Document:

Unassociated Document

     

    
      DISCOVERY
LABORATORIES, INC.

      

      Form
of Series II Warrant To Purchase Common Stock

      

      Warrant
No.: [­_____]

      Number of
Shares of Common Stock: [_________]

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

      

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

       

      1.      EXERCISE OF
WARRANT.

       

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

      
        

      

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

         

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

      

      (b)           Exercise
Price.  For purposes of this Warrant, “Exercise Price” means $2.94,
subject to adjustment as provided herein.

       

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

       

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

      
         

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

        B

        For purposes of the foregoing
formula:

         

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

        

         

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

        

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

          

        

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

      

       

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

      

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

       

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

       

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

       

      2.      ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

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

       

      (b)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company’s Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the Holder; provided that no such adjustment pursuant to
this Section
2(b) will increase the Exercise Price or decrease the number of Warrant
Shares as otherwise determined pursuant to this Section
2.

       

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

       

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

       

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

       

      4.      PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

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

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

      

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

       

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

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

      7.      REISSUANCE OF
WARRANTS.

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        
          (a)  
if to the
Company, to:

        

      Discovery
Laboratories, Inc.

      2600
Kelly Road

      Warrington,
Pennsylvania 18976

      Attention:  John
G. Cooper

      Facsimile:  215-488-9301

      

      with copies
to:

      

      SNR
Denton US LLP

      Two World
Financial Center

      New York,
New York 10281

      Attention:  Ira
L. Kotel, Esq.

      Facsimile:  212-768-6800

      

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

      

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

      

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

       

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

       

      (a)           “Bloomberg” means Bloomberg
Financial Markets.

       

      (b)           “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

       

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

       

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

       

      (e)           “Common Stock” means
(i) the Company’s shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

       

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

       

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

       

      (h)           “Expiration Date” means the
date fifteen (15) months following the Issuance Date or, if such date falls on a
day other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that
is not a Holiday.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

      

      (i)       
   “Fundamental
Transaction” means that the Company shall, directly or indirectly, in one
or more related transactions, (i) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Person, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.

       

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

       

      (k)           “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

       

      (l)        
  “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

       

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

       

      (n)           
“Successor Entity” means
the Person (or, if so elected by the Holder, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

       

      (o)           “Trading Day” means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided
that “Trading Day” shall not include any day on which the Common Stock are
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock are suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York time).

       

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

       

      [Signature
Page Follows]

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

         

      

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

      
         

        
          
            	 	

                    DISCOVERY
      LABORATORIES, INC.

                  	 
	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

             

          

        

      

       EXHIBIT
A

      

      EXERCISE
NOTICE

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

      

      DISCOVERY
LABORATORIES, INC.

      

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

      

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

      

      
        	
                 
      

              	
                ____________

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

              

      

      

      
        	
                 
      

              	
                ____________

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

              

      

      

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

      

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

      

      _______________________________

      

      _______________________________

      

      _______________________________

      
         

        Date:
_______________ __, ______

        

        

        _____________________________________

           Name
of Registered Holder

        

        

        
          	
                  By: 

                	
                  ______________________________ 

                

        

        Name:

        Title:

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

      

      ACKNOWLEDGMENT

      

      

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

      
         

        
          
            	 	

                    DISCOVERY
      LABORATORIES, INC.

                  	 
	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	 	 
	 	 	
                    Name:

                  	 
	 	 	
                    Title:

                  	 
	 	 	 	 

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

      
        

        EXHIBIT
B

        ASSIGNMENT
FORM

        

        (To
assign the foregoing warrant, execute

        this form
and supply required information.

        Do not
use this form to exercise the warrant.)

         

        

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

         

        

        _______________________________________________
whose address is

        

        _______________________________________________________________.

         

        _______________________________________________________________

        

        Dated:  ______________,
_______

        

        

        
          	
                	
                  Holder’s
      Signature: 

                	
                  _____________________________

                

        

        

        
          	
                	
                  Holder’s
      Address: 

                	
                  _____________________________

                

        

        

        _____________________________

         

        

        Signature
Guaranteed:  ___________________________________________

        

        

        NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.EXHIBIT
10.1

       

       

      Exploration Agreement

       

      CONFIDENTIAL

       

      This
Exploration Agreement (the "Agreement") is entered into on the 7th Day of
February of 2011 (the "Effective Date") between , Glaux Oil and Gas LLC, a Texas
Limited Liability Company, (referred to as "GLAUX") and Bering Exploration Inc.,
a Nevada Corporation, (referred to as “BEI"). BEI and GLAUX may be referred to
as "Party" and collectively as the "Parties."

