however, that counsel to the indemnifying party
     shall not (except with the consent of the indemnified party) also be
     counsel to the indemnified party. In no event shall the indemnifying
     parties be liable for fees and expenses of more than one counsel (in
     addition to any local counsel) separate from their own counsel for all
     indemnified parties in connection with any one action or separate but
     similar or related actions in the same jurisdiction arising out of the same
     general allegations or circumstances. No indemnifying party shall, without
     the prior written consent of the indemnified parties, settle or compromise
     or consent to the entry of any judgment with respect to any litigation, or
     any investigation or proceeding by any governmental agency or body,
     commenced or threatened, or any claim whatsoever in respect of which
     indemnification or contribution could be sought under this Section 6 or
     Section 7 hereof (whether or not the indemnified parties are actual or
     potential parties thereto), unless such settlement, compromise or consent
     (i) includes an unconditional release of each indemnified party from all
     liability arising out of such litigation, investigation, proceeding or
     claim and (ii) does not include a statement as to or an admission of fault,
     culpability or a failure to act by or on behalf of any indemnified party.

     SECTION 7. Contribution. If the indemnification provided for in Section 6
                ------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and Wells Fargo on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) 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 Wells Fargo on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.

     The relative benefits received by the Company on the one hand and Wells
Fargo on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total proceeds from the offering (net of the amount of the
Fee) of the Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the Fee received by Wells Fargo.

     The relative fault of the Company on the one hand and Wells Fargo 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 or by Wells Fargo and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

     The Company and Wells Fargo agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to

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above in this Section 7. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.

     Notwithstanding the provisions of this Section 7, Wells Fargo shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Securities placed by it and distributed to the public were
offered to the public exceeds the amount of any damages which Wells Fargo has
otherwise been required to pay by reason of any such untrue or alleged untrue
statement or omission or alleged omission.

     No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

     For purposes of this Section 7, each person, if any, who controls Wells
Fargo within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as Wells Fargo, 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 within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.

     The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies that may otherwise be available to any indemnified
party in law or in equity.

     SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
                --------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of Wells Fargo or a controlling person, or by or on behalf of the
Company, and shall survive delivery of the Securities to the Buyers.

     SECTION 9. Termination of Agreement.
                ------------------------

          (a) Termination; General. Wells Fargo may terminate this Agreement, by
     notice to the Company, at any time at or prior to Closing Time (i) if there
     has been, since the time of execution of this Agreement, any material
     adverse change in the condition, financial or otherwise, or in the
     earnings, business affairs or operations of the Company, whether or not
     arising in the ordinary course of business, or (ii) if there has occurred
     any material adverse change in the financial markets in the United States
     or the international financial markets, any outbreak of hostilities or
     escalation thereof or other calamity or crisis or any change or development
     involving a prospective change in national or international political,
     financial or economic conditions, in each case the effect of which is such
     as to make it, in the judgment of Wells Fargo, impracticable or inadvisable
     to market the Securities or to enforce contracts for the sale of the
     Securities, or (iii) if

                                       11

<PAGE>

     trading in any securities of the Company has been suspended or materially
     limited by the Commission or the Nasdaq National Market, or if trading
     generally on the American Stock Exchange or the New York Stock Exchange or
     in the Nasdaq National Market has been suspended or materially limited, or
     minimum or maximum prices for trading have been fixed, or maximum ranges
     for prices have been required, by any of said exchanges or by such system
     or by order of the Commission, the National Association of Securities
     Dealers, Inc. or any other governmental authority, or a material disruption
     has occurred in commercial banking or securities settlement or clearance
     services in the United States or (iv) if a banking moratorium has been
     declared by either Federal or New York authorities.

          (b)    Liabilities. If this Agreement is terminated pursuant to this
     Section, such termination shall be without liability of any party to any
     other party except as provided in Section 4 hereof, and provided further
     that Sections 6, 7 and 12 shall survive such termination and remain in full
     force and effect.

