Document:

Unassociated Document

    
      
        
          
            Exhibit
10.1

            

            EXECUTIVE
EMPLOYMENT AGREEMENT

            

                     This
EXECUTIVE EMPLOYMENT AGREEMENT ("EA") is made and entered into this 31st day of
July, 2008, by and among Jerry Yu ("EXECUTIVE"), a resident of Shenzhen, China,
and DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.., a Nevada corporation (the
"COMPANY").

            

            I.       EMPLOYMENT.

            

                     A.       Commencing
on September 1, 2008 ("Effective Date"), and for an indefinite period
thereafter, Executive shall be employed pursuant to this EA by the Company, or
by a designated subsidiary of the Company (the Company or such subsidiary, as
the case may be, that employs Executive will be hereinafter referred to as the
"EMPLOYER"). Executive's employment pursuant to this EA shall continue for an
indefinite period, until terminated by either Executive or
Employer.

            

                     B.       Subject
only to the provisions of Sections III. and VII., Executive's employment shall
be "at-will," meaning that either Executive or Employer may terminate it at any
time, with or without any advance notice and with or without any particular
reason or cause or advance procedures. It also means that Executive's job
duties, responsibilities, title, reporting level, regular place of employment,
compensation, benefits and Employer's policies and procedures can be changed, in
the sole discretion of Employer, at any time, with or without advance notice and
with or without any particular reason or cause or advance
procedures.

            

                     C.       In
agreeing to be employed pursuant to this EA, Executive represents and warrants
that Executive has not previously entered into, and in the future shall not
enter into, any agreement, either written or oral, that conflicts with any of
Executive's obligations under this EA or may be an impediment to Executive
providing services under this EA.

            

            II.      POSITION.

            

                     A.       Executive
shall be employed by Employer on a regular full-time basis, with the job title
of Executive Vice President, reporting to the Chief Executive Officer. Executive
shall have such job duties and responsibilities commensurate with such position,
which may change as Employer's business needs and market conditions change from
time-to-time.

            

                     B.       Executive's
initial, regular place or base of employment shall be at the Company's main
business office in Shenzhen, China.

            

                     C.       During
Executive's employment with Employer, Executive shall devote Executive's full
business time, best efforts, abilities, energies and skills to the good faith
performance of Executive's job duties and responsibilities hereunder, and shall
perform said duties and responsibilities at all reasonable times and places in
accordance with reasonable directions and requests made by the Employer
consistent with Executive's position and Employer's business needs as determined
by Employer. Executive shall not engage in any other employment, business, or
business-related activity unless Executive receives prior written approval from
Employer's Board of Directors to hold such outside employment or engage in such
business or activity, which written approval shall not be unreasonably withheld
if such outside employment, business or activity would not in any way be
competitive with the business or proposed business of Employer or otherwise
conflict with or adversely affect in any way Executive's ability to fulfill
Executive's obligations under this EA. Executive shall not be required to
receive prior written approval for activities related to family investments or
charitable organizations.

            

            
              
                
                  	
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                          Jerry Yu

                        
	
                          Executive Employment Agreement

                        

                

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

            III.     CASH
COMPENSATION.

            

            A.       Salary
Compensation.

            

                              1.       Executive
shall earn and be paid a salary, at a monthly rate of Seventy thousand (70,000)
RMB.  Payments to Executive shall be denominated in RMB, USD or
HKD of the equivalent amount.

            

                              2.       Executive's
salary shall be paid at periodic intervals in accordance with Employer's regular
payroll schedule and practices.

            

                              3.       Executive's
salary rate shall be reviewed from time-to-time, generally on an annual basis,
and may be increased by the Compensation Committee of Company's Board of
Directors ("Compensation Committee") in its sole discretion.

            

            B.       Annual
Bonus Compensation Opportunities. As a performance and retention incentive,
Executive shall be eligible to earn an annual bonus award.  The terms
and conditions of each such annual bonus award opportunity shall be provided in
writing to Executive not later than January 31 of each calendar year for that
calendar year and shall be attached to this Agreement each year as Attachment 1.
However, the following will apply to each annual bonus award opportunity made
available to Executive during Executive's employment with Employer.

            

                              1.       Each
annual bonus award opportunity will be conditioned on Employer's achievement of
calendar year revenue and net income objectives, and any other objectives,
established in the discretion of the Board for the calendar year.

            

                              2.       Each
annual bonus award opportunity also will be conditioned on Executive's full-time
active services to Employer continuously through the calendar year. However,
should the Executive be terminated without cause, leave for good reason, die or
become permanently disabled, the Executive or his estate will be entitled to all
bonus compensation that has been earned in accordance with the terms of the then
applicable annual bonus award opportunity but not yet paid at the time of
Executive's departure, death or permanent disability, including any bonus
compensation earned for partial portions of a calendar year.

            

                              3.       It
is the intent of Employer, generally, to pay annual bonuses no later than March
15 of the next calendar year, after Employer's audited financial statements for
the calendar year just ended have been prepared and approved by the
Board.

            

                              4.       The
Employer may provide for periodic progress bonus awards against the total annual
bonus opportunity.

            

            C.       Discretionary
Bonuses. To the extent Employer exceeds both of its revenue and net income
and/or any other objectives established for a calendar year by the Board,
Executive shall be eligible for a discretionary bonus award, which would be in
addition to Executive's annual bonus award opportunity. Whether to grant such
additional bonus award and, if so, in what form and amount, shall be
determinations made by the sole discretion of the Board.

             

            D.       Guaranteed
Compensation.  Executive shall be paid cash compensation as outlined
in Section III A. above for a period of 3 years after the Effective Date as
defined in Section I.B of this EA, regardless of Executive’s employment status
with the company, unless Executive has been terminated with CAUSE.

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                     E.       Withholdings.
All cash compensation paid to Executive pursuant to this EA, including any
Severance Benefits per Section VII.B., shall be subject to (i) any and all
applicable federal, state and local income and employment withholding taxes;
(ii) other amounts required to be deducted or withheld by Employer under
applicable law or order requiring the withholding or deduction of amounts
otherwise payable as compensation or wages to employees; (iii) such other
withholdings and deductions as may be allowed by applicable law; and (iv) such
other withholdings and deductions as may be authorized in writing by
Executive.

            

            IV.      EMPLOYEE
BENEFITS & EXPENSES.

            

                     A.       Employee
Benefits. Executive shall be eligible to participate in all employee benefits
and benefit plans generally made available to executive employees of Employer
from time-to-time, subject to the terms, conditions and relevant qualification
criteria for such benefits and benefit plans. Employer, in its discretion, may
change from time-to-time the employee benefits and benefit plans it generally
makes available to its executive employees.

            

                     B.       Expenses
& Expense Reimbursement. Executive shall be entitled to reimbursement from
Employer of all reasonable and necessary business, travel and entertainment
expenses incurred by Executive in the performance of Executive's job
responsibilities hereunder, subject to the expense reimbursement policies and
procedures of Employer in effect from time-to-time which, at minimum, shall
require completion and submission of expense reimbursement request forms and
receipts evidencing such expenses.