       

      BEI and
GLAUX are interested in conducting joint exploration operations, including the
drilling of an exploratory well (being the Initial Well in the Contract Area)
and development wells, for the discovery of and for the production of oil and/or
gas in an area in Borden County, Texas. Additionally BEI wishes to retain GLAUX
for up to three years to provide BEI with oil and gas prospects in a defined
area in West Texas.

       

      In
consideration of the premises and the mutual covenants and agreements set out in
this Agreement, BEI and GLAUX agree as follows;

       

      
        	
              	
                I.

              	
                Contract
      Area

              

      

       

      The
initial area covered by this Agreement, called the "Contract Area," consists of
an area of approximately 4,480 acres located in Borden County, Texas described
on the map shown as Exhibit A attached hereto and for the purpose of this
Agreement is called the "Borden #1 Prospect". BEI agrees to pursue with due
diligence and in a commercially reasonable manner to acquire leases within the
Contract Area. The parties agree that all oil and gas exploration and production
activity within the Contract Area will be exclusively conducted as per the terms
of this Agreement for the Term hereof. The parties agree that GLAUX will provide
instructions as to where leases should be obtained and that GLAUX will supervise
the process of acquiring the leases and that BEI will negotiate with the mineral
owners and that the acreage ultimately leased may vary from the map. The
decision to acquire or reject any lease in the Contract Area is the sole
decision of the BEI. A map shall be provided by BEI which will reflect the
location of all leases when the lease negotiations are completed.

       

      
        	
              	
                II. 

              	
                Fees
      and Costs

              

      

       

      BEI, by
execution hereof, agrees to pay one hundred percent (100%) of the jointly pre-approved
costs including but not limited to leasing, seismic operations, tellurics, and
other geophysical surveys, consulting fees for exploration, development and
drilling of the Initial Well and subsequent operations within the Contract Area,
except as herein provided. GLAUX will receive the following compensation for its
work on the prospect:

       

      
        
          	
                	
                  (i) 

                	
                  Prospect
      Development Fee and Consulting Fees: GLAUX will receive a Prospect
      Development Fee of $45,000 as compensation to GLAUX for its work and
      expenses incurred on the Borden #1 Prospect in accordance with the terms
      established in Exhibit C.  BEI agrees to compensate GLAUX for
      consulting time at the rate of $1,600 per day or $200 per hour for time
      worked on projects which BEI has approved in advance.
  

                

        

      

       

      
        
          	
                	
                  (ii) 

                	
                  GLAUX
      is proposing a work
plan including:

                

        

      

       

      
        
          	
                	
                  a. 

                	
                  Seismic
      review to include purchase of three lines of approximately 5 miles of 2-D
      seismic data at an estimated cost of $37,500 plus ten man days of
      interpretation;

                

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        
          	
                	
                  b. 

                	
                  Telluric
      Survey including approximately 20 data points, plus four man days for
      travel and surveying;

                

        

      

       

      
        
          	
                	
                  c. 

                	
                  Telluric
      processing of approximately 10,000 feet at an estimated cost of
      $20,000;

                

        

      

       

      
        
          	
                	
                  d. 

                	
                  geophysical
      integration of approximately 2 man
days;

                

        

      

       

      
        
          	
                	
                  e. 

                	
                  building
      a formal Prospect Package including map preparation, seismic integration
      displays and write-up of approximately 10 man
  days;

                

        

      

       

      
        
          	
                	
                  f. 

                	
                  Additional
      assistance as required for additional man days for marketing the prospect
      to industry participants, managing well drilling, etc.;
  and

                

        

      

       

      
        
          	
                	
                  g. 

                	
                  For
      Prospect leasing, GLAUX will be paid $15 per acre for managing the lease
      acquisitions.

                

        

      

       

      
        
          	
                	
                  (iii) 

                	
                  GLAUX
      will not undertake any work, other than that which is otherwise approved
      herein, without the express written permission and approval of BEI prior
      to commencement of any work. GLAUX will provide a budget for approval by
      BEI prior to the commencement of any work that exceeds
      $10,000.

