EXHIBIT 10.1

 

AMENDED AND RESTATED MULTI DRAW CREDIT AGREEMENT

 

This Amended and Restated Multi Draw Credit Agreement is entered into as of
April 1, 2020 (as the same may be further amended, amended and restated,
supplemented or otherwise modified from time to time, this “Agreement”), by and
between EMERALD BIOSCIENCE, INC.(previously named Nemus Bioscience, Inc.), a
Nevada corporation (the “Company”) and Emerald HEALTH SCIENCES, Inc., (the
“Lender” and together with the Company, the “Parties”).

 

RECITALS

 

WHEREAS, the Company and the Lender are parties to a Multidraw Credit Agreement
dated as of October 5, 2018 (as amended or modified from time to time, the
“Existing Credit Agreement”);

 

WHEREAS the parties hereto wish to amend and restate the Existing Credit
Agreement without novation, all with the effect and as of and from the date
hereof; and

 

WHEREAS, the Company has requested that the Lenders provide credit facilities
for the purposes set forth herein, and the Lender is willing to do so on the
terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree the Existing Credit Agreement
shall and is hereby amended and restated without novation as hereinafter set
forth:

 

1. Definitions. Capitalized terms used herein shall have the meanings set forth
in this Section 1.

 

“Advance” means each disbursement made by the Lender to the Company pursuant to
Section 2.1.

 

“Advance Funding Date” means has the meaning set forth in Section 2.1.

 

“Affiliate” means as to any Person, any other Person that, directly or
indirectly through one or more intermediaries, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, “control” of a Person means the power, directly or indirectly,
either to (a) vote 10% or more of the securities having ordinary voting power
for the election of directors (or persons performing similar functions) of such
Person or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.

 

“Anti-Terrorism Law” means any Law related to money laundering or financing
terrorism including, without limitation, the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001 (Title III of Pub. L. 107-56) (the “USA PATRIOT Act”), the Currency and
Foreign Transactions Reporting Act, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§
1818(s), 1820(b) and 1951-1959) (also known as the “Bank Secrecy Act”), the
Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive
Order 13224 (effective September 24, 2001), any laws or regulations including,
without limitation, any laws or regulations imposing “Know Your Customer” or
other identification checks or procedures, that apply to a Lender, in any
jurisdiction in connection with the Agreement.

 

 

 

 

“Applicable Rate” means simple interest at the rate equal to 7% per annum.

 

“Availability Period” means the period from and including the date hereof to the
earliest of (a) October 5, 2022, (b) the date upon which the aggregate value of
the funded Advances equals or exceeds the Maximum Credit Amount and (c) the
Termination Date.

 

“Bank Secrecy Act” has the meaning set forth in the definition of Anti-Terrorism
Law.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in California or British Columbia are authorized or required by
law to close.

 

“Commitment” has the meaning set forth in Section 2.1.

 

“Company” has the meaning set forth in the introductory paragraph.

 

“Common Shares” means shares of common stock of the Company.

 

“Contingent Obligation” has the meaning set forth in Section 9.8.

 

“Conversion Notice” means a written notice from the Lender to the Company
irrevocably agreeing to convert, as of the date of such notice, all or any
portion of the Loan that is convertible into Common Shares.

 

“Convertible Advance” has the meaning set forth in Section 6.1.

 

“Debt” of the Company, means all (a) indebtedness for borrowed money; (b)
obligations for the deferred purchase price of property or services, except
trade payables arising in the ordinary course of business; (c) obligations
evidenced by notes, bonds, debentures or other similar instruments; (d)
obligations as lessee under capital leases; (e) obligations in respect of any
interest rate swaps, currency exchange agreements, commodity swaps, caps, collar
agreements or similar arrangements entered into by the Company providing for
protection against fluctuations in interest rates, currency exchange rates or
commodity prices or the exchange of nominal interest obligations, either
generally or under specific contingencies; (f) obligations under acceptance
facilities and letters of credit; (g) guarantees, endorsements (other than for
collection or deposit in the ordinary course of business), and other contingent
obligations to purchase, to provide funds for payment, to supply funds to invest
in any Person, or otherwise to assure a creditor against loss, in each case, in
respect of indebtedness set out in clauses (a) through (f) of a Person other
than the Company; and (h) indebtedness set out in clauses (a) through (g) of any
Person other than Company secured by any lien on any asset of the Company,
whether or not such indebtedness has been assumed by the Company.

 

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“Default” means any of the events specified in Section 12 which constitutes an
Event of Default or which, upon the giving of notice, the lapse of time, or both
pursuant to Section 12 would, unless cured or waived, become an Event of
Default.

 

“Default Rate” means, at any time, the Applicable Rate plus 10%.

 

“Dollars” or “$” refers to lawful money of the United States of America.

 

“Drawdown Termination Date” has the meaning set forth in Section 2.2.

 

“Event of Default” has the meaning set forth in Section 12.

 

“Exchange Act” has the meaning set forth in Section 6.1.

 

“Fixed Conversion Price” has the meaning set forth in Section 7.

 

“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time.

 

“Governmental Authority” means the government of any nation or any political
subdivision thereof, whether at the national, state, territorial, provincial,
municipal or any other level, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of, or pertaining to, government (including any supranational bodies such as the
European Union or the European Central Bank).

 

“Indebtedness” has the meaning set forth in Section 9.8.

 

“Interest Payment Date” means the last Business Day of each March, June,
September and December, commencing on December 31, 2018.

 

“Law” as to any Person, means any law (including common law), statute,
ordinance, treaty, rule, regulation, policy or requirement of any Governmental
Authority and authoritative interpretations thereon, whether now or hereafter in
effect, in each case, applicable to or binding on such Person or any of its
properties or to which such Person or any of its properties is subject.

 

“Lender” has the meaning set forth in the introductory paragraph.

 

“Lien” means any mortgage, pledge, hypothecation, encumbrance, lien (statutory
or other), charge or other security interest.

 

“Loan” means the advances by the Lender to the Company pursuant to this
Agreement.

 

 “Material Adverse Effect” means a material adverse effect (or a series of
adverse effects, none of which is material in and of itself but which,
cumulatively, result in a material adverse effect) on (a) the business, assets,
properties, liabilities (actual or contingent), operations or condition
(financial or otherwise) of the Company; (b) the validity or enforceability of
this Agreement; (c) the rights or remedies of the Lender hereunder; or (d) the
Company’s ability to perform any of its obligations hereunder.