     SECTION 10. Notices. All notices and other communications hereunder shall
                 -------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to Wells Fargo
shall be directed to Wells Fargo Securities, LLC, 600 California Street, Suite
1700, San Francisco, California 94104, attention of Harold M. Gerber; and
notices to the Company shall be directed to it at 5110 Campus Drive, Plymouth
Meeting, Pennsylvania 19462, attention of Christopher P. Schnittker, with a copy
to Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103,
attention of Randall B. Sunberg.

     SECTION 11. Parties. This Agreement shall each inure to the benefit of and
                 -------
be binding upon Wells Fargo and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than Wells Fargo and
the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of Wells Fargo and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from Wells Fargo shall be deemed to be a
successor by reason merely of such purchase.

     SECTION 12. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
                 ----------------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS PROVISIONS THEREOF. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

     SECTION 13. Effect of Headings. The Article and Section headings herein are
                 ------------------
for convenience only and shall not affect the construction hereof.

                                       12

<PAGE>

     SECTION 14. Entire Agreement; Amendments and Waivers. This Agreement
                 ----------------------------------------
constitutes the entire agreement of the parties to this Agreement and supersedes
all prior written or oral and all contemporary oral agreement, understandings
and negotiations with respect to the subject matter hereof. This Agreement may
be modified or waived, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and Wells Fargo.

     SECTION 15. Invalidity or 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 of 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.

                                       13

<PAGE>

     If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
Wells Fargo and the Company in accordance with its terms.

                                             Very truly yours,

                                             GENAERA CORPORATION

                                             By: /s/ Roy Clifford Levitt
                                                 -------------------------------
                                                 Name:  Roy Clifford Levitt
                                                 Title: President and Chief
                                                        Executive Officer

CONFIRMED AND ACCEPTED,
as of the date first above written:

WELLS FARGO SECURITIES, LLC

By: /s/ Steve Nelson
    --------------------------------
         Authorized Signatory

                                       14

<PAGE>

                                                                      SCHEDULE A
Name:
-----

State of Wisconsin Investment Board

Stuart Weisbrod, Merlin BioMed Group and its affiliates

                                      A-1

<PAGE>

                                                                      SCHEDULE B

                      FORM OF OPINION OF COMPANY'S COUNSEL
                           TO BE DELIVERED PURSUANT TO
                                  SECTION 5(b)

     (i)    The Company is validly existing as a corporation in good standing
under the laws of the State of Delaware.

     (ii)   The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Placement
Agency Agreement.

     (iii)  The Securities have been duly authorized for issuance and sale to
the Buyers pursuant to the Placement Agency Agreement and, when issued and
delivered by the Company against payment of the consideration set forth on the
cover of the Prospectus, will be validly issued, fully paid and non-assessable.

     (iv)   The issuance of the Securities is not subject to any statutory
preemptive right or, to our knowledge, other similar rights of any
securityholder of the Company.

     (v)    The Placement Agency Agreement has been duly authorized, executed
and delivered by the Company.

     (vi)   The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; and, to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.

     (vii)  The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
Prospectus, as the case may be, excluding the documents incorporated by
reference therein, as of their respective effective or issue dates, as the case
may be (other than the financial statements and supporting schedules included
therein or omitted therefrom, as to which we express no opinion), complied as to
form in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.

     (viii) The documents incorporated by reference in the Prospectus (other
than the exhibits thereto, the financial statements and supporting schedules
included therein or omitted therefrom and the registration statement filed
pursuant to Section 12 of the 1934 Act, including any amendments thereto, as to
which we express no opinion), at the time they were filed with the Commission
complied as to form in all material respects with the requirements of the 1933
Act or the 1934 Act, as applicable, and the rules and regulations of the
Commission thereunder.

                                      B-1

<PAGE>

     (ix) To our knowledge, there is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which the Company is a party, or to
which the property of the Company is subject, before or brought by any court or
governmental agency or body, domestic or foreign, that is required to be
disclosed in the Prospectus and is not disclosed therein.

