Exhibit 10.7

 

WARRANT

 

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

 

ISONICS CORPORATION

 

Warrant To Purchase Common Stock

 

Warrant No.: CCP-001

Number of Shares: 3,000,000

 

 

 

Warrant Exercise Price: $1.75

 

 

 

Expiration Date: May 30, 2009

 

Date of Issuance: May 30, 2006

 

Isonics Corporation, a California corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Cornell Capital Partners, LP (the “Holder”), the
registered holder hereof or its permitted assigns, is entitled, subject to the
terms set forth below, to purchase from the Company upon surrender of this
Warrant, at any time or times on or after the date hereof, but not after
11:59 P.M. Eastern Time on the Expiration Date (as defined herein) Three Million
(3,000,000) fully paid and nonassessable shares of Common Stock (as defined
herein) of the Company (the “Warrant Shares”) at the exercise price per share
provided in Section 1(b) below or as subsequently adjusted; provided, however,
that in no event shall the holder be entitled to exercise this Warrant for a
number of Warrant Shares in excess of that number of Warrant Shares which, upon
giving effect to such exercise, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such exercise, except
within sixty (60) days of the Expiration Date (however, such restriction may be
waived by Holder (but only as to itself and not to any other holder) upon not
less than 65 days prior notice to the Company).  For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the determination
of such proviso is being made, but shall exclude shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised Warrants
beneficially owned by the holder and its affiliates and

 

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(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by the holder and its
affiliates (including, without limitation, any convertible notes or preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein.  Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.  For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company’s most recent Form 10-QSB or
Form 10-KSB, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding.  Upon the written
request of any holder, the Company shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm in writing to
any such holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the exercise of Warrants (as defined below) by such holder and
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.

 

SECTION 1.

 

(A) THIS WARRANT IS ONE (1) OF THREE (3) COMMON STOCK PURCHASE WARRANTS (THE
“WARRANT”) ISSUED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT (“SECURITIES
PURCHASE AGREEMENT”) DATED THE DATE HEREOF BETWEEN THE COMPANY AND THE BUYERS
LISTED ON SCHEDULE I THERETO.  THE OTHER WARRANT ISSUED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT IS REFERRED TO HEREIN AS THE “COMPANION WARRANTS”
AND IS TO BE INTERPRETED TOGETHER WITH THIS WARRANT.  CONVERTIBLE DEBENTURES
WERE ISSUED TO THE HOLDER OF THIS WARRANT AT THE SAME TIME AS AND AFTER THIS
WARRANT AND THE COMPANION WARRANTS AS DESCRIBED IN THE SECURITIES PURCHASE
AGREEMENT AND ARE REFERRED TO HEREIN AS THE CONVERTIBLE DEBENTURES.

 

(B) DEFINITIONS.  THE FOLLOWING WORDS AND TERMS AS USED IN THIS WARRANT SHALL
HAVE THE FOLLOWING MEANINGS:

 

(I)            “APPROVED STOCK PLAN” MEANS ANY EMPLOYEE BENEFIT PLAN WHICH HAS
BEEN APPROVED OR IS IN THE FUTURE APPROVED BY THE BOARD OF DIRECTORS OF THE
COMPANY, PURSUANT TO WHICH THE COMPANY’S SECURITIES MAY BE ISSUED TO ANY
EMPLOYEE, CONSULTANT, OFFICER OR DIRECTOR FOR SERVICES PROVIDED TO THE COMPANY.

 

(II)           “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.

 

(III)          “CLOSING BID PRICE” MEANS THE CLOSING BID PRICE OF COMMON STOCK
AS QUOTED ON THE PRINCIPAL MARKET (AS REPORTED BY BLOOMBERG FINANCIAL MARKETS
(“BLOOMBERG”) THROUGH ITS “VOLUME AT PRICE” FUNCTION).

 

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(IV)          “COMMON STOCK” MEANS (I) THE COMPANY’S COMMON STOCK, NO PAR VALUE
PER SHARE, AND (II) ANY CAPITAL STOCK INTO WHICH SUCH COMMON STOCK SHALL HAVE
BEEN CHANGED OR ANY CAPITAL STOCK RESULTING FROM A RECLASSIFICATION OF SUCH
COMMON STOCK.