 

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“Maturity Date” means the earlier of (a) October 5, 2022 and (b) the Termination
Date.

 

“Maximum Credit Amount” means $20,000,000.

 

“Notice of Advance Request” shall mean a request by the Company in accordance
with the terms of Section 2.2 and substantially in the form of Exhibit B.

 

“Order” as to any Person, means any order, decree, judgment, writ, injunction,
settlement agreement, requirement or determination of an arbitrator or a court
or other Governmental Authority, in each case, applicable to or binding on such
Person or any of its properties or to which such Person or any of its properties
is subject.

 

“Parties” has the meaning set forth in the introductory paragraph.

 

“Permitted Debt” means Debt (a) existing or arising under this Agreement and any
refinancing thereof; (b) existing as of the date of this Agreement and set out
in Schedule A; (c) owed in respect of any netting services, overdrafts and
related liabilities arising from treasury, depository and cash management
services in connection with any automated clearinghouse transfers of funds; (d)
unsecured insurance premiums and trade payables owing in the ordinary course of
business and (e) approved by the Lender.

 

“Person” means any individual, corporation, limited liability company, trust,
joint venture, association, company, limited or general partnership,
unincorporated organization, Governmental Authority or other entity.

 

“Sanctions” means, any economic or trade sanctions or restrictive measures
enacted, administered, imposed or enforced by the US Department of the
Treasury’s Office of Foreign Assets Control (OFAC), US Department of State,
European Union, the United Nations Security Council, the Parliament of Canada
and/or any present or future member state thereof and/or the United Kingdom’s
Her Majesty’s Treasury, or other relevant sanctions authority.

 

“Termination Date” means the date on which all amounts under this Agreement
shall become due and payable pursuant to Section 13.

 

“USA PATRIOT Act” has the meaning set forth in the definition of Anti-Terrorism
Law.

 

“Warrants” means the detachable warrants issued by the Company to the Lender in
connection with this Agreement (and any related financings, instruments or
derivatives entered into in connection therewith) in the form attached hereto as
Exhibit C.

 

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2. LOAN DISBURSEMENT MECHANICS.

 

2.1 Commitment. Subject to Sections 2.2, and 2.3 and provided that all of the
applicable conditions precedent set forth in Section 2.3 have been fulfilled by
the Company or waived by the Lender in accordance with Section 14.9, the Lender
agrees to make Advances at any time and from time to time to the Company in
Dollars on any Business Day during the Availability Period, including without
limitation, at least $150,000 for each month of May, June and July 2020 (the
“Commitment”), provided that (i) the Company may not request more than one
Advance per day pursuant to this Section 2.1, (ii) the Lender shall have
received a Notice of Advance Request satisfactory to the Lender, (iii) the board
of directors of the Company shall have approved the decision to draw the Advance
and (iv) the sum of (x) the aggregate principal amount of the Advance requested
plus (y) the aggregate principal amount of all Advances previously funded as of
the most recent Advance Funding Date and, if applicable, previously requested
but not funded as of the most recent Advance Funding Date, do not exceed the
Maximum Credit Amount.

 

2.2 Requests for Advances. Each Advance shall (i) be made upon the Company’s
irrevocable written notice to the Lender (each such notice, a “Notice of Advance
Request”), (ii) be received by the Lender not later than 3:00 p.m. two Business
Days prior to the requested date of funding of such Advance (the “Advance
Funding Date”) and (iii) be in a principal amount of $50,000 or a whole multiple
of $10,000 in excess thereof.

 

2.3 Conditions Precedent. The obligation of the Lender to extend credit under
this Agreement is subject to the fulfilment of the following conditions
precedent at the time such credit is extended:

 

(a) no Default has occurred and is continuing or would arise immediately after
giving effect to or as a result of such extension of credit;

 

(b) the representations and warranties of the Company contained in the Agreement
shall be true and correct on the date such credit is made available as if such
representations and warranties were made on such date; and

 

(c) the satisfactory completion of the Lender’s ongoing due diligence with
respect to the Company.

 

2.4 Warrants. On each Advance Funding Date, the Lender will choose, at its sole
discretion, whether the Company shall issue a Warrant entitling the Lender to
purchase, at an exercise price of $0.35 per share (subject to adjustment
pursuant to the terms of the Warrant), that number of Common Shares equal to the
dollar amount of the Advance divided by $0.50, and will provide notice of its
decision to the Company at the time of the Advance Funding Date. If the Lender
does not provide such notice to the Company, the Company shall issue a Warrant.
By way of example, if the Advance is $100,000, the Company will issue a Warrant
to the Lender to acquire 200,000 Common Shares. Warrants issued prior to the
date of this Agreement shall not be modified, amended or altered by the terms of
this Agreement and shall remain in full force and effect.

 

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2.5 Use of Proceeds. The proceeds of the Advances shall be used for general
corporate purposes as approved by the board of directors of the Company.

 

2.6 Termination of Registration Rights. As partial consideration for amending
and restating the Existing Credit Agreement, the parties agree to terminate the
Registration Rights Agreement dated October 5, 2018, and all of the parties
obligations thereunder shall cease effective immediately.

 

3. Final Payment Date; Optional Prepayments.

 

3.1 Final Payment Date. Subject to Section 6, the aggregate unpaid principal
amount of the Loan, all accrued and unpaid interest and all other amounts
payable under this Agreement shall be due and payable on the Maturity Date.

 

3.2 Optional Prepayment. The Company shall not be permitted to prepay the Loan
without the prior written consent of the Lender (such consent not to be
unreasonably delayed, conditioned or withheld). No prepaid amount may be
reborrowed.

 

4. Interest.

 

4.1 Interest Rate. Except as otherwise provided herein, the outstanding
principal amount of all Advances made hereunder shall bear interest at the
Applicable Rate from the date such Advance was made until the Loan is paid in
full, whether at maturity, upon acceleration, by prepayment or otherwise.

 

4.2 Interest Payment Dates. Interest shall be payable quarterly in arrears to
the Lender on each Interest Payment Date.

 

4.3 Default Interest. If any amount payable hereunder is not paid when due
(without regard to any applicable grace periods), whether at stated maturity, by
acceleration or otherwise, such overdue amount shall bear interest at the
Default Rate from the date of such non-payment until such amount is paid in
full.