            

            V.       EQUITY

            

                     A.       Grant.
Executive shall be granted shares of Company common stock ("Stock Grant") as to
be determined by the Company’s Board of Directors for each year (12 months) of
service with the Company. The Stock Grant will be granted to the extent
permissible under applicable law.  Each annual Stock Grant will vest
over one (1) year in four (4) quarterly installments , provided that Executive
has continuously provided active services to Employer throughout each relevant
quarter. The Stock Grant will be evidenced by the Company's form of stock grant
agreement, and will be subject to the terms and conditions of that agreement.
Executive will be eligible for future additional stock grants and stock option
grants at the discretion of the Board of Directors.

            

                     B.       Stock
Grant and Options & Change in Control. Each stock grant and stock option
granted shall contain the following terms relative to a "Change in Control"
(defined in Section VI.B.2., below).

            

                              1.       Immediately
upon a "Change in Control," fifty percent
(50%) of all of Executive's then-outstanding stock grant and stock option
shares, under each stock grant and stock option granted to Executive, shall
immediately vest and be exercisable, unless Executive's then-outstanding options
are not assumed by the surviving entity in such Change in Control transaction,
in which case, one hundred percent (100%) of Executive's then-outstanding stock
grant and stock option shares, under all stock grants and stock options granted
to Executive, shall immediately vest and be exercisable.

            

                              2.       If
Executive's employment with the Company or a successor is terminated "Without
Cause" (defined in Section VI.C., below) by the Company
or its successor within 12 months after the effective date of a "Change in
Control," or if Executive terminates his employment with the Company or its
successor for "Good Reason" within 12 months after the effective date of a
"Change in Control", then one hundred percent (100%) of Executive's
then-outstanding stock grant and stock option shares, under each stock grant and
stock option granted to Executive, shall immediately vest and be exercisable as
of the effective date of Executive's termination of employment ("TERMINATION
DATE") provided that the conditions of Section VII.A.2. and Section
VII.B.2.a.-b., below, have been satisfied by Executive no later than 90 days
after the Termination Date.

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

                     C.       Stock
Grant at Death or Permanent Disability. The terms of the Stock
Grant and each stock grant or stock option granted after the Stock Grant shall
provide that one hundred percent (100%) of Executive's then-outstanding stock
grant share and option shares, under all stock grants and stock options granted
to Executive, shall immediately vest and become exercisable in the event of
Executive's death or permanent disability.

            

            VI.      TERMINATION
OF EMPLOYMENT

            

            Although
Executive's employment shall be "at-will," termination of the employment
relationship between Executive and Employer shall be classified in one of the
following categories, for the limited purpose only of the Severance Benefit
Opportunity of Section VII.B., below:

            

                     A.       By
Employer for Cause. Termination of Executive's employment by Employer for
"CAUSE" means a termination by Employer of Executive's employment for any of the
following reasons, upon written notice to Executive at any time:

            

                              1.       Executive's
conviction or plea of nolo contendre to a felony offense or crime of violence or
dishonesty; or

            

                              2.       The
Company's good faith determination, upon majority vote of Company's Board of
Directors, that:

            

                                       a.       Executive
has engaged in theft, fraud, embezzlement or dishonest conduct with respect to
any property or funds of Employer,
any affiliate, subsidiary or parent of Employer, or of any vendor, partner,
employee or customer of Employer that is harmful to Employer, to an affiliate,
subsidiary or parent of Employer or to the business, operations, reputation or
business prospects of any of them;

            

                                       b.       Executive
has breached any of his obligations under the Confidential Information Agreement
signed by Executive as a condition of this EA;

            

                                       c.       Executive
has engaged in an act of misconduct which has had an adverse effect on the
business, operations, reputation or business prospects of Employer or of an
affiliate, subsidiary or parent of Employer; or

            

                     B.       By
Executive for Good Reason.

            

                              1.       Termination
of Executive's employment by Executive shall qualify as a termination by
Executive for "GOOD REASON" if all of the following conditions are
met:

            

                                       a.       Executive
shall have given advance written notice of termination to Employer ("NOTICE"),
in accordance with Section VIII.H., below, that includes the
following:

            

                                                (1)      a
description of the act, omission or breach giving rise to the Notice,
and

            

                                                (2)      a
date on which Executive intends the termination to be effective ("Termination
Date"), that is no earlier than 30 days
after the date the Notice is delivered to the Employer;

            

                                       b.       The
act, omission or breach described in the Notice is
one of the following:

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                                                (1)      A
reduction, without Executive's consent, of Executive's salary rate or bonus
award opportunity by more than ten percent (10%), unless the salary rates of all
Employer's executive-level employees also have been reduced by at least such
percent;

            

                                                (2)      A
relocation, without Executive's consent, of Executive's regular place or base of
employment by more than fifty

            (50)
miles; or

            

                                                (3)      A
breach by Employer of one or more of its obligations under this EA;
and

            

                                       c.       The
act, omission or breach described in the Notice
first occurred:

            

                                                (1)      During
the 12 months after the effective date of a "Change in Control" of the Company,
or

            

                                                (2)      No
earlier than 90 days before the date the Notice is delivered to the Employer;
and

            

                                       d.       The
Employer failed to remedy, before the Termination Date, the act, omission or
breach described in the Notice.

            

                              2.       A
"CHANGE IN CONTROL" means a change in the ownership or control of the Company,
effected through any of the following transactions first occurring after the
Company's IPO, and excluding the Company's IPO:

            

                                       a.       A
merger, consolidation or reorganization approved by the Company's stockholders,
unless securities representing more than fifty percent (50%) of the total
combined voting power of the outstanding voting securities of the successor
entity are immediately thereafter beneficially owned, directly or indirectly and
in substantially the same proportion, by the persons who beneficially owned the
outstanding voting securities of the Company immediately prior to such
transaction;

            

                                       b.       Any
stockholder-approved sale, transfer or other disposition of all or substantially
all of the Company's assets in complete liquidation or dissolution of the
Company; or

            

                                       c.       The
acquisition, directly or indirectly, by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by or is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding
securities.

            

                     C.       Without
Cause. Executive's employment is terminated "WITHOUT CAUSE" if
it is terminated in any of the following circumstances:

            

            1.       Due
to Executive's death; or

            

            2.       Due
to Executive's "DISABILITY" which shall mean a termination upon written notice,
or on such prospective date specified in such notice, delivered by the Employer
to Executive, due to Executive's inability, either with or without reasonable
accommodation, by reason of any physical or mental injury, illness or
impairment, to substantially perform the essential functions required of
Executive under this EA for a period of six (6) months during any rolling 12
month period; or

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

                              3.       upon
any notice, written notice, or on such prospective date specified in such
notice, delivered by the Employer to Executive, for a reason other than any of
the reasons described as "Cause" in Section VI.A., above; or

            

                              4.       upon
any notice, written notice, or on such prospective date specified in such
notice, delivered by Executive to the Employer, for a reason other than a
reasons and the conditions that qualify as "Good Reason" under Section VI.B.1.,
above.