 

(V)           “EVENT OF DEFAULT” MEANS AN EVENT OF DEFAULT UNDER THE SECURITIES
PURCHASE AGREEMENT, THE CONVERTIBLE DEBENTURES ISSUED IN CONNECTION THEREWITH OR
THE INVESTOR’S REGISTRATION RIGHTS AGREEMENT DATED THE DATE HEREOF.

 

(VI)          “EXCLUDED SECURITIES” MEANS, ANY OF THE FOLLOWING:

 

(A) ANY ISSUANCE BY THE COMPANY OF SECURITIES IN CONNECTION WITH A STRATEGIC
PARTNERSHIP OR A JOINT VENTURE (THE PRIMARY PURPOSE OF WHICH IS NOT TO RAISE
EQUITY CAPITAL),

 

(B) ANY ISSUANCE BY THE COMPANY OF SECURITIES AS CONSIDERATION FOR A MERGER OR
CONSOLIDATION OR THE ACQUISITION OF A BUSINESS, PRODUCT, LICENSE, OR OTHER
ASSETS OF ANOTHER PERSON OR ENTITY,

 

(C) OPTIONS TO PURCHASE SHARES OF COMMON STOCK, PROVIDED (I) SUCH OPTIONS ARE
ISSUED AFTER THE DATE OF THIS WARRANT TO EMPLOYEES OF THE COMPANY WITHIN THIRTY
(30) DAYS OF SUCH EMPLOYEE’S STARTING HIS EMPLOYMENT WITH THE COMPANY, AND (II)
THE EXERCISE PRICE OF SUCH OPTIONS IS NOT LESS THAN THE CLOSING PRICE, AS QUOTED
BY BLOOMBERG, LP OF THE COMMON STOCK ON THE DATE OF ISSUANCE OF SUCH OPTION.

 

(D) SECURITIES ISSUED PURSUANT TO AN APPROVED STOCK PLAN;

 

(E) UP TO 1,000,000 WITHOUT REGISTRATION RIGHTS AND NOT PURSUANT TO FORM S-8 (IN
THE EVENT THAT SUCH ISSUANCE HAS REGISTRATION RIGHTS THE OBLIGOR SHALL OBTAIN
THE PRIOR WRITTEN APPROVAL OF THE HOLDER) SHARES THAT MAY BE ISSUED FROM TIME TO
TIME AT A PRICE NO LESS THAN THE VWAP ENDING WITHIN THREE (3) BUSINESS DAYS
PRIOR TO THE COMPLETION OF THE TRANSACTION (THE PRIMARY PURPOSE OF WHICH IS NOT
TO RAISE EQUITY CAPITAL), AND

 

(F) ANY ISSUANCE OF SECURITIES TO HOLDERS OF THE OTHER SECURITIES PROVIDED SUCH
TRANSACTIONS ARE IN ACCORDANCE WITH THE TERMS OF SUCH INSTRUMENT (INCLUDING ANY
ANTI-DILUTION PROTECTION CONTAINED IN SUCH INSTRUMENT) OR ARE ON TERMS
DETERMINED BY THE BOARD OF DIRECTORS OF THE COMPANY TO BE NO LESS FAVORABLE TO
THE COMPANY THAN THE EXISTING TERMS.

 

(VII)         “EXPIRATION DATE” MEANS THE DATE THREE (3) YEARS FROM THE ISSUANCE
DATE OF THIS WARRANT OR, IF SUCH DATE FALLS ON A SATURDAY, SUNDAY OR OTHER DAY
ON WHICH BANKS ARE REQUIRED OR AUTHORIZED TO BE CLOSED IN THE CITY OF NEW YORK
OR THE STATE OF NEW YORK OR ON WHICH TRADING DOES NOT TAKE PLACE ON THE
PRINCIPAL EXCHANGE OR AUTOMATED QUOTATION SYSTEM ON WHICH THE COMMON STOCK IS
TRADED (A “HOLIDAY”), THE NEXT DATE THAT IS NOT A HOLIDAY.

