Exhibit 10.2

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

 

STOCK PURCHASE WARRANT

 

To Purchase              Shares of Common Stock of

 

Hollis-Eden Pharmaceuticals, Inc.

 

THIS STOCK PURCHASE WARRANT CERTIFIES that, for value received,             
(the “Holder”), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after
February 25, 2003 (the “Initial Exercise Date”) and on or prior to the close of
business on the fourth anniversary of the Initial Exercise Date (the
“Termination Date”) but not thereafter, to subscribe for and purchase from
Hollis-Eden Pharmaceuticals, Inc., a corporation incorporated in the State of
Delaware (the “Company”), up to              shares (the “Warrant Shares”) of
Common Stock, par value $0.001 per share, of the Company (the “Common Stock”).
The purchase price of one share of Common Stock (the “Exercise Price”) under
this Warrant shall be $            [$6.17/$6.71], subject to adjustment
hereunder. The Exercise Price and the number of Warrant Shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated February 25, 2003, between the Company and the purchasers
signatory thereto.

 

This Warrant is issued to Holder pursuant to and in full satisfaction of the
conditions and of the Company’s obligations to Holder pursuant to Sections 2.1
and 2.2(b)(ii) of the Purchase Agreement.

 

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1.    Title to Warrant.    Prior to the Termination Date and subject to
compliance with applicable laws and to the conditions set forth in Section 7(d)
hereof and to the provisions of Section 4.1 of the Purchase Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part, at the
office or agency of the Company by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed. The transferee shall sign an investment letter
in form and substance reasonably satisfactory to the Company.

 

2.    Authorization of Shares.    The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).

 

3.    Exercise of Warrant.

 

(a) Except as provided elsewhere herein, exercise of the purchase rights
represented by this Warrant may be made at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by the surrender of
this Warrant and the Notice of Exercise Form annexed hereto duly executed, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank or by means of a cashless exercise pursuant
to Section 3(d), the Holder shall be entitled to receive a certificate for the
number of Warrant Shares so purchased. Certificates for shares purchased
hereunder shall be delivered to the Holder within three (3) Trading Days after
the date on which this Warrant shall have been exercised as aforesaid. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to this
Section 3(a) by the third Trading Day after the date of exercise, then the
Holder will have the right to rescind such exercise. In addition to any other
rights available to the Holder, if the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to an
exercise by the third Trading Day after the date of exercise, and if after such
third Trading Day the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Company shall
(1) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any)

 

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for the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

 

(b) If this Warrant shall have been exercised in part, the Company shall, at the
time of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

 

(c) (i) Notwithstanding anything herein to the contrary, in no event shall the
Holder be permitted to exercise this Warrant for Warrant Shares to the extent
that (A) the number of shares of Common Stock beneficially owned by such Holder,
together with any affiliate thereof (other than Warrant Shares issuable upon
exercise of this Warrant) plus (B) the number of Warrant Shares issuable upon
exercise of this Warrant, would be equal to or exceed 4.9999% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon exercise of this Warrant held by such Holder after application of this
Section 3(c). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder. To the extent that the limitation contained in this Section 3(c)
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and of which portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such 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. Nothing
contained herein shall be deemed to restrict the right of a Holder to exercise
this Warrant into Warrant Shares at such time as such exercise will not violate
the provisions of this Section 3(c). The provisions of this Section 3(c) may be
waived by the Holder upon, at the election of the Holder, not less than 61 days’
prior notice to the

 

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Company, and the provisions of this Section 3(c) shall continue to apply until
such 61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver). No exercise of this Warrant in violation of
this Section 3(c) but otherwise in accordance with this Warrant shall affect the
status of the Warrant Shares as validly issued, fully-paid and nonassessable.

 

(ii) If the Company has not obtained Shareholder Approval (as defined below) if
required, then the Company may not issue upon exercise of this Warrant in the
aggregate, in excess of 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Closing Date, less any
shares of Common Stock issued upon conversion of the Debentures, upon prior
exercise of this or any other Warrant issued pursuant to the Purchase Agreement,
or as payment of interest on the Debentures (such number of shares, the
“Issuable Maximum”). If on any attempted exercise of this Warrant, the issuance
of Warrant Shares would exceed the Issuable Maximum, and the Company shall not
have previously obtained the vote of shareholders (the “Shareholder Approval”),
if any, as may be required by the applicable rules and regulations of the
Principal Market (or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof, then the Company shall issue to the Holder requesting a Warrant exercise
such number of Warrant Shares as may be issued below the Issuable Maximum and,
with respect to the remainder of the aggregate number of Warrant Shares, this
Warrant shall not be exercisable until and unless Shareholder Approval has been
obtained or is otherwise no longer required.