            

            VII.     OBLIGATIONS
UPON TERMINATION.

            

                     A.       Any
Termination. In addition to any other obligations that may apply under the
Confidential Information Agreement and/or under this EA, the Parties shall have
the following obligations upon any termination of their employment relationship
pursuant to this EA:

            

                              1.       Employer:

            

            a.       Employer
shall pay Executive (or Executive's estate) any unpaid cash compensation earned
by Executive pursuant to this EA through the Termination Date if the Termination
date is greater than 3 years after the Effective Date; and

             

            b.       Employer
shall pay Executive (or Executive’s estate) cash compensation equivalent to 3
years remuneration as outlined in Section III above if the Termination date is
less than 3 years after the Effective Date regardless of the reason for
termination of the employment relationship between Executive and Employer;
and

             

            c.       Employer
shall allow Executive and/or Executive's dependents, at their sole cost and
expense, to continue participation after the Termination Date in those group
health benefit plan in which Executive and/or Executive's dependents are
entitled to participate pursuant to the terms and conditions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA").

             

            d.       Employer
shall allow Executive and/or Executive's estate, at their sole cost and expense,
to exercise all of Executive's vested stock grant and stock option shares,
including those vested consistent with Section V.B., in accordance with the
terms and conditions of the applicable stock grant and stock option agreements
that govern such shares.

            

                              2.       Executive:

            

                                       a.       No
later than fifteen (15) days after the Termination Date, Executive shall return
to Employer all items of property that had been provided for Executive's use
during employment with Employer or with any of its predecessors, or had been
paid for by Employer or any of its predecessors, and

            

                                       b.       No
later than fifteen (15) days after the Termination Date, Executive shall return
to Employer all documents created or received during the course of Executive's
employment with Employer or with any of its predecessors, except Executive may
retain Executive's personal copies of documents evidencing Executive's hire,
compensation, benefits, stock options, this EA, the Confidential Information
Agreement and any documents that may have been received by Executive as a
shareholder of the Company.

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                     B.       Severance
Benefit Opportunity. Subject to the conditions of Section
VII.B.2.-3., below, Employer shall provide Severance Benefits to Executive for
the Severance Period in the event that Executive's employment with Employer (i)
is terminated by Employer without Cause or (ii) is terminated by Executive for
Good Reason. Such Severance Benefits, if and to the extent provided, are not
compensation for past services or labor performed by Executive, but to preserve
the goodwill existing between the Parties, to resolve any disputes or
disagreements that may exist between them relating to Executive's employment and
the termination thereof, and to assist Employer and Executive to move onto other
business and employment opportunities, respectively.

            

                              1.       Severance
Benefits during Severance Period. The "SEVERANCE
PERIOD" shall be twelve (12) months measured from the Effective Date
of the
Post Termination General Release of All Claims Agreement. If the start-date of
the SEVERANCE PERIOD begins before the 2 year anniversary of the Effective Date
as defined in Section I.B of this EA, then no SEVERANCE BENEFITS shall be due to
Executive.  If the start-date of the SEVERANCE PERIOD begins at or
after the 2 year anniversary of the Effective Date as defined in Section I.B of
this EA, then all SEVERANCE BENEFITS shall be due to Executive as defined below
for the entire SEVERANCE PERIOD. If SEVERANCE BENEFITS are due, then they will
supersede and replace the guaranteed compensation as defined in Section III.D of
this EA.  “SEVERANCE BENEFITS" shall consist of the
following:

            

                                       a.       Post-Termination
Payments. Periodic payments, at the Executive's monthly salary rate in effect
just prior to the time of the act or omission resulting in Executive's
termination ("SEVERANCE PAYMENTS"). Such payments shall be paid at periodic
intervals in accordance with Employer's regular payroll schedule and
practices.

            

                                       b.       COBRA
Premium Payments. At Employer's full expense, continuation coverage for
Executive and Executive's eligible dependent(s), existing as of the Termination
Date, under Employer's group health plans, subject to the terms, conditions and
election requirements of COBRA or applicable state law counterpart to COBRA
("PAID HEALTH PLAN COVERAGE"). Any additional period of post-termination health
plan coverage to which Executive and Executive's dependents may be eligible
under COBRA, or under a state law counterpart to COBRA, after expiration of
COBRA Premium Benefits provided under this Section VII.B.1.b., shall be at
Executive's full personal cost and expense.

            

                              2.       Severance
Benefit Conditions & Limitations.

            

                                       a.       Executive
shall provide, cooperatively and in good faith, to those person(s) designated by
Employer, all information necessary to effectively transition to others
Executive's job, technical, operational and financial information and knowledge,
work product and pending work, as and to the extent requested by Employer during
the 60 day period after the Termination Date.

            

                                       b.       In
order to receive and continue to receive Severance Benefits, Executive must
comply with Executive's obligations under the Confidential Information Agreement
in accordance with its terms, and must comply with the restrictions of this
Section VII.B.2.c. For the purposes of this Section VII.B.2.c., the following
definitions shall apply: (i) "BUSINESS" means the development, marketing and
sales of technology-based processing solutions for the execution, clearing,
custody and settlement of securities, commodities and/or foreign exchange
transactions; (ii) "CUSTOMER" means any person, entity or business that
was a customer, or was specifically targeted to become a customer, of the
Employer or the Company during the one (1) year period prior to the Termination
Date; (iii) "TERRITORY" means and includes each of the fifty (50) states of the
United States of America, and China; and (iv) "SERVICE PROVIDER," means any
person who is during the Severance Period, and was at any time during the one
(1) year period prior to the Termination Date, an employee, consultant, or
independent contractor of the Employer or the Company.

             

            
              
                	
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                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                                                (1)      Non-Solicitation
of Service Providers. During the Severance Period, Executive shall not, anywhere
in the Territory, on Executive's own behalf or on behalf of any other person or
entity, either directly or indirectly recruit, encourage or solicit any Service
Provider to leave or reduce that Service Provider's employment with or services
to the Employer or to the Company

            

                                                (2)      Non-Solicitation
of Customers. During the Severance Period, Executive shall not, anywhere in the
Territory, on Executive's own behalf or on behalf of any other person or entity,
either directly or indirectly, contact, recruit, encourage or solicit any
Customer with respect to the Business.

            

                                                (3)      Non-Competition.
During the Severance Period, Executive shall not, anywhere in the Territory,
whether as an employee, agent, consultant, advisor, independent contractor,
proprietor, partner, officer, director, joint venture partner, trustee,
stockholder, investor, lender or guarantor of any corporation, partnership or
other entity, or in any other capacity, either directly or indirectly (on
Executive's own behalf or on behalf of any other person or entity) (a) engage in
the Business or (b) permit Executive's name to be used in the Business.
Notwithstanding the foregoing, Executive may own, directly or indirectly, solely
as an investment, up to two percent (2%) of any class of "publicly traded
securities" of any business that is competitive with or similar to the Business
or any person who owns a business that is competitive with or similar to the
Business.  Executive acknowledges and agrees that each of the
restrictions of Section VII.B.2.c. is reasonable with respect to subject matter,
length of time, and geographic area, and will not prevent Executive from
pursuing an occupation or living during the Severance Period.