     (x)  No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign (other than under the 1933 Act and the 1933 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we express no
opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Placement Agency Agreement or for the offering,
issuance, sale or delivery of the Securities.

     Counsel may limit its opinion to the federal laws of the United States, the
laws of the Commonwealth of Pennsylvania and the General Corporation Law of the
State of Delaware. In rendering such opinion, such counsel may rely, as to
matters of fact (but not as to legal conclusions), to the extent they deem
proper, on the representations of the Company in this Agreement and certificates
of officers of the Company and public officials.

                                      B-2<PAGE>

                              EXPLORATION AGREEMENT

         This Exploration Agreement ("Agreement") is entered into on this the
23rd day of March, 2002, by and between SK EXPLORATION, INC. (hereinafter
referred to as "SK"), with principal offices located at 7700 San Felipe, Suite
500, Houston, Texas, 77063 and KNOX MISS. PARTNERS, L.P. (hereinafter referred
to as "Knox"), with principal offices located at One Belmont Ave., Suite 417,
Bala Cynwyd, PA 19004.

         WHEREAS, SK is the owner of certain oil, gas and mineral leases and is
presently acquiring additional oil, gas and mineral leases located in Webster,
Clay, Chickasaw, Calhoun, and Grenada Counties, Mississippi. This area has been
designated by SK as the Livingston Transform Area ("Livingston Area") and is
more particularly described on Exhibit "A" which is attached hereto and
incorporated herein for all purposes. Also identified on Exhibit "A" are three
exploratory prospects being the North Mathison Prospect, Clarkston Prospect, and
Lewisville Prospect, which are sometimes collectively referred to herein as (the
"Prospects"); and

         WHEREAS, Knox and SK desire to jointly cooperate and participate in the
exploration and development of the Livingston Area.

         NOW, THEREFORE, the parties hereto, with the intent to be legally
bound, in return for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, including the mutual exchange of
covenants and promises herein contained, agree as follows:

                                    ARTICLE I
                                     ACREAGE

         A. Simultaneous with the execution of this Agreement SK shall assign,
transfer and convey to Knox an undivided fifty percent (50%) interest in and to
the existing Oil, Gas and Mineral Leases owned and held by SK in the Livingston
Area. The Oil, Gas and Mineral Leases comprise approximately fourteen thousand
(14,000) within the Livingston Transform Area. Excepting the warranties
specifically set forth in other provisions of this Agreement, the Acreage
acquired hereunder shall be conveyed to Knox by SK with the following
representations and warranties: (i) SK shall unconditionally warrant and defend
the title to the interest being herein assigned to Knox against any person or
entity claiming the same, by, through, or under SK, but not otherwise, (ii) that
any and all oil, gas and mineral leases covering the Acreage shall be in full
force and effect in accordance with the terms and conditions contained therein;
(iii) SK has full authority to execute and deliver the assignment provided for
herein in order to convey to Knox the full interest in the Acreage which Knox
contemplates hereunder; (iv) the net revenue interest assigned to Knox not be
less than Knox's proportionate share of the actual net revenue interest which
was delivered to SK, except that SK may assign an overriding royalty interest of
no more than one percent (1.0%) in the oil, gas and mineral leases to brokers or
agents (said overriding royalty shall proportionately burden SK and Knox's
interests); and (vi) the Acreage shall be assigned to Knox free and clear of any

<PAGE>

mortgages, liens, burdens, or encumbrances, of any character or kind, except for
Knox's proportionate share of the no more than a one percent (1%) overriding
royalty interests as identified herein. The assignment, conveyance and bill of
sale documents shall be in a form that is mutually agreeable to SK and Knox.