 

(d) If at any time after one year from the date of issuance of this Warrant
there is no effective Registration Statement registering the resale of the
Warrant Shares by the Holder, or if Shareholder Approval shall be required but
has not been obtained, this Warrant may also be exercised at such time by means
of a “cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

 

(A) = the VWAP on the Trading Day preceding the date of such election;

 

(B) = the Exercise Price of the Warrants, as adjusted; and

 

(X) = the number of Warrant Shares issuable upon exercise of the Warrants in
accordance with the terms of this Warrant.

 

4.    No Fractional Shares or Scrip.    No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

 

5.    Charges, Taxes and Expenses.    Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be

 

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paid by the Company, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.

 

6.    Closing of Books.    The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

 

7.    Transfer, Division and Combination.

 

(a) Subject to compliance with any applicable securities laws and the conditions
set forth in Sections 1 and 7(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder are transferable,
in whole or in part, upon surrender of this Warrant at the principal office of
the Company, together with a written assignment of this Warrant substantially in
the form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.

 

(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.

 

(c) The Company shall prepare, issue and deliver at its own expense (other than
transfer taxes) the new Warrant or Warrants under this Section 7.

 

(d) The Company agrees to maintain, at its aforesaid office, books for the
registration and the registration of transfer of the Warrants.

 

(e) If, at the time of the surrender of this Warrant in connection with any
transfer of this Warrant, the transfer of this Warrant shall not be registered
pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and

 

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scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a) promulgated under the Securities
Act.

 

8.    No Rights as Shareholder until Exercise.    This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price (or by means of a cashless exercise), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the later of
the date of such surrender or payment.

 

9.    Loss, Theft, Destruction or Mutilation of Warrant.    The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

 

10.    Saturdays, Sundays, Holidays, etc.    If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

 

11.    Adjustments of Exercise Price and Number of Warrant Shares.

 

(a) Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to the terms of this Debenture, including
as interest thereon), (ii) subdivide its outstanding shares of Common Stock into
a greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the number of
Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which it
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise

 

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Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.

 

(b) Anti-Dilution Provisions. During the Exercise Period, the Exercise Price and
the number of Warrant Shares issuable hereunder and for which this Warrant is
then exercisable pursuant to Section 1 hereof shall be subject to adjustment
from time to time as provided in this Section 11(b). In the event that any
adjustment of the Exercise Price as required herein results in a fraction of a
cent, such Exercise Price shall be rounded up or down to the nearest cent.

 

(i) Adjustment of Exercise Price. Except as set forth in Section 11(b)(ii)(E),
if and whenever the Company issues or sells, or in accordance with Section 11(b)
hereof is deemed to have issued or sold, any shares of Common Stock for an
effective consideration per share of less than the then Exercise Price or for no
consideration (such lower price, the “Base Share Price” and such issuances
collectively, a “Dilutive Issuance”), then, the Exercise Price shall be reduced
to a price determined by dividing (i) an amount equal to the sum of (a) the
total number of shares of Common Stock outstanding immediately prior to such
issuance or sale (excluding treasury shares, if any) multiplied by the Exercise
Price then in effect, plus (b) the consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of shares of Common
Stock outstanding immediately after such issuance or sale, provided, that for
purposes hereof, all shares of Common Stock that are issuable upon conversion,
exercise or exchange of Capital Shares Equivalents (including, without
limitation, the Debentures) shall be deemed outstanding immediately after the
issuance of such Capital Shares Equivalents. Such adjustment shall be made
whenever such shares of Common Stock or Capital Share Equivalents are issued.
For purposes of this Section 11(b), the number of shares of Common Stock
outstanding as of a given date shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding plus all Underlying Shares
issuable on conversion of the Debentures.

 

(ii) Effect on Exercise Price of Certain Events. For purposes of determining the
adjusted Exercise Price under Section 11(b) hereof, the following will be
applicable:

 

(A) Issuance of Rights or Options. If the Company in any manner issues or grants
any warrants, rights or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other securities exercisable,
convertible into or exchangeable for Common Stock (“Convertible Securities”)
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as “Options”) and the effective price per
share for which Common

 

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Stock is issuable upon the exercise of such Options is less than the Exercise
Price (“Below Base Price Options”), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Base Price Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Base
Price Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share and the maximum consideration payable to
the Company upon such exercise (assuming full exercise, conversion or exchange
of Convertible Securities, if applicable) will be deemed to have been received
by the Company. For purposes of the preceding sentence, the “effective price per
share for which Common Stock is issuable upon the exercise of such Below Base
Price Options” is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Below Base Price Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Below Base Price Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Base Price Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Base Price Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Base Price
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Base Price Options.