            

                              d.       In
the event that Executive breaches any of Executive's obligations under Section
VII.B.2.c., above, prior to expiration of the Severance Period:

            

                                       (1)      Executive
shall cease to be entitled to any further Severance Benefits, otherwise to be
provided under Section VII.B.1., above, except that Executive shall be eligible
to receive or retain, as the case may be, Severance Benefits equal to fifty
percent (50%) of the total amount of Severance Benefits to which Executive
otherwise would have been eligible to receive in the absence of such breach;
and

            

                                       (2)      Employer
shall be entitled to recover from Executive any and all amounts that may have
been paid to or on behalf of Executive as Severance Benefits in excess of fifty
percent (50%) of the total amount of Severance Benefits to which Executive
otherwise would have been eligible to receive in the absence of Executive's
breach; and

            

                                       (3)      Employer
shall be entitled to take any and all action(s) necessary to pursue legal and
equitable remedies against Executive, including, without limitation, injunctive
relief.

            

                              e.       Severance
Benefits provided under Section VII.B.1., above, shall in all cases be reduced
by any payments or benefits to which Executive may be entitled under the federal
Worker Adjustment Retraining Notification Act, and/or under any applicable state
law counterpart statute.

            

            
              
                	
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                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                              f.       Severance
Benefits under Section VII.B.1., above, shall be the only severance and/or
measure of damages or loss, to which Executive shall be entitled upon any
termination of Executive's employment with Employer. Except as set forth in
Section VII.A.1., above, no other amounts or benefits shall be owed to Executive
including, but not limited to, under any other plan, program or practice of
Employer or of any subsidiary, affiliate or parent of Employer.

            

                              3.       Delayed
Commencement Date for Severance Benefits.

            Notwithstanding
any provision to the contrary in this EA, no Severance Benefits to which
Executive otherwise becomes entitled under this EA, shall be made or provided to
Executive prior to the EARLIER of (i) the expiration of the six (6)-month period
measured from the date of his "separation from service" with the Employer (as
such term is defined in Treasury Regulations issued under Section 409A of the
Internal Revenue Code("Code")) or (ii) the date of his death, if Executive is
deemed at the time of such separation from service to be a "key employee" within
the meaning of that term under Code Section 416(i) and such delayed commencement
is otherwise required in order to avoid a prohibited distribution under Code
Section 409A(a)(2). Upon the expiration of the applicable Code Section
409A(a)(2) deferral period, all Severance Benefits that otherwise would have
payable to Executive during the deferral period shall be paid or reimbursed to
Executive in a lump sum, and any remaining Severance Benefits due to Executive
pursuant to this EA shall be paid or provided in accordance with Section
VII.B.1.

            

            VIII.
MISCELLANEOUS.

            

                     A.       Governing
Law. This EA shall be construed and interpreted in accordance with the laws of
State of Nevada.

            

                     B.       Severability.
Should any provision (or portion of provision) of this EA become or be deemed
unenforceable, such unenforceability will not affect any other provision and
this EA shall be construed as if such unenforceable provision (or portion of
provision) had never been contained herein, except that if the restrictions of
VII.B.2.c.(2)-(3)., are found to be unenforceable, Executive shall not be
entitled to more than 50% of the Severance Benefits provided by Section
VII.B.1.

            

                     C.       Remedies.
Except as otherwise provided herein, all rights and remedies provided pursuant
to this EA or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. Either of the Parties may pursue any one or more rights
or remedies hereunder or may seek damages or specific performance in the event
of the other party's breach hereunder or may pursue any other available
remedy.

            

                     D.       Arbitration.
Any and all disputes by and among any of the Parties that arise from or relate
to this EA shall be resolved through final and binding arbitration which shall
be instead of any civil litigation, except to the extent specifically set forth
in Section VIII.D.5., below. Each of the Parties hereby waives their respective
right to a jury trial as to such disputes, and understands and agrees that the
arbitrator's decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction thereof. The provisions
of this Section VIII D. shall replace and supersede the provisions of Section 5
of the Confidential Information Agreement in its entirety.

            

                              1.       Arbitration
shall be conducted in Las Vegas, Nevada, in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association ("AAA Rules") then in effect and to the extent consistent with
applicable law, although the arbitrator shall be selected by mutual agreement of
the parties and need not be a panel member of the American Arbitration
Association. It is the Parties' intent that, prior to initiating arbitration
proceedings, the Parties shall mediate their dispute with one another in a good
faith attempt to avoid the necessity of resolving their disputes through
arbitration proceedings.

            

            
              
                	
                        Page 9 of 11

                      	 
      	
                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

                             2.       The
arbitrator shall allow the discovery authorized and/or required by applicable
law in arbitration proceedings, including but not limited to discovery available
under applicable State and/or federal arbitration statutes, including the
Federal Arbitration Act.

            

                              3.       The
arbitrator shall issue a written award that sets forth the essential findings of
fact and conclusions of law on which the award is based. The arbitrator shall
have the authority to award any relief authorized by applicable law in
connection with the asserted claims or disputes. The arbitrator's award shall be
subject to correction, confirmation, or vacation, as provided by any applicable
law setting forth the standard of judicial review of arbitration
awards.

            

                              4.       Each
party to the arbitration shall bear their own respective attorneys' fees and
costs incurred in connection with the arbitration; and the parties shall share
equally the arbitrator's fees, unless law applicable at the time of the
arbitration hearing requires otherwise. The arbitrator shall award attorneys'
fees and costs of arbitration to the prevailing party. If there is a dispute as
to which of the Parties is the prevailing party in the arbitration, the
Arbitrator will decide this issue.

            

                              5.       Any
dispute or controversy arising out of or relating to any interpretation,
construction, performance or breach of Sections 2 and 4 of the Confidential
Information Agreement may, at the election of the Company in its sole
discretion, be brought in any state or federal court of competent jurisdiction.
In connection therewith, Executive acknowledges that his breach of or other
failure to comply with any provision of the foregoing Sections would cause
irreparable harm to the Company for which there is no adequate remedy at law,
and that in the event of such breach or failure the Company shall have, in
addition to any and all remedies at law, the right to an injunction, specific
performance, or other equitable relief to prevent the violation of his
obligations thereunder.

            

                              6.       To
the extent that any of the AAA Rules or anything in this Section VIII.D.
conflicts with any arbitration procedures required by applicable law, the
arbitration procedures required by applicable law shall govern. In the event
Executive is a registered representative under the rules of the National
Association of Securities Dealers, Inc. ("NASD"), then notwithstanding anything
to the contrary in this Section, if required by the rules of the NASD, the
arbitration shall be conducted in accordance with the rules and procedures of
the NASD, the Company's Employee Handbook and other Company documentation (each
of which contain policies and procedures relating to NASD
arbitration).