 

(VIII)        “ISSUANCE DATE” MEANS THE DATE HEREOF.

 

(IX)           “OPTIONS” MEANS ANY RIGHTS, WARRANTS OR OPTIONS TO SUBSCRIBE FOR
OR PURCHASE COMMON STOCK OR CONVERTIBLE SECURITIES.

 

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(X)            “OTHER SECURITIES” MEANS (I) THOSE CONVERTIBLE DEBENTURES,
OPTIONS AND WARRANTS OF THE COMPANY ISSUED PRIOR TO, AND OUTSTANDING ON, THE
ISSUANCE DATE OF THIS WARRANT, (II) THE SHARES OF COMMON STOCK ISSUABLE ON
EXERCISE OF SUCH CONVERTIBLE DEBENTURES, OPTIONS AND WARRANTS, PROVIDED SUCH
CONVERTIBLE DEBENTURES, OPTIONS AND WARRANTS ARE NOT AMENDED AFTER THE ISSUANCE
DATE OF THIS WARRANT AND (III) THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT THE CONVERTIBLE DEBENTURE AND THE COMPANION WARRANTS THAT WERE
ISSUED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT, AND (IV) THE 660,000
SHARES OF RESTRICTED COMMON STOCK ISSUED OR TO BE ISSUED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT, AND (V) ANY OTHER SHARES OF COMMON STOCK ISSUED
OR ISSUABLE PURSUANT TO THIS WARRANT, THE COMPANION WARRANTS, THE CONVERTIBLE
DEBENTURE, AND THE REGISTRATION RIGHTS AGREEMENT ENTERED INTO BETWEEN THE
COMPANY AND THE INITIAL HOLDER OF THIS WARRANT.

 

(XI)           “PERSON” MEANS AN INDIVIDUAL, A LIMITED LIABILITY COMPANY, A
PARTNERSHIP, A JOINT VENTURE, A CORPORATION, A TRUST, AN UNINCORPORATED
ORGANIZATION AND A GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF.

 

(XII)          “PRINCIPAL MARKET” MEANS THE NEW YORK STOCK EXCHANGE, THE
AMERICAN STOCK EXCHANGE, THE NASDAQ NATIONAL MARKET, THE NASDAQ CAPITAL MARKET,
WHICHEVER IS AT THE TIME THE PRINCIPAL TRADING EXCHANGE OR MARKET FOR SUCH
SECURITY, OR THE OVER-THE-COUNTER MARKET ON THE ELECTRONIC BULLETIN BOARD FOR
SUCH SECURITY AS REPORTED BY BLOOMBERG OR, IF NO BID OR SALE INFORMATION IS
REPORTED FOR SUCH SECURITY BY BLOOMBERG, THEN THE AVERAGE OF THE BID PRICES OF
EACH OF THE MARKET MAKERS FOR SUCH SECURITY AS REPORTED IN THE “PINK SHEETS” BY
THE NATIONAL QUOTATION BUREAU, INC.

 

(XIII)         “SECURITIES ACT” MEANS THE SECURITIES ACT OF 1933, AS AMENDED.

 

(XIV)        “VWAP” MEANS THE VOLUME WEIGHTED AVERAGE PRICE PER SHARE OF THE
COMPANY’S COMMON STOCK ON THE NASDAQ CAPITAL MARKET OR OTHER SUBSEQUENT MARKET,
AS QUOTED BY BLOOMBERG, LP.

 

(XV)         “WARRANT” MEANS THIS WARRANT AND ALL WARRANTS ISSUED IN EXCHANGE,
TRANSFER OR REPLACEMENT THEREOF.

 

(XVI)        “WARRANT EXERCISE PRICE” SHALL BE $1.75 OR AS SUBSEQUENTLY ADJUSTED
AS PROVIDED IN SECTION 8 HEREOF.

 

(XVII)       “WARRANT SHARES” MEANS THE SHARES OF COMMON STOCK ISSUABLE AT ANY
TIME UPON EXERCISE OF THIS WARRANT.

 

(C) OTHER DEFINITIONAL PROVISIONS.