         B. As part of the ongoing exploration and development of the Livingston
Area, SK shall acquire additional Oil, Gas and Mineral Leases within the
Clarkston and Lewisville Prospects. SK has identified and anticipates the
additional acquisition of ten thousand (10,000) net mineral acres located within
the Clarkston and Lewisville Prospects("Additional Acreage"). SK will assign,
transfer and convey to Knox its proportionate undivided fifty percent (50%)
interest in the Additional Acreage promptly upon its acquisition by SK, and
shall in no event assign, transfer and convey the Additional Acreage within
thirty (30) days of its acquisition by SK. Knox agrees to pay all of the
projected actual lease acquisition and brokerage costs as set forth on the Cost
Allocation schedule which is attached hereto and incorporated herein as Exhibit
"C." The projected lease acquisition and brokerage costs associated with the
acquisition of the Additional Acreage is included within the amounts to be paid
by Knox pursuant to the terms of Article III hereof. It is understood and agreed
between the parties that the amounts set forth on the Cost Allocation are an
estimate of the costs associated with the acquisition of the Additional Acreage
and Knox agrees to pay all of the actual costs incurred to acquire the
Additional Acreage in excess of the sums set forth on the Cost Allocation. In
the event the actual costs to acquire the Additional Acreage are less than the
costs set forth on the Cost Allocation, or SK fails to acquire ten thousand
(10,000) net mineral acres, SK shall refund to Knox all excess funds. All
Additional Acreage acquired hereunder shall be conveyed to Knox by SK with the
following representations and warranties: (i) SK shall unconditionally warrant
and defend the title to the interest being herein assigned to Knox against any
person or entity claiming the same, by, through, or under SK, but not otherwise,
(ii) that any and all oil, gas and mineral leases covering the Additional
Acreage shall be in full force and effect in accordance with the terms and
conditions contained therein; (iii) SK has full authority to execute and deliver
the assignment provided for herein in order to convey to Knox the full interest
in the Additional Acreage which Knox contemplates hereunder; (iv) the net
revenue interest assigned to Knox not be less than Knox's proportionate share of
the actual net revenue interest which was delivered to SK, except that SK may
assign an overriding royalty interest of no more than one percent (1.0%) in the
oil, gas and mineral leases to brokers or agents (said overriding royalty shall
proportionately burden SK and Knox's interests); and (vi) the Additional Acreage
shall be assigned to Knox free and clear of any mortgages, liens, burdens, or
encumbrances, of any character or kind, except for Knox's proportionate share of
the no more than a one percent (1%) overriding royalty interests as identified
herein. The assignment, conveyance and bill of sale documents shall be in a form
that is agreeable to SK and Knox.

         C. SK and Knox hereby establish an Area of Mutual Interest which shall
encompass all the lands identified on Exhibit "D". The term "Area of Mutual
Interest" ("AMI") shall include all of the lands, oil, gas and mineral leasehold
interests, royalty interests, mineral interests, farm-ins, farmouts, contracts,
agreements, and personal property used or obtained in connection therewith and
all oil, gas and mineral interests, leasehold interests, mineral interests,
and/or royalty interests of every kind and nature within the lands described on
Exhibit "D". The term AMI shall also include the oil, gas and mineral interests,
leasehold interests, royalty interests, contractual interests attributable to

<PAGE>

the lands outside such area which are required to be taken by lease, farmout or
otherwise in order to get coverage on the oil, gas and mineral interests
attributable to land described on Exhibit "A". The parties shall share the
interests acquired within the AMI as follows:

         SK        -       50%
         Knox      -       50%

         Either party making an acquisition ("Acquiring Party") shall give the
other party written notice within ten (10) days of consummating such transaction
of the terms of the transaction, including but not limited to, the type of
interest acquired, contract or lease terms, and the costs of acquisition. The
party receiving such notice ("Reimbursing Party") shall have ten (10) days from
the date of receipt to elect to acquire its proportionate share of such acquired
interest. Failure to timely make an election to participate shall be deemed as
an affirmative election not to participate in the acquisition. In order to
exercise such election, the Reimbursing Party receiving notice shall tender to
the Acquiring Party its proportionate share of the costs of such acquisition
together with its written election to participate. Upon tendering such
reimbursement, the Reimbursing Party shall be considered a proportionate owner
of the interest so acquired and the Acquiring Party shall immediately execute,
acknowledge and tender to the Reimbursing Party an assignment and/or conveyance
of its proportionate interest. Each of the parties hereto agrees to assist the
other in obtaining abstracts of title, title opinions, and other title data
including title curative data. Each of the parties agrees to reimburse the other
for its proportionate share of the costs of obtaining such data, curing title
and brokerage fees as to any interests shared pursuant to the AMI. None of the
other parties hereto shall be liable to the other in damages or otherwise for
failure to perform under the terms hereof. The only consequence of such
non-performance shall be the loss of all rights of the non-performing party
hereunder except as to all interests within the AMI as to which such party has
performed. The term of this AMI shall be for a period of ten (10) years and for
as long thereafter as any oil, gas and mineral lease subject to this Agreement
remain or are continued in force and effect as to any part of the AMI, whether
by production, extension, renewal, or otherwise.

         D. In the event that any of the oil, gas and mineral leases covering
the Acreage, the Additional Acreage, or is acquired under the AMI, covers less
than the full undivided mineral interest in the lands covered thereby, then the
interest to be conveyed herein, shall be proportionately reduced in direct
proportion to that which the mineral interests actually covered under said oil,
gas and mineral leases. Such interest shall also be proportionately reduced in
the event the oil, gas and mineral leases cover less than the full leasehold or
mineral title, or in the event the acquiring party did not acquire a full
interest in the oil, gas and mineral leases.

         E. SK shall provide to Knox, at SK's sole cost and expense, copies of
the oil, gas and mineral leases, title run sheets, title reports, title
opinions, division orders, and any other documentation relating to the Acreage,
the Additional Acreage, and any acreage acquired pursuant to the terms of the
AMI.

<PAGE>

                                   ARTICLE II
                                GEOPHYSICAL DATA

         A. SK shall acquire and provide to Knox seismic data covering and
including the Livingston Area at the cost as set forth on the Cost Allocation
Schedule (hereinafter the "Livingston Data"). The license for the Livingston
Data shall name both SK and Knox as licensees with equal right to the use of the
Livingston Data. SK shall, at their sole cost and expense, provide to Knox,
reasonable access to the geophysical workstation located at SK's offices in
order to properly, timely, and independently evaluate the geologic and/or
geophysical merit of the Livingston Area. Additionally, SK shall provide to Knox
access to all associated well data, engineering data, geological data, and any
and all other geophysical data or information which SK possesses within the
Livingston Area, including but not limited to interpretations of existing
seismic logs, cores, and production history.

         B. SK shall obtain reprocessing of the Livingston Data covering and
including the Livingston Area at a cost as set forth on the attached Cost
Allocation Schedule. The reprocessed seismic data shall be owned in equal shares
by SK and Knox.

         C. SK shall engage the services of a geophysicist to interpret the
acquired and reprocessed seismic data covering the Livingston Area and the AMI
at a cost as set forth on the attached Cost Allocation Schedule.

         D. SK shall at its sole cost and expense provide the initial
interpretation of the seismic data for exploration and development of the
Livingston Area.

                                   ARTICLE III
                                     FUNDING

         Upon the execution of this Agreement, Knox shall pay to SK the sum of
One Million Eight Hundred Five Thousand Dollars ($1,805,000.00) which represents
the amount equal to the actual costs for the Acreage the proposed Additional
Acreage costs and Geophysical costs set forth on the Cost Allocation Schedule,
and one half of SK's promoted costs. Additionally, Knox agrees to pay to SK on
or before January 1, 2003 the additional sum of Four Hundred Twenty Five
Thousand Dollars ($425,000.00), which represents a total purchase price of Two
Million Two Hundred Thirty Thousand Dollars ($2,230,000.00). The purchase price
will be allocated in substantially the fashion described on the Cost Allocation
schedule attached hereto. If Knox fails to pay the sum due by January 1, 2003 to
SK, Knox must reassign the Acreage and Additional Acreage to SK, free and clear
of all liens and encumbrances.