            

                     E.       Assignment;
Successors. This EA may not be assigned by Executive. This EA may be assigned by
Employer, upon written notice to Executive, and shall be binding on the
successors of Employer.

            

                     F.       Changes
to Agreement. This EA may only be changed by another written agreement signed by
Executive and by a duly authorized representative of Company. Notwithstanding
the foregoing, the Company reserves the right to amend this EA in any way that
the Company in good faith determines may be advisable to help ensure compliance
with Section 409A of the Code and any regulations or other guidance thereunder
(together, "Section 409A"). Any such amendment shall preserve, to the extent
reasonably possible and in a manner intended to satisfy Section 409A and avoid
the imputation of penalties or taxes under Section 409A, the original intent of
the parties and the level of benefits hereunder.

            

                     G.       Counterparts.
This EA may be executed in more than one counterpart, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.

            

                     H.       Notices.
Notice under this EA, including any change to the following and assignment of
this EA by the Company, shall be delivered as follows:

            

            
              
                	
                        Page 10 of 11

                      	 
      	
                        Jerry Yu

                      
	
                        Executive Employment Agreement

                      

              

            

            
              
                 

              

              
                 

                
                  

                

              

              
                 

              

            

            

                              To
the Company:   DIGUANG INTERNATIONAL DEVELOPMENT CO.,
LTD..

                                                23rd Floor,
Building A, Galaxy Century

                                                3069
Caitian Road, Futian District

                                                Attn:
Board Chairman

            

                              To:
Executive:    Jerry Yu

                                                23rd Floor,
Building A, Galaxy Century

                                                3069
Caitian Road, Futian District

            

                     I.       Complete
Agreement. There are no promises, representations or commitments made by,
between or among Executive and Employer regarding the subjects covered by this
EA that do not appear expressly written in this EA. In executing this EA, each
of the Parties represents and warrants to the others that it is not relying on
any promises, representations, negotiations, statements or commitments that are
not expressly set forth in this EA. This EA supersedes, cancels and replaces any
and all prior verbal and written agreements between the Parties regarding any of
the subjects covered by this EA.

            

            IN
WITNESS WHEREOF, the Parties have executed this EA as of the date first above
written.

            

            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                	 	
                                                        EXECUTIVE:

                                                      
	 	 
      
	 	/s/
      Jerry Yu	
                                                         

                                                      
	 	
                                                        Name:
      Jerry Yu

                                                      
	 	
                                                        July
      31, 2008

                                                      
	 	 
      
	 	
                                                        THE
      COMPANY

                                                      
	 	
                                                        Diguang
      International Development Co., Ltd.,:

                                                      
	 	 
      
	 	
                                                        /s/
      Yi Song

                                                      	
                                                         

                                                      
	 	
                                                        By:  Yi
      Song

                                                      
	 	
                                                        Title:  Board
      Chairman, President and Chief Executive Officer

                                                      
	 	
                                                        July
      31,
2008

                                                      

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

            

            
              
                	
                        Page 11 of 11

                      	 
      	
                        Jerry Yu

                      
	
                        Executive Employment AgreementExhibit 4.1
 

    
      Execution
copy

    

     

    WARRANT

     

    THE
SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.

     

    December
12, 2008

     

    Warrant
to Purchase up to 675,000 shares of Common Stock of Discovery Laboratories, Inc.
(the “Company”).

     

    In
consideration for Kingsbridge Capital Limited (the “Investor”) agreeing
to enter into that certain Common Stock Purchase Agreement, dated as of the date
hereof, between the Investor and the Company (the “Agreement”), the
Company hereby agrees that the Investor or any other Warrant Holder (as defined
below) is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period (as defined below) up to
675,000 fully paid and non-assessable shares of common stock, par value $0.001
per share, of the Company (the “Common Stock”) at the
Exercise Price (as defined below), as the same may be adjusted from time to time
pursuant to Section 6 hereof.  The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights
Agreement.  Capitalized terms used herein and not otherwise defined
shall have the meanings given them in the Agreement.

     

    Section
1.              Definitions.

     

    “Affiliate” shall mean
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under direct or indirect common control with
any other Person.  For the purposes of this definition, “control,” when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the term “controls” and “controlled” have
meanings correlative to the foregoing.

     

    “Closing Price” as of
any particular day shall mean the closing price per share of the Company’s
Common Stock as reported by the Principal Market on such day.

     

    “Exercise Period”
shall mean that period beginning six months after the date of this Warrant and
continuing until the earlier of (i) the expiration of the five-year period
thereafter or (ii) a Funding Default, subject in each case to earlier
termination in accordance with Section 6 hereof.

     

    “Exercise Price” as of
the date hereof shall mean $1.5132.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Funding Default”
shall mean a failure by Investor to accept a Draw Down Notice made by the
Company and to acquire and pay for the Shares in accordance therewith within
three (3) Trading Days following the delivery of such Shares to the Investor,
provided such Draw Down Notice was made in accordance with the terms and
conditions of the Agreement (including the satisfaction or waiver of the
conditions to the obligation of the Investor to accept a Draw Down set forth in
Article VII of the Agreement), provided further, that such failure was
reasonably within the control of the Investor.

     

    “Per Share Warrant
Value” shall mean the difference resulting from subtracting the Exercise
Price from the Closing Price on the Trading Day immediately preceding the
Exercise Date.

     

    “Person” shall mean an
individual, a corporation, a partnership, a limited liability company, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.

     

    “Principal Market”
shall mean the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.

     

    “SEC” shall mean the
United States Securities and Exchange Commission.

     

    “Trading Day” shall
mean any day other than a Saturday or a Sunday on which the Principal Market is
open for trading in equity securities.

     

    “Warrant Holder” shall
mean the Investor or any permitted assignee or permitted transferee of all or
any portion of this Warrant.

     

    “Warrant Shares” shall
mean those shares of Common Stock received or to be received upon exercise of
this Warrant.

     

    Section
2.              Exercise.

     

    (a)           Method of
Exercise.  This Warrant may be exercised in whole or in part
(but not as to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period, by the Warrant Holder by surrender of this
Warrant, with the form of exercise attached hereto as Exhibit A
completed and duly executed by the Warrant Holder (the “Exercise Notice”), to
the Company at the address set forth in Section 10.4 of the Agreement,
accompanied by payment of the Exercise Price multiplied by the number of shares
of Common Stock for which this Warrant is being exercised (the “Aggregate Exercise
Price”).  The later of the date on which an Exercise Notice or
payment of the Exercise Price (unless this Warrant is exercised in accordance
with Section 2(c) below) is received by the Company in accordance with this
clause (a) shall be deemed an “Exercise
Date.”