 

(I)            EXCEPT AS OTHERWISE SPECIFIED HEREIN, ALL REFERENCES HEREIN
(A) TO THE COMPANY SHALL BE DEEMED TO INCLUDE THE COMPANY’S SUCCESSORS AND
(B) TO ANY APPLICABLE LAW DEFINED OR REFERRED TO HEREIN SHALL BE DEEMED
REFERENCES TO SUCH APPLICABLE LAW AS THE SAME MAY HAVE BEEN OR MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME.

 

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(II)           WHEN USED IN THIS WARRANT, THE WORDS “HEREIN”, “HEREOF”, AND
“HEREUNDER” AND WORDS OF SIMILAR IMPORT, SHALL REFER TO THIS WARRANT AS A WHOLE
AND NOT TO ANY PROVISION OF THIS WARRANT, AND THE WORDS “SECTION”, “SCHEDULE”,
AND “EXHIBIT” SHALL REFER TO SECTIONS OF, AND SCHEDULES AND EXHIBITS TO, THIS
WARRANT UNLESS OTHERWISE SPECIFIED.

 

(III)          WHENEVER THE CONTEXT SO REQUIRES, THE NEUTER GENDER INCLUDES THE
MASCULINE OR FEMININE, AND THE SINGULAR NUMBER INCLUDES THE PLURAL, AND VICE
VERSA.

 

SECTION 2.               EXERCISE OF WARRANT.

 

(A) SUBJECT TO THE TERMS AND CONDITIONS HEREOF, THIS WARRANT MAY BE EXERCISED BY
THE HOLDER HEREOF THEN REGISTERED ON THE BOOKS OF THE COMPANY, PRO RATA AS
HEREINAFTER PROVIDED, AT ANY TIME ON ANY BUSINESS DAY ON OR AFTER THE OPENING OF
BUSINESS ON SUCH BUSINESS DAY, COMMENCING WITH THE FIRST DAY AFTER THE DATE
HEREOF, AND PRIOR TO 11:59 P.M. EASTERN TIME ON THE EXPIRATION DATE (I) BY
DELIVERY OF A WRITTEN NOTICE, IN THE FORM OF THE SUBSCRIPTION NOTICE ATTACHED AS
EXHIBIT A HERETO (THE “EXERCISE NOTICE”), OF SUCH HOLDER’S ELECTION TO EXERCISE
THIS WARRANT, WHICH NOTICE SHALL SPECIFY THE NUMBER OF WARRANT SHARES TO BE
PURCHASED, PAYMENT TO THE COMPANY OF AN AMOUNT EQUAL TO THE WARRANT EXERCISE
PRICE(S) APPLICABLE TO THE WARRANT SHARES BEING PURCHASED, MULTIPLIED BY THE
NUMBER OF WARRANT SHARES (AT THE APPLICABLE WARRANT EXERCISE PRICE) AS TO WHICH
THIS WARRANT IS BEING EXERCISED (PLUS ANY APPLICABLE ISSUE OR TRANSFER TAXES)
(THE “AGGREGATE EXERCISE PRICE”) IN CASH OR WIRE TRANSFER OF IMMEDIATELY
AVAILABLE FUNDS AND THE SURRENDER OF THIS WARRANT (OR AN INDEMNIFICATION
UNDERTAKING WITH RESPECT TO THIS WARRANT IN THE CASE OF ITS LOSS, THEFT OR
DESTRUCTION) TO A COMMON CARRIER FOR OVERNIGHT DELIVERY TO THE COMPANY AS SOON
AS PRACTICABLE FOLLOWING SUCH DATE (“CASH BASIS”) OR (II) IF AFTER JANUARY 15,
2007, AT THE TIME OF EXERCISE, THE WARRANT SHARES ARE NOT SUBJECT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IF AN EVENT OF DEFAULT HAS OCCURRED, BY
DELIVERING AN EXERCISE NOTICE AND IN LIEU OF MAKING PAYMENT OF THE AGGREGATE
EXERCISE PRICE IN CASH OR WIRE TRANSFER, ELECT INSTEAD TO RECEIVE UPON SUCH
EXERCISE THE “NET NUMBER” OF SHARES OF COMMON STOCK DETERMINED ACCORDING TO THE
FOLLOWING FORMULA (THE “CASHLESS EXERCISE”):

 

Net Number = (A x B) – (A x C)

B

 

For purposes of the foregoing formula:

 

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

 

B = the VWAP of the Common Stock on the date of exercise of the Warrant.