<PAGE>

                                   ARTICLE IV
                                SALE OF INTEREST

         A. For a period of one (1) year from the date of this Agreement, SK and
Knox mutually agree to cooperate in effecting the sale of the entirety of the
oil, gas and mineral leasehold acreage jointly owned within the Livingston Area,
including the Longview Prospect and Osborn Prospect which are located in
Oktibbeha County, Mississippi and which are the subject matter of a certain
Exploration Agreement dated March 23, 2002, by and between SKH Energy Partners
II, L.P. and Knox Miss. Partners, L.P.

         B. In the event of a joint sale by Knox and SK of some or all of the
lands within the Livingston Area, Knox will be entitled to receive all of
proceeds derived from such sale or sales until such time as Knox receives Eight
Hundred Fifty Thousand Dollars ($850,000.00). After Knox has recovered the first
Eight Hundred Fifty Thousand Dollars ($850,000.00) all proceeds derived from
such sale or sales shall be allocated to SK and Knox according to their
respective interests. If such sale or sales occur prior to January 1, 2003, Knox
will be limited to the receipt of the first Four Hundred Twenty Five Thousand
Dollars ($425,000.00) derived from the proceeds of such sale or sales and the
payment due to SK from Knox in the amount of Four Hundred Twenty Five Thousand
Dollars ($425,000.00) identified hereinabove in Article III will be waived by SK
and will not due and owing by Knox.

         C. In the event that there are sales of the acreage within the
Livingston Area and the parties drill and complete an Initial Prospect
Exploratory Well(as defined herein) as a well capable of commercial production,
SK agrees to executed and deliver a conveyance (in a mutually acceptable form)
to Knox of a production payment equivalent to ten percent of eight eighths (10%
of 8/8ths) of SK's portion of the revenue from the Initial Prospect Exploratory
Well until Knox has recovered and received the total sum of eight hundred fifty
thousand dollars ($850,000.00).

                                    ARTICLE V
                                JOINT OPERATIONS

         All operations conducted in the Livingston Area shall be subjected to
the provisions of a Joint Operating Agreement. All operations conducted on the
Livingston Area shall be subject to the provisions of a Joint Operating
Agreement. The Joint Operating Agreement shall be in the form and language of
AAPL Form 610-1989, with the modifications and additions as set forth on Exhibit
"E", attached hereto, including any further or additional modifications or
amendments as may be mutually agreed by the parties ("JOA"). Knox shall be named
as the Operator under the JOA. SK agrees to execute and deliver to Knox the JOA
contemplated in this paragraph at Closing. In the event of a conflict between
this Agreement and the terms of the JOA, this Agreement shall prevail.

<PAGE>

                                   ARTICLE VI
                                EXPLORATORY WELL

         A. SK and Knox agree that for a period of one (1) year from the date of
execution of this Agreement neither party will propose the drilling of a well
within the Livingston Area.

         B. After one (1) year from the date of the execution of this Agreement,
either party may propose the drilling of an initial prospect exploratory well
("Initial Prospect Exploratory Well") within the Livingston Area for any
Prospect Area (as hereinafter defined). Should any party desire to propose such
Initial Prospect Exploratory Well ("Proposing Party"), said Proposing Party
shall make the proposal in writing and provide the other party the following:

         (i)    a structure map of the prospect to be tested at objective
                depths;

         (ii)   an outline defining the Prospect Area. As a general rule, it is
                the intent of the parties that the Prospect Area outline shall
                be drawn on the nearest quarter section line outside the lowest
                closing contour of the structure rot be tested, or in the case
                of a stratigraphic trap or fault trap, the outline shall be
                drawn to the nearest quarter section lines outside the
                stratigraphic trapping boundary or the trapping fault plane.

         (iii)  an Authorization For Expenditure ("AFE") depicting both the cost
                for a dry hole and for a completed producing well.

         (v)    a leasehold and ownership map covering the Prospect Area.