     

    (b)           Payment of Aggregate
Exercise Price.  Subject to paragraph (c) below, payment
of the Aggregate Exercise Price shall be made by wire transfer of immediately
available funds to an account designated by the Company.  If the
amount of the payment received by the Company is less than the Aggregate
Exercise Price, the Warrant Holder will be notified of the deficiency and shall
make payment in that amount within three (3) Trading Days.  In the
event the payment exceeds the Aggregate Exercise Price, the Company will refund
the excess to the Warrant Holder within five (5) Trading Days of
receipt.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (c)           Cashless
Exercise.  In the event that the Warrant Shares to be received
by the Warrant Holder upon exercise of the Warrant may not be resold pursuant to
an effective registration statement or an exemption to the registration
requirements of the Securities Act of 1933, as amended (“Securities Act”), and
applicable state laws, the Warrant Holder may, as an alternative to payment of
the Aggregate Exercise Price upon exercise in accordance with paragraph
(b) above, elect to effect a cashless exercise by so indicating on the
Exercise Notice and including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
“Cashless
Exercise”).  If a registration statement on Form S-3 under the
Securities Act or such other form as deemed appropriate by counsel to the
Company for the registration of the resale by the Warrant Holder of (x) the
shares of Common Stock of the Company that may be purchased under the Agreement,
(y) the Warrant Shares, or (z) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise, has been declared effective by the SEC and
remains effective, the Company may, in its sole discretion, require the Warrant
Holder to pay the Exercise Price of the Warrant Shares being purchased by the
Warrant Holder under this Warrant.  The Company may, in its sole
discretion, permit the Warrant Holder to effect a Cashless Exercise at any
time.  In the event of a Cashless Exercise, the Warrant Holder shall
receive that number of shares of Common Stock determined by (i) multiplying
the number of Warrant Shares for which this Warrant is being exercised by the
Per Share Warrant Value and (ii) dividing the product by the average
Closing Price of the Common Stock during the five (5) Trading Days immediately
preceding the Exercise Date, rounded to the nearest whole share.  The
Company shall cancel the total number of Warrant Shares equal to the excess of
the number of the Warrant Shares for which this Warrant is being exercised over
the number of Warrant Shares to be received by the Warrant Holder pursuant to
such Cashless Exercise.

     

    (d)           Replacement
Warrant.  In the event that the Warrant is not exercised in
full, the number of Warrant Shares shall be reduced by the number of such
Warrant Shares for which this Warrant is exercised, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of the Warrant
Holder a new Warrant of like tenor in the name of the Warrant Holder, reflecting
such adjusted number of Warrant Shares.

     

    Section
3.              
Ten Percent
Limitation.  The Warrant Holder may not exercise this Warrant
such that the number of Warrant Shares to be received pursuant to such exercise
aggregated with all other shares of Common Stock that are then beneficially
owned or deemed to be beneficially owned by the Warrant Holder would result in
(i) the Warrant Holder owning more than 9.9% of all of such Common Stock as
would be outstanding on such Exercise Date, as determined in accordance with
Section 13(d) of the Exchange Act or (ii) the Company being required to
file any notification or report forms under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Section
4.              Delivery of Warrant
Shares.

     

    (a)           Subject
to the terms and conditions of this Warrant, as soon as practicable after the
exercise of this Warrant in full or in part, and in any event within ten (10)
Trading Days thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Warrant Holder, or as the Warrant
Holder may lawfully direct, a certificate or certificates for, or make deposit
with the Depositary Trust Company via book-entry of, the number of validly
issued, fully paid and non-assessable Warrant Shares to which the Warrant Holder
shall be entitled on such exercise, together with any other stock or other
securities or property (including cash, where applicable) to which the Warrant
Holder is entitled upon such exercise in accordance with the provisions
hereof.

     

    (b)           This
Warrant may not be exercised as to fractional shares of Common
Stock.  In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall receive the number of shares rounded to
the nearest whole share.

     

    Section
5.              Representations, Warranties
and Covenants of the Company.

     

    (a)           The
Warrant Shares, when issued in accordance with the terms hereof, will be duly
authorized and, when paid for or issued in accordance with the terms hereof,
shall be validly issued, fully paid and non-assessable.

     

    (b)           The
Company shall take all commercially reasonable action and proceedings as may be
required and permitted by applicable law, rule and regulation for the legal and
valid issuance of this Warrant and the Warrant Shares to the Warrant
Holder.

     

    (c)           The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.  The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant
Shares.

     

    (d)           From
the date hereof through the last date on which this Warrant is exercisable, the
Company shall take all steps commercially reasonable to ensure that the Common
Stock remains listed or quoted on the Principal Market.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Section
6.              Adjustment of the Exercise
Price.  The Exercise Price and, accordingly, the number of
Warrant Shares issuable upon exercise of the Warrant, shall be subject to
adjustment from time to time upon the happening of certain events as
follows:

     

    (a)           Reclassification,
Consolidation, Merger, Mandatory Share Exchange, Sale or
Transfer.

     

    (i)           Upon
occurrence of any of the events specified in subsection (a)(ii) below (the
“Adjustment
Events”) while this Warrant is unexpired and not exercised in full, the
Warrant Holder may in its sole discretion require the Company, or any successor
or purchasing corporation, as the case may be, without payment of any additional
consideration therefor, upon surrender by the Warrant Holder of the Warrant to
be replaced, to execute and deliver to the Warrant Holder a new Warrant
providing that the Warrant Holder shall have the right to exercise such new
Warrant (upon terms not less favorable to the Warrant Holder than those then
applicable to this Warrant) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money or property
receivable upon such Adjustment Event by the holder of one share of Common Stock
issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to such Adjustment Event.  Such new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.

     

    (ii)           The
Adjustment Events shall be (1) any reclassification or change of Common Stock
(other than a change in par value, as a result of a subdivision or combination
of Common Stock or in connection with an Excluded Merger or Sale) and (2) any
consolidation, merger or mandatory share exchange of the Company with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change other than a change in par
value or as a result of a subdivision or combination of Common Stock), other
than (each of the following referred to as an “Excluded Merger or
Sale”) a transaction involving (A) sale of all or substantially all
of the assets of the Company or (B) any merger, consolidation or similar
transaction where the consideration payable to the stockholders of the Company
by the acquiring Person consists substantially of cash or publicly traded
securities, or a combination thereof, or where the acquiring Person does not
agree to assume the obligations of the Company under outstanding warrants
(including this Warrant).  In the event of an Excluded Merger or Sale,
the Company shall deliver a notice to the Warrant Holder at least 10 days before
the consummation of such Excluded Merger or Sale, the Warrant Holder may
exercise this Warrant at any time before the consummation of such Excluded
Merger or Sale (and such exercise may be made contingent upon the consummation
of such Excluded Merger or Sale), and any portion of this Warrant that has not
been exercised before consummation of such Excluded Merger or Sale shall
terminate and expire, and shall no longer be outstanding.

     

    (b)           Subdivision or Combination
of Shares.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall subdivide its Common Stock, the
Exercise Price shall be proportionately reduced as of the effective date of such
subdivision, or, if the Company shall take a record of holders of its Common
Stock for the purpose of so subdividing its Common Stock, as of such record
date, whichever is earlier.  If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining its Common Stock, as of such record
date, whichever is earlier.