 

4.4 Computation of Interest. All computations of interest shall be made on the
basis of a year of 360 days, as the case may be, and the actual number of days
elapsed. Interest shall accrue on each Advance on the day on which such Advance
is made, and shall not accrue on the Loan for the day on which it is paid.

 

(a) Interest Rate Limitation. If at any time and for any reason whatsoever, the
interest rate payable on any Advance shall exceed the maximum rate of interest
permitted to be charged by the Lender to the Company under applicable Law, that
portion of each sum paid attributable to that portion of such interest rate that
exceeds the maximum rate of interest permitted by applicable Law shall be deemed
a voluntary prepayment of principal.

 

4.5 Deferral of Interest. In partital consideration for amending and restating
the Existing Credit Agreement, Lender has agreed to defer all interest accrued
and/or due under this Agreement, beginning the quarter ended June 30, 2020,
until the Company completes a capital raise of at least $5,000,000.

 

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5. Payment Mechanics.

 

5.1 Manner of Payments. Subject to Section 6, (x) all payments of principal and
(y) to the extent paid in cash, all payments of interest, shall be made in
Dollars no later than 12:00 PM on the date on which such payment is due by wire
transfer of immediately available funds to the Lender’s account at a bank
specified by the Lender in writing to the Company from time to time. At Lender’s
option, interest with respect to any Convertible Advance may be paid by the
Company in registered, freely tradeable Common Shares valued at the applicable
Fixed Conversion Price.

 

5.2 Application of Payments. All cash payments made hereunder shall be applied
first, to the payment of any fees or charges outstanding hereunder, second, to
accrued interest and third, to the payment of the principal amount outstanding
under this Agreement.

 

5.3 Business Day Convention. Whenever any payment to be made hereunder shall be
due on a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension will be taken into account in
calculating the amount of interest payable under this Agreement.

 

5.4 Evidence of Debt. The Lender is authorized to record on the grid attached
hereto as Exhibit A each Advance made to the Company and each payment or
prepayment thereof. The entries made by the Lender shall, to the extent
permitted by applicable Law, be prima facie evidence of the existence and
amounts of the obligations of the Company therein recorded; provided, however,
that the failure of the Lender to record such payments or prepayments, or any
inaccuracy therein, shall not in any manner affect the obligation of the Company
to repay (with applicable interest) the Loan in accordance with the terms of
this Agreement.

 

5.5 Rescission of Payments. If at any time any payment made by the Company under
this Agreement is rescinded or must otherwise be restored or returned upon the
insolvency, bankruptcy or reorganization of the Company or otherwise, the
Company’s obligation to make such payment shall be reinstated as though such
payment had not been made.

 

6. Conversion.

 

6.1 Conversion. The Lender will choose, in its sole discretion, at the time of
an Advance, as to whether the Advance will or will not be convertible in
accordance with this Section 6 (each such Advance, a “Convertible Advance”) and
will provide notice of its decision to the Company at the time of the Advance.
If the Lender does not provide such notice to the Company, the Advance will not
be convertible. At any time and from time to time during the period when there
are funded Convertible Advances outstanding, following delivery of a Conversion
Notice, the Lender at its sole discretion may convert all or a part of the
outstanding Loan (up to a maximum amount equal to the total amount of
Convertible Advances plus interest thereon, together with all accrued and unpaid
interest thereon), into Common Shares at a price per Common Share equal to the
applicable Fixed Conversion Price. The parties hereby agree that all Advances
outstanding as of the date shall be deemed Convertible Advances.

 

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6.2 Delivery of Stock Certificates. As promptly as practicable, if requested by
the Lender, the Company at its expense will issue and deliver to the Lender a
certificate or certificates for the number of full Common Shares issuable upon
such conversion.

 

6.3 Fractional Shares. No fractional shares of common stock shall be issued upon
any conversion pursuant to Section 6.1 or issuance pursuant to Section 5.1. If
the issuance would result in the issuance of a fraction of a Common Share, the
Company shall round such fraction of a Common Share, up or down, as applicable,
to the nearest whole share.

 

6.4 Dividend Protection. Immediately following any communication to the Company
of the Lender’s intention to exercise any of its conversion rights hereunder,
the Lender shall thereafter be entitled to receive the cash value of any
dividends issued by the Company, at an amount equal to (x) the number of Common
Shares that would have been delivered to the Lender at the applicable Fixed
Conversion Price, multiplied by (y) the dividend percentage per Common Share.

 

7. Conversion Price Adjustments. The conversion price (the “Fixed Conversion
Price”) per Common Share for any Advance made after the date hereof shall be
$0.25. Any Advances made priod to the date hereof shall continue to have a Fixed
Conversion Price of $0.40. The Fixed Conversion Price for each Common Share
shall be subject to adjustment from time to time as follows:

 

7.1 If, at any time after the date hereof, the number of Common Shares of the
Company outstanding is increased by a distribution payable in shares of common
stock of the Company or by a subdivision or split-up of Common Shares, then the
Conversion Price shall be appropriately decreased.

 

7.2 If, at any time after the date hereof, the number of Common Shares
outstanding is decreased by a combination of the outstanding Common Shares, then
the Conversion Price shall be appropriately increased.

 

7.3 In the event of any contemplated capital reorganization of the Company,
reclassification of the equity interests of the Company, or consolidation or
merger of the Company, the Parties heretofore agree, prior or contemporaneously
to each such reorganization, reclassification, consolidation or merger, to amend
this Agreement, and the Company shall cause any other Person (including any
merger counterparty) necessary to effectuate the amendment on behalf of the
surviving entity following any consolidation or merger to execute such
amendment, to cause the Lender to maintain and preserve the conversion rights it
is entitled to under this Agreement (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon such
reorganization, reclassification, consolidation or merger.

 

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7.4 Whenever the Fixed Conversion Price shall be adjusted as provided in this
Section 7, the Company shall make available for inspection during regular
business hours, at its principal executive offices or at such other place as may
be designated by the Company, a statement, showing in detail the facts requiring
such adjustment and the Fixed Conversion Price that shall be in effect after
such adjustment. The Company shall also cause a copy of such statement to be
sent to the Lender at the address appearing on the Company’s records or as
communicated to the Company by the Lender from time to time.