                

        

      

       

      
        	
              	
                III. 

              	
                Initial
      Well

              

      

       

      BEI will
use all reasonable efforts to commence the drilling of the Initial Well, in
search of oil and/or gas at a location on the Contract Area, within 12 months of
the Effective Date. The initial well location shall be chosen by GLAUX in
consultation with BEI.

      

      
        	
              	
                IV. 

              	
                Operator

              

      

       

      BEI shall
be the operator and will undertake and oversee all leasing, drilling,
completing
and producing activities. The parties may agree to contract with a mutually
agreeable contract operator.

       

      
        	
              	
                V. 

              	
                Marketing

              

      

       

      GLAUX
shall have the right to market its own production or to take it in kind. This
right shall be further defined in the Joint Operating Agreement.

       

      
        	
              	
                VI.

              	
                Term

              

      

       

      This
Agreement shall be for a term commencing on the Effective Date and shall
continue
in force, except as otherwise provided, for a period of the same term of the
longest lease or until a later date on which all operations then being conducted
by the terms of this Agreement have been completed and all obligations of the
Parties provided for in this Agreement have been fully discharged. The term may
be extended for additional one-year periods from year to year by the
mutual written consent of the Parties.

       

      
        	
              	
                VII. 

              	
                Notices

              

      

       

      Unless
otherwise provided, all notices and communications to be given under the
terms of
this Agreement shall be delivered by U.S. Mail, or facsimile, addressed to the
respective Parties as follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      If to
BEI:

       

      Bering
Exploration, Inc.

      710 N.
Post Oak Rd., Suite 410

      Houston,
Texas 77024

       

      Telephone
Number: (713) 859-9792

      Fax
Number: (800) 861-1175

      If to
GLAUX:

       

      GLAUX Oil
and Gas, LLC

      5773
Woodway Drive, #305

      Houston,
Texas 77057

       

      Telephone
Number: (713) 439-7927

      Fax
Number: (866) 686-8583

       

      Unless
otherwise specified in the notice, the date of a notice shall be the date on
which the written or faxed notice is transmitted to the Party to whom it is
addressed. Each Party may change its address by written notice to the other
Party via U.S. Mail, fax or electronic mail. No transfer of any interest
pursuant to the terms of this Agreement shall be effective until the transferor
or transferee (after complying with all other requirements of this Agreement)
notify all other Parties of the address and designated representative of the
transferee.

       

      
        	
              	
                VIII. 

              	
                Laws
      and Regulations

              

      

       

      The terms
of this Agreement and all operations conducted under it shall be subject to all
valid laws, rules, regulations, and orders of any regulatory body having
jurisdiction, and be governed by the laws of the State of Texas. Venue for any
actions arising hereunder shall be Harris County, Texas.

       

      
        	
              	
                IX. 

              	
                Assignability

              

      

       

      This
Agreement shall be binding on the Parties and their respective heirs, successors
and assigns. All rights and obligations created by this Agreement are not
assignable without the prior written consent of BEI and GLAUX, which
consent may not be unreasonably withheld.

       

      
        	
              	
                X. 

              	
                Force
      Majeure

              

      

       

      The
obligations of each Party, except for the payment of money, shall be
suspended while, but only for so long as, a Party is prevented from complying
with an obligation in whole or in part, by strikes, lockouts, act of God,
unavoidable accidents, uncontrollable delays in transportation, inability to
obtain necessary materials in open markets, inadequate facilities for the
transportation of materials, or as a result of any order, requisition, or
necessity of the government, or other matters beyond the reasonable control of a
Party, whether similar to the matters specifically enumerated above or not;
provided, however, that performance shall be resumed within a reasonable time
after the cause of force majeure has been removed; and provided further that no
Party shall be required, against its will, to settle any labor
disputes.

       

      
        	
              	
                 XI, 

              	
                Captions
      and Titles

              

      

       

      
        The
captions and titles used in this Agreement shall not be construed as adding
meaning
to the subject matter of this Agreement, but are used only for reference and
convenience.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      
        	
              	
                XII. 

              	
                Subsequent
      Operations in the GLAUX/BEI Area of Mutual Interest
    (“AMI”).

              

      

       

      
        
          	
                	
                  a. 