The party receiving such notice ("Electing Party") shall have thirty (30) days
following the receipt of all items set forth above in which to make its election
to participate in the Initial Prospect Exploratory Well pursuant to the terms
hereof. The JOA will govern the operations of the Initial Prospect Exploratory
Well proposed for the Prospect Area, except to the extent it does not conflict
wit the provisions of this Agreement, including, but not limited to the
relinquishment provision set forth herein.

         Failure to timely make an election to participate shall be deemed as an
affirmative election not to participate in the Initial Prospect Exploratory Well
for a Prospect Area. A non-participating Party in the Initial Prospect
Exploratory Well for any Prospect Area will relinquish its interest to the
participating party as follows:

         (i)    In the event the Initial Prospect Exploratory Well l is drilled
                to the objective formation and is capable of production in
                paying quantities, relinquish one hundred percent (100%) of its
                interest or right to earn or acquire an interest in the
                producing unit established for the Initial Prospect Exploratory
                Well, and relinquish fifty percent (50%) of its interest or
                right to earn or acquire a interest in the remainder of the
                Prospect Area to the participating Party.

         (i)    In the event the Initial Prospect Exploratory Well is drilled to
                the objective formation and drilled as a dry hole, the amount of
                acreage relinquished to the participating Party as to the
                aforementioned one hundred percent (100%) interest will be
                limited to the applicable statewide or field spacing rules (for
                the field

<PAGE>

                where the well is located) established by the Mississippi Oil &
                Gas Commission for the producing units for the objective
                formation as if the well had been completed as a producer. In
                the event the well is drilled to the objective formation and
                drilled as a dry hole then the relinquishment of the
                aforementioned fifty percent (50%) interest will still apply as
                to the balance of the Prospect Area.

         (i)    In the event the participating Party while drilling in good
                faith, fails to reach the objective formation due to
                impenetrable substances or conditions in the hole which in a
                prudent operator's opinion would render further drilling
                impracticable but encounters producible hydrocarbons in a
                shallower formation, and should such Party desire to complete
                the well at such shallower formation it may elect to do so. In
                this case, should the completion attempt result in a productive
                well or a well capable of production in paying quantities, the
                non-participating Party will relinquish to the participating
                Party one hundred percent (100%) of its interest in the
                producing unit established for the well and relinquish fifty
                percent (50%) of its interest or right to earn or acquire a
                interest in the remainder of the Prospect Area to the
                participating Party.

         C. All subsequent wells drilled in a Prospect Area shall be proposed by
the parties in accordance with the JOA. All subsequent operations conducted on
an Initial Prospect Exploratory Well and all subsequent wells shall be in
accordance with the JOA.

                                   ARTICLE VII
                             RELATIONSHIP OF PARTIES

         A. The parties hereto expressly do not intend to create, and no
provision hereof shall be construed as creating a partnership, joint venture,
mining partnership, corporation, association or other relationship whereby any
party hereto shall ever be held liable for the acts either by omission or
commission, of the other, the liability of all the respective parties hereto
being several and not joint or collective. Each party shall be individually
responsible for its own obligations as set out in this Agreement and in the JOA.

         B. Each party hereto agrees to defend, indemnify, save, and hold
harmless the other party from and against any and all claims, demands, causes of
action, and damages to third parties claiming under a party hereto for
brokerage, commission, finders, or other fees relative to this Agreement, or the
transactions contemplated hereby, together with any court costs, attorney's fees
or other costs or expenses arising therefrom.

         C. Nothing in this Agreement (express or implied) is intended or shall
be construed to confer upon any person or entity not a party hereto any right,
remedy or claim under, or by reason of, this Agreement.