 

8. Reservation of Common Shares Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of common stock solely for the purpose of effecting the potential conversion of
that part of the Loan that is convertible in accordance with Section 6.1, such
number of its shares of common stock as shall from time to time be sufficient to
effect the conversion of the Loan; and if at any time the number of authorized
but unissued shares of its common stock shall not be sufficient to effect the
conversion of the entire outstanding amount of the Loan that is convertible in
accordance with Section 6.1, in addition to such other remedies as shall be
available to the Lender, the Company will use its best efforts to take such
corporate action as may be necessary to increase its authorized but unissued
shares of its common stock to such number of shares as shall be sufficient for
such purposes.

 

9. Representations and Warranties. The Company hereby represents and warrants to
the Lender on the date hereof as follows:

 

9.1 Existence; Compliance with Laws. The Company is (a) a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its jurisdiction of organization and has the requisite power and authority,
and the legal right, to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted and (b) in compliance with all
Laws and Orders except to the extent that the failure to comply therewith could
not, reasonably be expected to have a Material Adverse Effect.

 

9.2 Power and Authority. The Company has the power and authority, and the legal
right, to execute and deliver this Agreement and to perform its obligations
hereunder.

 

9.3 Authorization; Execution and Delivery. The execution and delivery of this
Agreement by the Company and the performance of its obligations hereunder have
been duly authorized by all necessary corporate action in accordance with all
applicable Laws. The Company has duly executed and delivered this Agreement in
accordance with the terms herein.

 

9.4 No Approvals. No consent or authorization of, filing with, notice to or
other act by, or in respect of, any Governmental Authority or any other Person
is required in order for the Company to execute, deliver, or perform any of its
obligations under this Agreement.

 

9.5 No Violations. The execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby do not and
will not (a) violate any provision of the Company’s organizational documents;
(b) violate any Law or Order applicable to the Company or by which any of its
properties or assets may be bound; or (c) constitute a default under any
material agreement or contract by which the Company may be bound.

 

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9.6 Enforceability. This Agreement is a valid, legal and binding obligation of
the Company, enforceable against the Company in accordance with its terms except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

 

9.7 No Litigation or Bankruptcy Proceedings. No action, suit, litigation,
investigation or proceeding of, or before, any arbitrator or Governmental
Authority is pending or, to the knowledge of the Company, threatened by or
against the Company or any of its property or assets (a) with respect to this
Agreement or any of the transactions contemplated hereby or (b) that could be
expected to materially adversely affect the Company’s financial condition or the
ability of the Company to perform its obligations under this Agreement. The
Company has not taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, liquidation or
winding up, or does the Company have any knowledge or reason to believe that any
of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so.

 

9.8 Indebtedness. (i) Except as disclosed in the Company’s filings with the
Securities and Exchange Commission under the Exchange Act, the Company does not
have any outstanding Indebtedness (as defined below), (ii) the Company is not a
party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material Adverse Effect,
(iii) the Company is not in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) the Company is not a party to any
contract, agreement or instrument relating to any Indebtedness, the performance
of which, in the judgment of the Company’s officers, has or is expected to have
a Material Adverse Effect. (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money in excess of $25,000, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including, without limitation, “capital leases” in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business consistent with past practice), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
claim, tax, right of first refusal, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above;
and (y) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

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9.9 USA PATRIOT Act, OFAC and Other Regulations.

 

(a) Neither the Company nor, to the knowledge of the Company, any of its
Affiliates or any of their respective officers, directors, brokers or agents (i)
has violated any Anti-Terrorism Laws or (ii) has engaged in any transaction,
investment, undertaking or activity that conceals the identity, source or
destination of the proceeds from any category of prohibited offenses designated
by the Organization for Economic Co-operation and Development’s Financial Action
Task Force on Money Laundering.

 

(b) Neither the Company nor, to the knowledge of the Company, any of its
Affiliates or any of their respective officers, directors, brokers or agents is
a Person that is, or is owned or controlled by Persons that are: (i) the subject
of any Sanctions, or (ii) located, organized or resident in a country or
territory that is, or whose government is, the subject of Sanctions, including
Cuba, Iran, North Korea, Sudan and Syria.

 

(c) Neither the Company nor, to the knowledge of the Company any of its
Affiliates or any of their respective officers, directors, brokers or agents
acting or benefiting in any capacity in connection with the Loan (i) conducts
any business or engages in making or receiving any contribution of goods,
services or money to or for the benefit of any Person, or in any country or
territory, that is the subject of any Sanctions, (ii) deals in, or otherwise
engages in any transaction related to, any property or interests in property
blocked pursuant to any Anti-Terrorism Law or (iii) engages in or conspires to
engage in any transaction that evades or avoids, or has the purpose of evading
or avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.

 

10. Affirmative Covenants. Until all amounts outstanding in this Agreement have
been paid in full, the Company shall:

 

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10.1 Prompt Payment. The Company shall duly and punctually pay to the Lender all
amounts payable by the Company under and pursuant to terms of this Agreement.

 

10.2 Maintenance of Existence. (a) Preserve, renew and maintain in full force
and effect its corporate or organizational existence and (b) take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business, except, in each case, where the failure
to do so could not reasonably be expected to have a Material Adverse Effect.

 

10.3 Compliance. Comply with (a) all of the terms and provisions of its
organizational documents; (b) its obligations under its material contracts and
agreements; and (c) all Laws and Orders applicable to it and its business,
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect.

 

10.4 Payment Obligations. Pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent all its material obligations of
whatever nature, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, and reserves in conformity
with GAAP with respect thereto have been provided on its books.

 

10.5 Financial Information. Promptly provide to the Lender all financial and
operational information with respect to the Company as the Lender may reasonably
request.

 

10.6 Notice of Events of Default. Promptly notify the Lender of the occurrence
of any Default or any Event of Default, notify the Lender in writing of the
nature and extent of such Default or Event of Default and the action, if any, it
has taken or proposes to take with respect to such Default or Event of Default.

 

10.7 Notice of Material Adverse Effect. Promptly notify the Lender of any matter
that has resulted or could be reasonably expected to result in a Material
Adverse Effect.

 

10.8 Further Assurances. Upon the reasonable request of the Lender, promptly
execute and deliver such further instruments and do or cause to be done such
further acts as may be necessary or advisable to carry out the intent and
purposes of this Agreement.