     

    (c)           Stock
Dividends.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall pay a stock dividend or other
distribution in shares of Common Stock to all holders of Common Stock, then the
Exercise Price shall be adjusted, as of the date the Company shall take a record
of the holders of its Common Stock for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction: (i) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such dividend or
distribution.  The provisions of this subsection (c) shall not
apply under any of the circumstances for which an adjustment is provided in
subsections (a) or (b).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (d)           Liquidating Dividends,
Etc.  If the Company, at any time while this Warrant is
unexpired and not exercised in full, makes a distribution of its assets or
evidences of indebtedness to the holders of its Common Stock as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Company’s assets (other than under the circumstances
provided for in the foregoing subsections (a) through (c)), then the
Warrant Holder shall be entitled to receive upon exercise of this Warrant in
addition to the Warrant Shares receivable in connection therewith, and without
payment of any consideration other than the Exercise Price, the kind and amount
of such distribution per share of Common Stock multiplied by the number of
Warrant Shares that, on the record date for such distribution, are issuable upon
such exercise of the Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution.  The value of a distribution that is paid in other
than cash shall be determined in good faith by the Board of Directors of the
Company.  Notwithstanding the foregoing, in the event of a proposed
dividend in liquidation or distribution to the stockholders made in respect of
the sale of all or substantially all of the Company’s assets, the Company shall
deliver a notice to the Warrant Holder at least 10 days before the date on which
the Company shall take a record of the holders of its Common Stock for the
purpose of receiving such dividend or other distribution (or if no such record
is taken, at least 10 days before the date of such payment or other
distribution), the Warrant Holder may exercise this Warrant at any time before
such record date or the date of such payment or other distribution, as
applicable, (and such exercise may be made contingent upon such payment or other
distribution), and any portion of this Warrant that has not been exercised
before such record date or the date of such payment or other distribution, as
applicable, shall terminate and expire, and shall no longer be
outstanding.

     

    (e)           Adjustment for Spin
Off.  If, for any reason, prior to the exercise of this Warrant
in full, the Company spins off or otherwise divests itself of a part of its
business or  operations or disposes all or a part of its assets in a
transaction (a “Spin
Off”) in which the Company does not receive compensation for such
business, operations or assets, but causes securities of another entity (“Spin Off Securities”)
to be issued to all or substantially all holders of Common Stock, then the
Company shall cause (i) to be reserved Spin Off Securities equal to the number
thereof  which would have been issued to the Warrant Holder in the
event that the entire unexercised portion of this Warrant outstanding on the
record date (the “Record Date”) for
determining the number of Spin Off Securities to be issued to holders of Common
Stock had been exercised by the Warrant Holder as of the close of business on
the Trading Day immediately prior to the Record Date (the “Reserved Spin Off
Shares”), and (ii) to be issued to the Warrant Holder on the exercise of
all or any unexercised portion of this Warrant, such amount of the Reserved Spin
Off  Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the  numerator is the unexercised portion
of this Warrant then being exercised, and (II) the  denominator is the
aggregate amount of the unexercised portion of this Warrant.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
7.              Notice of
Adjustments.  Whenever the Exercise Price or number of Warrant
Shares shall be adjusted pursuant to Section 6 hereof, the Company shall
promptly prepare a certificate signed by its Chief Executive Officer or Chief
Financial Officer setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company’s
Board of Directors made any determination hereunder), and the Exercise Price and
number of Warrant Shares purchasable at that Exercise Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
delivered to the Warrant Holder by a means set forth in Section 10.4 of the
Agreement.

     

    Section
8.              No
Impairment.  The Company will not, by amendment of its Charter
or Bylaws or through any reorganization, transfer of assets, consolidation,
merger, dissolution or issue or sale of securities, willfully avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrant Holder against wrongful
impairment.  Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action
as may be reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable Warrant Shares on the
exercise of this Warrant. Notwithstanding the foregoing, nothing in this Section
8 shall restrict or impair the Company’s right to effect any changes to the
rights, preferences, privileges or restrictions associated with the Warrant
Shares so long as such changes do not affect the rights, preferences, privileges
or restrictions associated with the Warrant Shares in a manner adversely
different from the effect that such changes have generally on the rights,
preferences, privileges or restrictions associated with all other shares of
Common Stock.

     

    Section
9.              Rights As
Stockholder.  Except as set forth in Section 6 above,
prior to exercise of this Warrant, the Warrant Holder shall not be entitled to
any rights as a stockholder of the Company with respect to the Warrant Shares,
including (without limitation) the right to vote such shares, receive dividends
or other distributions thereon or be notified of stockholder
meetings.

     

    Section
10.            Replacement of
Warrant.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant and, in
the case of any such loss, theft or destruction of the Warrant, upon delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

     

    Section
11.            Choice of
Law.  This Warrant shall be construed under the laws of the
State of New York.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Section
12.            Entire Agreement;
Amendments.  Except for any written instrument concurrent or
subsequent to the date hereof executed by the Company and the Investor, this
Warrant, the Agreement and the Registration Rights Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby.  No provision of this Warrant may be waived or amended other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.

     

    Section
13.            Restricted
Securities.

     

    (a)           Registration or Exemption
Required.  This Warrant has been issued in a transaction exempt
from the registration requirements of the Securities Act in reliance upon the
provisions of Section 4(2) thereof and Regulation D promulgated thereunder,
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to this Warrant.  This
Warrant and the Warrant Shares issuable upon exercise of this Warrant may not be
resold except pursuant to an effective registration statement or an exemption to
the registration requirements of the Securities Act and applicable state
laws.

     

    (b)           Legend.  Any
replacement Warrants issued pursuant to Section 2 and Section 10
hereof and, unless a registration statement has been declared effective by the
SEC and remains effective in accordance with the Securities Act with respect
thereto, any Warrant Shares issued upon exercise hereof, shall bear the
following legend:

     

    “THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.”

     

    (c)           No Other Legend or Stock
Transfer Restrictions.  No legend other than the one specified
in Section 13(b) has been or shall be placed on the share certificates
representing the Warrant Shares and no instructions or “stop transfer orders”
(so called “stock
transfer restrictions”) or other restrictions have been or shall be given
to the Company’s transfer agent with respect thereto other than as expressly set
forth in this Section 13.