 

(B) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities, whether or not immediately convertible (other
than where the same are issuable upon the exercise of Options) and the effective
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is less than the Exercise Price, then the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities will, as of the date of the issuance
of such Convertible Securities, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share and the maximum
consideration payable to the Company upon such exercise (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will be deemed
to have been received by the Company. For the purposes of the preceding
sentence, the “effective price per share for which Common Stock is issuable upon
such exercise, conversion or exchange” is determined by dividing (i) the total
amount, if any, received

 

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or receivable by the Company as consideration for the issuance or sale of all
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon exercise, conversion or
exchange of such Convertible Securities.

 

(C) Change in Option Price or Conversion Rate. If there is a change at any time
in (i) the amount of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange of any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

 

(D) Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Warrant will be the amount received by
the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the fair market
value (closing bid price, if traded on any market) thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
in connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in good faith

 

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by an investment banker or other appropriate expert of national reputation
selected by the Company and reasonably acceptable to the holder hereof, with the
costs of such appraisal to be borne by the Company.

 

(E) Exceptions to Adjustment of Exercise Price. Notwithstanding the foregoing,
no adjustment to the Exercise Price will be made under this subsection 11(b) in
respect of (A) the granting or extension of existing options to employees,
officers and directors of the Company pursuant to any stock option plan duly
adopted by the Company or to the issuance of Common Stock upon exercise of such
options or (B) the issuance of up to 150,000 shares of Common Stock or Capital
Shares Equivalents, in the aggregate, to consultants or advisors to the Company
for services to be rendered to the Company by such consultants or advisors, or
(C) upon the exercise of, or payment of interest on, any Debenture or security
issued by the Company in connection with the offer and sale of this Company’s
securities pursuant to the Purchase Agreement, or (D) upon the exercise of or
conversion of any Capital Share Equivalents, options or warrants issued and
outstanding on the Closing Date (including the Warrants issued to the Holders
and the Cowen Warrants), (E) the issuance of any Capital Shares or Capital
Shares Equivalents in connection with an investment in the Company by, or a
joint venture, merger, consolidation, acquisition, licensing arrangement or
business partnership with (I) another Person or Persons, which such other
Person(s) is commonly recognized to be a non-financial participant in the
pharmaceutical industry or any sub-aspect thereof, including, without
limitation, the conduct of clinical trials, or (II) to another Person, in any
event where from the legal documentation thereof or other publicly available
information, it is manifest that the primary purpose of such transaction from
the perspective of such other Person is other than to take an equity position in
the Company, or (F) in connection with a leasing arrangement from a bank or
similar financial institution approved by the Company’s Board of Directors.

 

(iii) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price
shall be made in an amount of less than 1% of the Exercise Price in effect at
the time such adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to not less than 1% of such Exercise Price.

 

12.    Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets.    In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever

 

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(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation (“Other
Property”), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, “common stock of the successor or acquiring corporation” shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

 

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

 

14.    Notice of Adjustment.    Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

 

15.    Notice of Corporate Action.    If at any time:

 

(a) the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any shares
of stock of any class or any other securities or property, or to receive any
other right, or

 

(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of

 

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all or substantially all the property, assets or business of the Company to,
another corporation or,

 

(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;

 

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days’ prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days’ prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

 

16.    Authorized Shares.    The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.

 

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to

 

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obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.

 

17.    Miscellaneous.

 

(a) Jurisdiction. This Warrant shall constitute a contract under the laws of New
York, without regard to its conflict of law, principles or rules.

 

(b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon
resale imposed by state and federal securities laws.

 

(c) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.

 

(d) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Purchase Agreement.

 

(e) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

 

(f) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.

 

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(g) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

 

(h) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.

 

(i) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.

 

(j) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

(k) Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

 

********************

 

14

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

 

Dated: February 25, 2003

 

HOLLIS-EDEN PHARMACEUTICALS, INC.

By:

 

/s/    Eric J. Loumeau            

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Name: Eric J. Loumeau

   

Title: Vice President, General Counsel

 

 

 

 

15

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NOTICE OF EXERCISE

 

To: Hollis-Eden Pharmaceuticals, Inc.

 

(1) The undersigned hereby elects to purchase              Warrant Shares of
Hollis-Eden Pharmaceuticals, Inc. pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

[    ] in lawful money of the United States; or

 

[    ] the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 3(d), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 3(d).

 

(3) Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:

 

                                                                              
                                     

 

The Warrant Shares shall be delivered to the following:

                                                                              
                                     

 

                                                                              
                                     

 

                                                                              
                                     

 

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined
in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[PURCHASER]

By:

 

                                                                              
                  

   

Name:

   

Title:

Dated:                                    
                                                       

 

 

 

 

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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, 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.