 

11. Negative Covenants. Until all amounts outstanding under this Agreement have
been paid in full, the Company shall not:

 

11.1 Indebtedness. Incur, create or assume any Debt, other than Permitted Debt.

 

11.2 Liens. Incur, create, assume or suffer to exist any Lien on any of its
property or assets, whether now owned or hereinafter acquired except for (a)
Liens for taxes not yet due or which are being contested in good faith by
appropriate proceedings and (b) non-consensual Liens arising by operation of
law, arising in the ordinary course of business, and for amounts which are not
overdue for a period of more than 60 days or that are being contested in good
faith by appropriate proceedings.

 

  12

 

 

11.3 Merger, etc. Merge or consolidate with any other Person, or sell, lease,
dissolve, liquidate or otherwise dispose of all or any substantial part of its
property or assets to any other Person.

 

11.4 Line of Business. Enter any business, directly or indirectly, except for
those businesses in which the Company is engaged on the date of this Agreement
or that are reasonably related thereto.

 

11.5 Compliance With Anti-Terrorism Regulations.

 

(a) (i) Violate any Anti-Terrorism Laws or (ii) engage in any transaction,
investment, undertaking or activity that conceals the identity, source or
destination of the proceeds from any category of prohibited offenses designated
by the Organization for Economic Co-operation and Development’s Financial Action
Task Force on Money Laundering or (iii) permit any of its Affiliates to violate
these laws or engage in these actions.

 

(b) (i) Use, directly or indirectly, the proceeds of the Advances, or lend,
contribute or otherwise make available such proceeds to any subsidiary, joint
venture partner or other Person, (x) to fund any activities or business of or
with any Person, or in any country or territory, that, is, or whose government
is, the subject of Sanctions at the time of such funding, or (y) in any other
manner that would result in a violation of Sanctions by any Person (including
any Person participating in the Loan, whether as underwriter, advisor, investor,
or otherwise).

 

(c) (i) Deal in, or otherwise engage in any transaction related to, any property
or interests in property blocked pursuant to any Anti-Terrorism Law, (ii) engage
in or conspire to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempt to violate, any of the prohibitions
set forth in any Anti-Terrorism Law or (iii) permit any of its Affiliates to do
any of the foregoing.

 

12. Events of Default. The occurrence and continuance of any of the following
shall constitute an Event of Default hereunder:

 

12.1 Failure to Pay. The Company fails to (a) pay (i) any principal or interest
of the Loan when due or (ii) any other amount when due; or (b) issue any Common
Shares when issuable hereunder, and such failure continues for five Business
Days.

 

12.2 Breach of Representations and Warranties. Any representation or warranty
made or deemed made by the Company to the Lender herein is incorrect in any
material respect on the date as of which such representation or warranty was
made or deemed made.

 

12.3 Breach of Covenants. The Company fails to observe or perform (a) any
covenant, condition or agreement contained in Section 11 or (b) any other
covenant, obligation, condition or agreement contained in this Agreement other
than those specified in clause (a) and Section 12.1 and such failure continues
for 30 days after written notice to the Company.

 

  13

 

 

12.4 Cross-Defaults. The Company fails to pay when due any of its Debt (other
than Debt arising under this Agreement) or any interest or premium thereon when
due (whether by scheduled maturity, acceleration, demand or otherwise) and such
failure continues after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt.

 

12.5 Bankruptcy.

 

(a) the Company commences any case, proceeding or other action (i) under any
existing or future Law relating to bankruptcy, insolvency, reorganization, or
other relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts or (ii) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the Company
makes a general assignment for the benefit of its creditors;

 

(b) there is commenced against the Company any case, proceeding or other action
of a nature referred to in Section 12.5(a) above which (i) results in the entry
of an order for relief or any such adjudication or appointment or (ii) remains
undismissed, undischarged or unbonded for a period of 60 days;

 

(c) there is commenced against the Company any case, proceeding or other action
seeking issuance of a warrant of attachment, execution or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which has not been vacated, discharged, or stayed
or bonded pending appeal within 60 days from the entry thereof;

 

(d) the Company takes any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in Section
12.5(a), Section 12.5(b) or Section 12.5(c) above; or

 

(e) the Company is generally not, or shall be unable to, or admits in writing
its inability to, pay its debts as they become due.

 

12.6 Judgments. One or more judgments or decrees shall be entered against the
Company and all of such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 10 days from the entry
thereof.

 

12.7 Reserved.

 

13. Remedies.

 

13.1 Upon the occurrence of any Event of Default and at any time thereafter
during the continuance of such Event of Default, the Lender may at its option,
by written notice to the Company (a) terminate its commitment to make any
Advances hereunder and/or (b) declare the entire principal amount of the Loan,
together with all accrued interest thereon and all other amounts payable
hereunder, immediately due and payable; provided, however that, if an Event of
Default described in Section 12.5 shall occur, the principal of and accrued
interest on the Loan shall become immediately due and payable without any
notice, declaration or other act on the part of the Lender.

 

  14

 

 

13.2 If an Event of Default described in Section 12.7 shall occur, the Lender
may require the Company to prepay the Loan at a value of 100% of the outstanding
principal of the Loan plus accrued but unpaid interest.

 

14. Miscellaneous.

 

14.1 Notices.

 

(a) All notices, requests or other communications required or permitted to be
delivered hereunder shall be delivered in writing, in each case to the address
specified below or to such other address as such Party may from time to time
specify in writing in compliance with this provision:

 

 

(i)

If to the Company:

 

 

 

 

 

Emerald Bioscience, Inc.

Attn: Brian Murphy, M.D.

Telephone: (949) 396-0330

Facsimile: (949) 266-0346

E-mail: brian@emeraldbio.life

 

 

 

 

(ii)

If to the Lender:

 

 

 

 

 

Emerald Health Sciences, Inc.

Attn: Stephen Hall

Telephone: (778) 868-1582

E-mail: stephen@emerald.life

  

(b) Notices if (i) mailed by certified or registered mail or sent by hand or
overnight courier service shall be deemed to have been given when received; (ii)
sent by facsimile during the recipient’s normal business hours shall be deemed
to have been given when sent (and if sent after normal business hours shall be
deemed to have been given at the opening of the recipient’s business on the next
business day); and (iii) sent by e-mail shall be deemed received upon the
sender’s receipt of an acknowledgment from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgment).