     

    (d)           Assignment.  Assuming
the conditions of Section 13(a) above regarding registration or exemption
have been satisfied, the Warrant Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant (each of the foregoing, a “Transfer”), in whole
or in part, but only to an Affiliate of the Warrant Holder.  The
Warrant Holder shall deliver a written notice to Company, substantially in the
form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be Transferred and
the respective number of Warrant Shares to be covered by the warrants to be
Transferred to each assignee.  The Company shall effect the Transfer
within ten (10) days, and shall deliver to the Transferee(s) designated by the
Warrant Holder a Warrant or Warrants of like tenor and terms for the appropriate
number of shares.  In connection with and as a condition of any such
proposed Transfer, the Company may require (i) the Warrant Holder to provide an
opinion of counsel to the Warrant Holder in form and substance reasonably
satisfactory to the Company to the effect that the proposed Transfer complies
with all applicable federal and state securities laws and (ii) any such
Transferee to provide customary representations and warranties attendant to the
acquisition of unregistered securities, including without limitation the
transferee’s investment intent and status as an “accredited investor” within the
meaning of Regulation D.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (e)           Investor’s
Compliance.  Nothing in this Section 13 shall affect in
any way the Investor’s obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.

     

    Section
14.            Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be given in accordance with
Section 10.4 of the Agreement.

     

    Section
15.            Miscellaneous.  This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.  The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.  The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.

     

    Section
16.            Company Call
Right.

     

    (a)           If
a Funding Default occurs, the Company shall have the right to demand the
surrender of this Warrant or any remaining portion thereof, Warrant Shares
and/or cash from the Investor as follows (the “Call
Right”):

     

    (i)           If
the Investor has not previously exercised this Warrant in full, then the Company
shall have a right to demand the surrender of this Warrant, or remaining portion
thereof, from the Investor without compensation, and the Investor shall promptly
surrender this Warrant, or remaining portion thereof.  Following such
demand for surrender, this Warrant shall automatically be deemed to have been
canceled and shall have no further force or effect.

     

    (ii)           If,
prior to receiving a Call Right Notice (as defined below), the Investor has
previously exercised this Warrant with respect to some or all of the Warrant
Shares, and the Investor has not previously sold such Warrant Shares, then the Company shall have a right
to purchase from the Investor that number of shares of Common Stock equal to the
number of shares of Common Stock issued in connection with the exercise(s) of
the Warrant, at a repurchase price per share equal to the price per share paid
by the Investor in connection with such exercise(s).  For greater
certainty, (a) if Warrant Shares were exercised for cash, the purchase
price per share under the Call Right shall be equal to the Exercise Price,
(b) if Warrant Shares were exercised in a Cashless Exercise, the purchase
price per share for such Warrant Shares under the Call Right shall be zero, and
(c) if such Warrant Shares were exercised on both a cash and Cashless
Exercise basis, the purchase price per share under the Call Right shall be equal
to the total amount of cash paid in connection with such cash exercise(s)
divided by the total number of shares of Common Stock issued in connection with
all exercises of the Warrant (whether on a cash or Cashless Exercise
basis).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (iii)           If,
prior to receiving a Call Right Notice, the Investor has previously exercised
this Warrant with respect to some or all of the Warrant Shares, and the Investor
subsequently sold such Warrant Shares, then the Investor shall remit to the
Company the excess, if any, of (x) the proceeds received by Investor through the
sale of such Warrant Shares, over (y) the aggregate Exercise Price for such
Warrant Shares.  In the event that the Investor obtained such Warrant
Shares through a Cashless Exercise, then the Investor shall instead remit to the
Company all proceeds received by the Investor through the sale of such Warrant
Shares.  For the avoidance of doubt, in the event that the Investor
has sold some or all of the Warrant Shares prior to receiving a Call Right
Notice, then the right set forth in this paragraph (iii) shall constitute
the sole Call Right of the Company with respect to such Warrant Shares which
have been sold.

     

    (b)           The
Company may exercise the Call Right by delivering a notice (the “Call Right Notice”)
to the Investor within thirty (30) days after the occurrence of a Funding
Default.  On the tenth (10th) business day following delivery of the
Call Right Notice to the Investor, the Company shall tender the purchase price,
if any, and the Investor shall tender shares of Common Stock, if any, to be sold
to the Company pursuant to the Call Right Notice, immediately following which
the Company and the Investor shall consummate such purchase and
sale.  The Call Right shall survive both the assignment of the Warrant
by the Investor and the disposition of the Warrant Shares by the Investor
following exercise of the Warrant.

     

    [Remainder
of Page Intentionally Left Blank.  Signature Page
Follows.]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.

     

    
      
        	 	

                DISCOVERY
      LABORATORIES, INC.

              	 
	 	 	 	 
	 	
                By:
      

              	 	 
	 	 	

                Name:
      John G. Cooper

              	 
	 	 	

                Title:
      Executive Vice President and

                             Chief
      Financial Officer

              	 
	 	 	 	 

      

       

    

    Investor
acknowledges and agrees to the terms and conditions of this
Warrant.

     

    
      
        	 	

                KINGSBRIDGE
      CAPITAL LIMITED

              	 
	 	 	 	 
	 	
                By:
      

              	 	 
	 	 	

                Maria
      O'Donohue

              	 
	 	 	

                Director

              	 
	 	 	 	 

      

    

     

    
      
        
        

      

      
        
          Warrant
dated December 12, 2008 – Signature Page

        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
A TO THE WARRANT

     

    EXERCISE
FORM

     

    DISCOVERY
LABORATORIES, INC.

     

    The
undersigned hereby irrevocably exercises the right to purchase _______________
shares of Common Stock of Discovery Laboratories, Inc., a Delaware corporation
(the “Company”), evidenced
by the attached Warrant, and (CIRCLE EITHER (i) or (ii)) (i) tenders
herewith payment of the Aggregate Exercise Price with respect to such shares in
full, in the amount of $__________, in cash, by certified or official bank check
or by wire transfer for the account of the Company or (ii) elects, pursuant
to Section 2(c) of the Warrant, to convert such Warrant into shares of
Common Stock of the Company on a cashless exercise basis, all in accordance with
the conditions and provisions of said Warrant.

     

    The
undersigned requests that stock certificates for such Warrant Shares be issued,
and a Warrant representing any unexercised portion hereof be issued, pursuant to
this Warrant, in the name of the registered Warrant Holder and delivered to the
undersigned at the address set forth below.

     

    Dated:___________________________________

    

    
      
        
          
            
              
                
                  
                    
                      	 
	
                              Signature
      of Registered Holder

                            
	 
	
                              Name
      of Registered Holder (Print)

                            
	 
	
                              Address

                            

                    

                     

                    
                      
                        
                        

                      

                      
                        i

                        
                          

                        

                      

                      
                        
                        

                      

                    

                  

                

              

            

          

        

      

    

    

    EXHIBIT
B TO THE WARRANT

     

    ASSIGNMENT

     

    (To be
executed by the registered Warrant Holder desiring to transfer the
Warrant)

     

    FOR
VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby
sells, assigns and transfers unto the persons below named the right to purchase
_______________ shares of Common Stock of Discovery Laboratories, Inc. (the
“Company”)
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.

     

    Dated:___________________________________

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    	 
	
                                            Signature

                                          
	 
	
                                            Fill
      in for new Registration of Warrant:

                                          
	 
	 
	
                                            Name

                                          
	 
	 
	
                                            Address

                                          
	 
	 
      

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      Please
print name and address of assignee (including zip code number)

       

      
        
          
          

        

        
          ii

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