                	
                  The
      Glaux/BEI Area of Mutual Interest Retainer. This AMI is defined in Exhibit
      B. GLAUX has
      access to an aeromagnetic survey covering approximately 500,000
      acres in West Texas containing an estimated 25 undrilled leads or
      prospects. GLAUX agrees to work exclusively with BEI to further develop
      additional mutually agreeable leads or prospects in this area for three
      years from the Effective Date. GLAUX will be paid a quarterly retainer as
      defined in Exhibit C.  This amount will be credited to the
      purchase fee of any prospects presented to BEI in that quarter should BEI
      decide to purchase any prospects in said quarter. GLAUX agrees to provide
      a work plan during each quarter including the estimated cost of developing
      the prospects including seismic, telluric or other costs and BEI agrees to
      pay preapproved costs and additional consulting fees as required to
      develop the prospects. If BEI fails to pay the quarterly retainer or other
      costs as billed, GLAUX will give 30 days notice to enable BEI to remedy
      the non-payment. If payment is not received during the 30 day period,
      GLAUX has the right to terminate the remainder of the exclusive agreement
      for the remaining undeveloped prospects; however, as to developed
      prospects, this agreement shall continue. If BEI rejects the prospect(s)
      in that quarter, then GLAUX is free to market the prospect(s)
      elsewhere.  BEI agrees not to purchase any mineral interest in
      that rejected prospect area and maintain the confidentiality of same. This
      would not prevent BEI from purchasing the prospect from GLAUX at a later
      date if the parties can agree on mutually agreeable terms and
      conditions.

                

        

      

       

      
        
          	
                	
                  XIII. 

                	
                  Miscellaneous

                

        

      

       

      
        
          	
                	
                  a. 

                	
                  GLAUX
      is furnishing BEI with information which may be either nonpublic,
      confidential, or proprietary in nature and which may include, but is not
      limited to, geological and geophysical data, maps, models, and
      interpretations (the "Information"). During the Term of this
      Agreement, BEI shall keep the Information strictly confidential and shall
      not, without the consent of GLAUX, disclose the Information to any Third
      Party, provided that, GLAUX agrees that certain Information may
      be disclosed in the efforts to secure third party investment in the
      operations in the Contract Area and to satisfy reporting standards and
      requirements established by the United States Securities Act of 1933 and
      the United States Securities Exchange Act of 1934 and related legislation
      and the rules and regulations promulgated by the United States Securities
      and Exchange Commission and related state laws, as applicable,
      collectively referred to “Securities Laws”. Any third party with
      which BEI desires to share Information must execute and deliver to BEI and
      GLAUX a Confidentiality Agreement in a form acceptable to BEI and
      GLAUX.  BEI and third parties who will sign these
      Confidentiality and Non-Circumvention Agreements shall agree not to hire
      any of GLAUX’s employees or consultants during the term of the Agreement
      and for one year thereafter. GLAUX agrees to not disclose Information to
      any Third Party in the future except to assist BEI in the efforts to
      secure third party investment for BEI or for GLAUX to secure third party
      investment in the event that BEI elects to abandon or release all or any
      part of its rights in the leases within the Contract Area in the following
      paragraph without the express written permission of BEI. BEI agrees not to
      use GLAUX’s name or the name of its consultants in any press releases
      without written authorization beforehand.  GLAUX will provide
      BEI with mutually agreeable non confidential information for use in
      investor presentations that will not require a Confidentiality
      agreement.

                

        

      

       

      
        
          	
                	
                  b. 

                	
                  In
      the event BEI should elect to abandon or release all or any part of its
      rights in the leases lying within the Contract Area, any renewals or
      extensions of those leases, or any joint property, BEI shall notify GLAUX
      no less than three (3) months in advance of any abandonment or release,
      and if requested to do so, within ten (10) days of the receipt of notice
      by GLAUX, shall immediately assign all such rights to GLAUX at no cost to
      GLAUX.

                

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        
          	
                	
                  c. 

                	
                  The
      parties will meet at least once every three months to discuss BEI's
      progress in leasing and developing the Contract Area. If BEI decides not
      to pursue certain prospective areas within the Contract Area, it will
      notify GLAUX in writing. GLAUX will then have the right to receive
      assignment of the unused leases and to pursue these areas independently
      without an obligation to compensate
BEI.

                

        

      

       

      
        
          	
                	
                  d. 