<PAGE>

                                  ARTICLE VIII
                                     NOTICES

         A. Except as otherwise expressly provided herein, all notices or
information required pursuant to this Agreement shall be in writing, and shall
be given or served by facsimile and by delivering the same in person to such
party. Notice in the manner herein described shall be effective, from and after
receipt of such notice by the addressee. Notice given in any other manner
(including, but not limited to, notice by courier, delivery, FedEx, or other
delivery service) shall be effective only if and when received by the party to
be notified. In the event the addressee refuses delivery of any such notice,
then such notice shall be deemed as received on the postal date of such refusal.
The addresses for the parties shall be as follows:

             If to Knox:

                              Knox Miss. Limited Partners, L.P.
                              One Belmont Ave,  Suite 704178
                              Bala Cynwyd, PA 19004
                              Office: (610) 660-5906
                              Fax:    (610) 660-5905
                              Attn:   Mr. Stephen Harrington

                              With copy to:
                              Klehr, Harrison, Harvey, Branzburg and Ellers
                              Attn: Craig Zappetti, Esq.
                              260 S. Broad Street Ste. 400
                              Philadelphia, PA 19102

             If to SK:

                              SK Exploration, Inc.
                              7700 San Felipe, Suite 500
                              Houston, Texas 77063
                              Office: (713) 782-1075
                              Fax:    (713) 785-6591
                              Attn:   Mr. George W. Hugo, Jr.

         Any party may, by written notice so delivered to the other as set forth
above, change the address to which the deliver shall thereafter be made.

<PAGE>

                                   ARTICLE IX
                              MISCELLANEOUS MATTERS

         A. TIME IS OF THE ESSENCE IN THIS AGREEMENT. This Agreement and all
operations hereunder shall be subject to all valid and applicable laws, orders,
rules and regulations of any governmental body having jurisdiction over such
operations. This Agreement and the legal relations amount the parties hereto
shall be governed by and construed in accordance with the substantive laws of
the State of Texas.

         B. Any of the terms, provisions, covenants, representations, warranties
or conditions hereof may be waived only by a written instrument executed by the
party waiving compliance. Except as otherwise expressly provided in this
Agreement, the failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect such party's right to enforce
the same.

         C. All the terms, provisions, covenants, obligations, indemnities,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns. Any assignment of the parties rights
hereunder to any third party shall be made expressly subject to all of the
terms, provisions, covenants, obligations, indemnities, representations,
warranties and conditions of this Agreement and the JOA.

         D. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.

         E. The parties acknowledge that they have had an adequate opportunity
to review each and every provision contained in this Agreement, including the
opportunity to submit the same to legal counsel for review and comment. Based on
said review and consultation, the parties agree with each and every term
contained in the Agreement. Based on the foregoing, the parties agree that the
rule of construction that a contract be construed against the drafter, if any,
shall not be applied in the interpretation and construction of this Agreement.

         F. This Agreement may be executed in a number of counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same Agreement. It shall not be necessary that the Parties hereto execute a
single counterpart hereof, and this Agreement shall be effective when each party
hereto has executed a counterpart hereof (whether or not any other party has
executed the same counterpart).

         G. The subject headings of the articles, sections and subsections of
this Agreement are included solely for purposes of convenience and reference
only, and shall not be deemed to explain, modify, limit, amplify or aid in the
meaning, construction or interpretation of any of the provisions of this
Agreement.

         H. The Parties have entered into this Agreement for their own accounts
and shall acquire any Leases hereunder for their own accounts and not with the
intent to make a distribution hereof within the meaning of Securities Act of

<PAGE>

1933 and the rules and regulations pertaining to it or distribution thereof in
violation of any applicable securities laws.

         I. Each Party hereto shall from time to time do and perform such
further acts and execute and deliver such further instruments, assignments and
documents as may be required or reasonably requested by the parties hereto to
carry out and effect the intentions and purposes of this Agreement.

         IN WITNESS HEREOF, the undersigned parties have executed this Agreement
on the day set forth hereinabove but such Agreement is effective March 20, 2002.

KNOX MISS. PARTNERS, L.P.                   SK EXPLORATION, INC.

By:   KNOX MISS., LLC

      By: /s/  Mark A. Bush                 By: /s/  Keith Hatch
          -----------------------------         --------------------------------
          Mark A. Bush, Managing Member         Keith Hatch, Vice-President

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