 

14.2 Expenses. The Company shall reimburse the Lender for all reasonable and
documented out-of-pocket costs, expenses and fees (including reasonable and
documented expenses and fees of its counsel) incurred by the Lender in
connection with the transactions contemplated hereby including the negotiation,
documentation and execution of this Agreement. In the event that any Party
institutes any legal suit, action, or proceeding against the other Party arising
out of or relating to this Agreement, the prevailing party in the suit, action,
or proceeding shall be entitled to receive in addition to all other damages to
which it may be entitled, the costs incurred by such Party in conducting the
suit, action, or proceeding, including reasonable attorneys’ fees and expenses
and court costs.

 

  15

 

 

14.3 Governing Law. This Agreement and any claim, controversy, dispute or cause
of action (whether in contract or tort or otherwise) based upon, arising out of
or relating to this Agreement, and the transactions contemplated hereby, shall
be governed by the laws of the State of California.

 

14.4 Submission to Jurisdiction.

 

(a) The Company hereby irrevocably and unconditionally (i) agrees that any legal
action, suit or proceeding arising out of or relating to this Agreement may be
brought in the courts of the State of California or of the United States of
America for the Central District of California and (ii) submits to the exclusive
jurisdiction of any such court in any such action, suit or proceeding. Final
judgment against the Company in any action, suit or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the
judgment.

 

(b) Nothing in this Section 14.4 shall affect the right of the Lender to (i)
commence legal proceedings or otherwise sue the Company in any other court
having jurisdiction over the Company or (ii) serve process upon the Company in
any manner authorized by the laws of any such jurisdiction.

 

14.5 Venue. The Company irrevocably and unconditionally waives, to the fullest
extent permitted by applicable law, any objection that it may now or hereafter
have to the laying of venue of any action or proceeding arising out of or
relating to this Agreement or in any court referred to in Section 14.4 and the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.

 

14.6 Waiver of Jury Trial. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY.

 

14.7 California Judicial Reference. If any action or proceeding is filed in
court of the State of California by or against any party hereto in connection
with any of the transactions contemplated by this Agreement, (a) the court
shall, and is hereby directed to, make a general reference pursuant to
California Code of Civil Procedure Section 638 to a referee in California (who
shall be a single active or retired judge) to hear and determine all of the
issues in such action or proceeding (whether of fact or of law) and to report a
statement of decision, provided that at the option of any party to such
proceeding, any such issues pertaining to a “provisional remedy” as defined in
California Code of Civil Procedure Section 1281.8 shall be heard and determined
by the court, and (b) without limiting the generality of Section 14.2, the
Company shall be solely responsible to pay all fees and expenses of any referee
appointed in such action or proceeding.

 

  16

 

 

14.8 Counterparts; Integration; Effectiveness. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in
counterparts, each of which shall constitute an original, but all taken together
shall constitute a single contract. This Agreement constitutes the entire
contract between the Parties with respect to the subject matter hereof and
supersede all previous agreements and understandings, oral or written, with
respect thereto including the Existing Credit Agreement. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile or in electronic
(i.e., “pdf” or “tif”) format shall be effective as delivery of a manually
executed counterpart of this Agreement.

 

14.9 Successors and Assigns. This Agreement may be assigned or transferred by
the Lender to any Person. The Company may not assign or transfer its obligations
or any of its rights hereunder without the prior written consent of the Lender.
This Agreement shall inure to the benefit of, and be binding upon, the Parties
and their permitted assigns.

 

14.10 Waiver of Notice. The Company hereby waives demand for payment,
presentment for payment, protest, notice of payment, notice of dishonor, notice
of nonpayment, notice of acceleration of maturity and diligence in taking any
action to collect sums owing hereunder.

 

14.11 USA PATRIOT Act. The Lender hereby notifies the Company that pursuant to
the requirements of the USA PATRIOT Act, it is required to obtain, verify, and
record information that identifies the Company, which information includes the
name of the Company and other information that will allow the Lender to identify
the Company in accordance with the USA PATRIOT Act, and the Company agrees to
provide such information from time to time to the Lender.

 

14.12 Whole Agreement. From and after the date hereof, this Agreement is and
shall for all purposes be deemed to be an amendment and restatement of the
provisions of the Existing Credit Agreement and shall, from the date hereof,
supersede all prior agreements, undertakings, declarations, commitments,
representations, written or oral, in respect thereof. This Agreement does not
constitute a novation of the Existing Credit Agreement or the obligations
thereunder.

 

14.13 Interpretation. For purposes of this Agreement (a) the words “include,”
“includes” and “including” shall be deemed to be followed by the words “without
limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,”
“hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole.
The definitions given for any defined terms in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. Unless the context otherwise requires, references
herein: (x) to Schedules, Exhibits and Sections mean the Schedules, Exhibits and
Sections of this Agreement; (y) to an agreement, instrument or other document
means such agreement, instrument or other document as amended, supplemented and
modified from time to time to the extent permitted by the provisions thereof;
and (z) to a statute means such statute as amended from time to time and
includes any successor legislation thereto and any regulations promulgated
thereunder. This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting an
instrument or causing any instrument to be drafted.

 

  17

 

 

14.14 Amendments and Waivers. No term of this Agreement may be waived, modified
or amended except by an instrument in writing signed by both of the parties
hereto. Any waiver of the terms hereof shall be effective only in the specific
instance and for the specific purpose given.

 

14.15 Headings. The headings of the various Sections and subsections herein are
for reference only and shall not define, modify, expand or limit any of the
terms or provisions hereof.

 

14.16 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising on the part of the Lender, of any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers

 

14.17 Severability. If any term or provision of this Agreement is invalid,
illegal or unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other term or provision of this Agreement
or invalidate or render unenforceable such term or provision in any other
jurisdiction. Upon such determination that any term or other provision is
invalid, illegal or unenforceable, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.

 

[SIGNATURE PAGE FOLLOWS]

 

  18

 

 

IN WITNESS WHEREOF, the Company has executed this Agreement as of the first date
written above.

 

EMERALD Bioscience, Inc.

 

By________________________________

Name: Brian Murphy

Title: Chief Executive Officer

 

Signature Page (Multi Draw Credit Agreement)

 

 

 

 

IN WITNESS WHEREOF, the Lender has executed this Agreement as of the first date
written above.