                	
                  BEI
      will use its best efforts to lease approximately 1,000 acres, more or
      less, as identified by GLAUX.  If BEI fails to lease the
      aforementioned acreage or drill at least one well in the Contract Area
      during the period of one year from the date of this Agreement, this
      Agreement shall terminate, at the sole option of GLAUX with respect to the
      unleased acreage within the Contract Area. Termination of this Agreement
      by GLAUX does not relieve either BEI or GLAUX of its confidentiality
      obligations and GLAUX's compensation, including any ORRIs or BIAPWIs. Upon
      Termination, BEI will return all prospect information pertaining to
      unleased areas and agrees to not pursue any unleased prospect areas. In
      the event BEI decides to sell any of its interests in the Contract Area,
      GLAUX will be given "tag along" rights and will be able to sell its
      interests at a price per percent or MMBtu that is the same as BEI's
      price.

                

        

      

       

      
        
          	
                	
                  e. 

                	
                  GLAUX agrees to provide
      BEI with consulting time at a rate of $1,600 per day. GLAUX will receive
      reimbursement for any out of pocket expenses, including travel expenses
      involved in providing the consulting services.  All such
      expenditures must be approved by BEI in
advance.

                

        

      

       

      
        
          	
                	
                  f. 

                	
                  GLAUX
      shall be deemed an Independent Contractor and shall be responsible for its
      own taxes. The Parties hereto do not intend to create any type of
      partnership or joint venture
hereby.

                

        

      

       

      
        
          	
                	
                  g. 

                	
                  This
      Agreement is binding on and shall inure to the benefit of the Parties and
      their respective heirs, devises, legal representatives, successors, and
      assigns.

                

        

      

       

      
        
          	
                	
                  h. 

                	
                  GLAUX
      shall have audit rights during normal business hours to the extent
      reasonably
      necessary, at its own expense, to verify the compliance with the terms of
      this Agreement.

                

        

      

       

      
        
          	
                	
                  i. 

                	
                  This
      Agreement may be executed in any number of counterparts, each of which
      shall be considered an original for all purposes, and all counterparts
      together shall be deemed one and the same
  Agreement.

                

        

      

       

      
        
          	
                	
                  j. 

                	
                  GLAUX
      will receive copies of all geophysical data, including interpretations,
      pertaining
      to the prospective areas from BEI as the data is obtained provided BEI's
      licensees allows same as BEI’s contracted
  consultant.

                

        

      

       

      
        
          	
                	
                  k. 

                	
                  BEI
      will receive copies of all existing micro-magnetic, geophysical,
      petrophysical and/or subsurface data, including interpretations,
      pertaining to the individual prospective areas from GLAUX as the data is
      obtained.

                

        

      

       

      
        
          	
                	
                  l. 

                	
                  Either
      Party hereto may pursue legal action against the opposite Party for
      damages or other remedies arising from a default hereunder. The successful
      Party is entitled to recover attorney's fees and cost from the opposite
      Party.

                

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        
          	
                	
                  m. 

                	
                  BEI
      hereby acknowledges that they have reviewed all information, including the
      Disclaimer describing the risks inherent in the oil and gas exploration
      business furnished by or on behalf of GLAUX; and that they are
      sophisticated investors who understand the risks in this venture and the
      oil and gas business generally; and they understand that GLAUX does not
      guarantee that BEI will be successful in obtaining the leases in the
      Contract Area on terms and conditions that will be acceptable to BEI. BEI
      relies on its own investigation of facts and circumstances in deciding to
      enter into this Agreement and agrees it has not relied on any
      representations of Glaux or its agents or representatives unless same is
      stated herein.

                

        

      

       

      
        
          	
                	
                  n. 

                	
                  The
      Confidential Information is provided "AS IS" without warranty of any kind,
      express or implied, and without liability for any damages whatsoever
      relating to BEI's use of the Confidential Information. GLAUX and its
      affiliates do not guarantee that the wells will be successful and past
      performance is no guarantee of future results. GLAUX is not transferring
      any licenses or rights to any of its proprietary technology. BEI agrees
      not to use any of GLAUX’s vendors or consultants without prior written
      permission.

                

        

      

       

      Agreed to
on the date first written above:

       

       

      BEI:

      

      /s/ Steven M.
Plumb

      By:
Steven M. Plumb, CPA

      Title:
Chief Financial Officer

      

      

      GLAUX:

      

      

      /s/ Carl
McCutcheon

      By: Carl
McCutcheon

      Title:
Member

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