 

 

 

EMERALD HEALTH SCIENCES INC.

 

 

 

By:                                                                 

Name: Avtar Dhillon, MD

Title:    Executive Chairman

 

Signature Page (Multi Draw Credit Agreement)

 

 

 

 

Exhibit A

 

Advances and Payments on the Loan

 

Date of Advance

Amount of Advance

Amount of Principal Paid

Unpaid Principal Amount of Advance

Name of Person Making the Notation

Signature of Person Making the Notation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

Exhibit B

 

Form of

 

Notice of Advance Request

 

[Date]

 

Ladies and Gentlemen:

 

The undersigned refers to the Amended and Restated Multi Draw Credit Agreement
dated as of _______________, 2020, (as the same may be further amended, amended
and restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”), pursuant to which you have agreed under certain conditions to make
Advances available to EMERALD Bioscience, INC. (“Company”).  Capitalized terms
used herein without definition shall have the meanings given such terms in the
Credit Agreement.  Pursuant to the Credit Agreement, the Company hereby
irrevocably requests an Advance under the Credit Agreement with the following
characteristics (the “Proposed Advance”) (it being understood that such Advance
may be netted against the use of such proceeds contemplated under the Credit
Agreement and herein):

 

The Advance Funding Date is ___________.

 

The amount of the Proposed Advance is $_________________.

 

The Company hereby certifies that (i) all of the representations and warranties
contained in the Credit Agreement are true and correct as of the date hereof
(ii) no Default has occurred and is continuing or would arise immediately after
giving effect to or as a result of such extension of credit and (iii) the
Proposed Advance has been approved by the board of directors of the Company in
accordance with the terms of Section 2.1 of the Credit Agreement.

 

  EMERALD BIOSCIENCE, INC.         By:

 

Name:

Brian Murphy     Title: Chief Executive Officer          

 

   

 

 

Exhibit B

 

Form of

 

Warrant

 

 

 

 

 

 

   

 

 

 

WARRANT

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

EMERALD BIOSCIENCE INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.: [  ]

 

Number of Shares of Common Stock: _______________

 

Date of Issuance: __________, 202* (“Issuance Date”)

 

Emerald Bioscience Inc., a Nevada corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Emerald Health Sciences Inc., the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, at any time or times on or after the Issuance
Date, but not after 11:59 p.m., California time, on the Expiration Date (as
defined below), _______________ (_____________) of fully paid nonassessable
shares of Common Stock of the Company, subject to adjustment as provided herein
(the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in
this Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, this “Warrant”), shall
have the meanings set forth in Section 17. This Warrant is issued in connection
with an Advance under that certain Amended and Restated Multi-Draw Credit
Agreement, dated as of _________, 2020, by and among the Company and the Holder
(the “Credit Agreement”).  Capitalized terms used herein and not otherwise
defined shall have the definitions ascribed to such terms in the Credit
Agreement. 

 

 

 

 

1. EXERCISE OF WARRANT

 

(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder at any time or times on or after the
Issuance Date, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s
election to exercise this Warrant and (ii) (A) payment to the Company of an
amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash, by check or by wire transfer of immediately available
funds or (B) if the provisions of Section 1(d) are applicable, by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares. On or before the first (1st) Trading Day following the date
on which the Company has received the Exercise Notice, the Company shall
transmit by email an acknowledgment of confirmation of receipt of the Exercise
Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On
or before the third (3rd) Trading Day following the date on which the Company
has received the Exercise Notice, so long as the Holder delivers the Aggregate
Exercise Price (or notice of a Cashless Exercise) on or prior to the second
(2nd) Trading Day following the date on which the Company has received the
Exercise Notice (the “Share Delivery Date”) (provided that if the Aggregate
Exercise Price has not been delivered by such date, the Share Delivery Date
shall be one (1) Trading Day after the Aggregate Exercise Price (or notice of a
Cashless Exercise) is delivered), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number of Warrant
Shares to which the Holder is entitled pursuant to such exercise to the Holder’s
or its designee’s balance account with DTC through its Deposit / Withdrawal At
Custodian system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee, for the number of Warrant Shares to which the Holder is entitled
pursuant to such exercise. The Company shall be responsible for all fees and
expenses of the Transfer Agent and all fees and expenses with respect to the
issuance of Warrant Shares via DTC, if any. Upon delivery of the Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be. If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three (3) Trading Days after any
exercise and at its own expense, issue a new Warrant (in accordance with Section
7(d)) representing the right to purchase the number of Warrant Shares issuable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
Warrant Shares are to be issued upon the exercise of this Warrant, but rather
the number of Warrant Shares to be issued shall be rounded up to the nearest
whole number. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant. The Company’s obligations to issue and deliver Warrant Shares in
accordance with the terms and subject to the conditions hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination.

 

  25

 

 

(c) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.25,
subject to adjustment as provided herein

 

(d) Company’s Failure to Timely Deliver Securities. On or prior to the Share
Delivery Date, if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, the Company shall fail to issue and
deliver a certificate to the Holder and register such shares of Common Stock on
the Company’s share register or, if the Transfer Agent is participating in the
DTC Fast Automated Securities Transfer Program, credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise hereunder or pursuant to the Company’s
obligation pursuant to clause (ii) below, and if on or after such Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a “Buy-In”), then the Company shall, within three (3) Trading
Days after the Holder’s request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder’s balance account with DTC for such shares
of Common Stock shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit such Holder’s balance account with DTC, as applicable,
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price of the Common Stock on the date of exercise.
Nothing shall limit the 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 (or
to electronically deliver such shares of Common Stock) upon the exercise of this
Warrant as required pursuant to the terms hereof.

 

  26

 

 

(e) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if the Registration Statement covering the resale of the Unavailable
Warrant Shares is not available for the resale of such Unavailable Warrant
Shares, the Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the Aggregate Exercise
Price, elect instead to receive upon such exercise the “Net Number” of shares of
Common Stock determined according to the following formula (a “Cashless
Exercise”):

 

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

D

 

For purposes of the foregoing formula:

 

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

 

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

 

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

 

D= the Closing Sale Price of the Common Stock on the date of the Exercise
Notice.

 

For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the
date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Securities Purchase
Agreement.

 

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

 

  27

 

 

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of this Warrant then
outstanding (the “Required Reserve Amount” and the failure to have such
sufficient number of authorized and unreserved shares of Common Stock, an
“Authorized Share Failure”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its shareholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each shareholder with a proxy statement and shall use its best
efforts to solicit its shareholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal. Notwithstanding the foregoing, if
any such time of an Authorized Share Failure, the Company is able to obtain the
written consent of a majority of the shares of its issued and outstanding Common
Stock to approve the increase in the number of authorized shares of Common
Stock, the Company may satisfy this obligation by obtaining such consent and
submitting for filing with the Securities and Exchange Commission (the “SEC”) an
Information Statement on Schedule 14C. In the event that upon any exercise of
this Warrant, the Company does not have sufficient authorized shares to deliver
in satisfaction of such exercise, then the Holder may elect to void such
attempted exercise.

 

(h) Conversion or Repayment of Loan. For the avoidance of doubt, the number of
Warrant Shares shall not decrease and the Warrant Shares shall remain
exercisable until the Expiration Date in the event of any repayment of or
conversion of the Loan under the Credit Agreement.

 

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

 

(a) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant, with the prior written consent of the Holder, 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.

 

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

 

  28

 

 

(c) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 2 but not expressly provided for by such provisions, then the
Company’s Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares, as mutually determined by the Company’s
Board of Directors and the Holder, so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 2(c) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property, options, evidence of indebtedness or any other assets by
way of a dividend, spin off, reclassification, corporate rearrangement, scheme
of arrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations or restrictions on exercise of this Warrant) immediately
before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the participation in such Distribution.

 

4. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding,
there occurs any Fundamental Transaction (including, without limitation, one
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, in lieu of the shares of the Common Stock (or other
securities, cash assets or other property purchasable upon the exercise of the
Warrant prior to such Fundamental Transaction), the same amount and kind of
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) that the Holder
would have been entitled to receive upon the consummation of such Fundamental
Transaction had this Warrant been exercised immediately prior to the record date
for such Fundamental Transaction, as adjusted in accordance with the provisions
of this Warrant. Upon the occurrence of any Fundamental Transaction, the
Successor Entity, if any, shall succeed to, and be substituted for (so that from
and after the date of such Fundamental Transaction, the provisions of this
Warrant referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Warrant with the same effect as if
such Successor Entity had been named as the Company herein. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and any adjustment under this Section 4 shall be without
duplication for any adjustment or distribution made under Section 2.

 

  29

 

 

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation or Bylaws, or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all of the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrant, 130% of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of the
Warrant.

 

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

 

7. REISSUANCE OF WARRANTS.

 

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less than the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

 

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

 

  30

 

 

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

 

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

 

8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section
12.1 of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, or (B) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation; provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder. It is expressly understood and agreed that the time of
exercise specified by the Holder in each Exercise Notice shall be definitive and
may not be disputed or challenged by the Company.

 

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

 

 

31

 

 

10. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by
and construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of California, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of California or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the State of California. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Orange County, California, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. The Company hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to the Company at the address set forth
in Section 14 of the Credit Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

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

 

12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile (a)
the disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

 

  32

 

 

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

 

14. TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold,
transferred, pledged or assigned without the consent of the Company.

 

15. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

16. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Warrant, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries (as defined in
the Securities Purchase Agreement), the Company shall within one (1) Business
Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event
that the Company believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.

 

  33

 

 

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

 

(a) “1933 Act” means the Securities Act of 1933, as amended.

 

(b) “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
“control” of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

(c) “Bloomberg” means Bloomberg Financial Markets.

 

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

 

(e) “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the OTC Link or “pink sheets” by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable calculation
period.

 

  34

 

 

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

 

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

 

(h) “Expiration Date” means the date sixty (60) months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a “Holiday”), the next day that is
not a Holiday.

 

(i) “Fundamental Transaction” means (A) that the Company shall, directly or
indirectly, including through Subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or any of its “significant subsidiaries” (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such Subject
Entities, individually or in the aggregate, acquire, either (x) at least 50% of
the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that
the Company shall, directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, allow any Subject
Entity individually or the Subject Entities in the aggregate to be or become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock,
merger, consolidation, business combination, reorganization, recapitalization,
spin-off, scheme of arrangement, reorganization, recapitalization or
reclassification or otherwise in any manner whatsoever, of either (x) at least
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock not held by all such Subject
Entities as of the date of this Warrant calculated as if any shares of Common
Stock held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form
merger or other transaction requiring other shareholders of the Company to
surrender their shares of Common Stock without approval of the shareholders of
the Company or (C) directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, the issuance of or
the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this definition to the extent necessary to
correct this definition or any portion of this definition which may be defective
or inconsistent with the intended treatment of such instrument or transaction.

 

  35

 

 

(j) “Group” means a “group” as that term is used in Section 13(d) of the 1934
Act and as defined in Rule 13d-5 thereunder.

 

(k) “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person, including such entity whose common shares or
common stock or equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Holder, any other market, exchange or quotation
system), or, if there is more than one such Person or such entity, the Person or
such entity designated by the Holder or in the absence of such designation, such
Person or entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

 

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

 

(m) “Principal Market” means the QTCQB or such other principal market on which
the Common Stock is traded.

 

  36

 

 

(n) “Registration Rights Agreement” means that certain Registration Rights
Agreement dated as of the date of the Credit Agreement by and among the Company
and the Holder.

 

(o) “Subject Entity” means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.

 

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

 

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

 

[Signature Page Follows]

 

  37

 

 

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

 

 

EMERALD BIOSCIENCE, INC.,

 

a Nevada corporation

 

 

 

By:  _________________________________

 

Name:  Brian Murphy

 

Title:  Chief Executive Officer

 

[Signature Page to Warrant]

 

   

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE
COMMON STOCK

EMERALD BIOSCIENCE INC.

 

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

 

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

 

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

 

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

 

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

 

3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant
Shares in accordance with the terms of the Warrant.

 

Date:   ______________, 20*

 

Emerald Health Sciences, Inc.

 

Name of Registered Holder

 

By:  ___________________

 

Name:  Avtar Dhillon, MD

 

Title:  Executive Chairman and Chief Executive Officer

 

   

 

 

Schedule A

 

Permitted Debt

 

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