 

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

 

IN THE EVENT OF ANY EXERCISE OF THE RIGHTS REPRESENTED BY THIS WARRANT IN
COMPLIANCE WITH THIS SECTION 2, THE COMPANY SHALL ON OR BEFORE THE FIFTH (5TH)
BUSINESS DAY FOLLOWING THE DATE OF RECEIPT OF THE EXERCISE NOTICE, THE AGGREGATE
EXERCISE PRICE AND THIS WARRANT (OR AN INDEMNIFICATION UNDERTAKING WITH RESPECT
TO THIS WARRANT IN THE CASE OF ITS LOSS, THEFT OR

 

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DESTRUCTION) AND THE RECEIPT OF THE REPRESENTATIONS OF THE HOLDER SPECIFIED IN
SECTION 6 HEREOF, IF REQUESTED BY THE COMPANY (THE “EXERCISE DELIVERY
DOCUMENTS”), AND IF THE COMMON STOCK IS DTC ELIGIBLE, CREDIT SUCH AGGREGATE
NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER SHALL BE ENTITLED TO THE
HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH THE DEPOSITORY TRUST COMPANY;
PROVIDED, HOWEVER, IF THE HOLDER WHO SUBMITTED THE EXERCISE NOTICE REQUESTED
PHYSICAL DELIVERY OF ANY OR ALL OF THE WARRANT SHARES, OR, IF THE COMMON STOCK
IS NOT DTC ELIGIBLE THEN THE COMPANY SHALL, ON OR BEFORE THE FIFTH (5TH)
BUSINESS DAY FOLLOWING RECEIPT OF THE EXERCISE DELIVERY DOCUMENTS, ISSUE AND
SURRENDER TO A COMMON CARRIER FOR OVERNIGHT DELIVERY TO THE ADDRESS SPECIFIED IN
THE EXERCISE NOTICE, A CERTIFICATE, REGISTERED IN THE NAME OF THE HOLDER, FOR
THE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER SHALL BE ENTITLED
PURSUANT TO SUCH REQUEST.  UPON DELIVERY OF THE EXERCISE NOTICE AND AGGREGATE
EXERCISE PRICE REFERRED TO IN CLAUSE (I) OR (II) ABOVE THE HOLDER OF THIS
WARRANT 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.  IN THE CASE OF A DISPUTE AS TO THE DETERMINATION OF THE WARRANT
EXERCISE PRICE, THE VWAP OR THE ARITHMETIC CALCULATION OF THE WARRANT SHARES,
THE COMPANY SHALL PROMPTLY ISSUE TO THE HOLDER THE NUMBER OF WARRANT SHARES THAT
IS NOT DISPUTED AND SHALL SUBMIT THE DISPUTED DETERMINATIONS OR ARITHMETIC
CALCULATIONS TO THE HOLDER VIA FACSIMILE WITHIN ONE (1) BUSINESS DAY OF RECEIPT
OF THE HOLDER’S EXERCISE NOTICE.

 

(B) IF THE HOLDER AND THE COMPANY ARE UNABLE TO AGREE UPON THE DETERMINATION OF
THE WARRANT EXERCISE PRICE OR ARITHMETIC CALCULATION OF THE WARRANT SHARES
WITHIN ONE (1) DAY OF SUCH DISPUTED DETERMINATION OR ARITHMETIC CALCULATION
BEING SUBMITTED TO THE HOLDER, THEN THE COMPANY SHALL IMMEDIATELY SUBMIT VIA
FACSIMILE OR OTHER FORM OF ELECTRONIC COMMUNICATION (INCLUDING WITHOUT
LIMITATION E-MAIL) (I) THE DISPUTED DETERMINATION OF THE WARRANT EXERCISE PRICE
OR THE VWAP TO AN INDEPENDENT, REPUTABLE INVESTMENT BANKING FIRM OR (II) THE
DISPUTED ARITHMETIC CALCULATION OF THE WARRANT SHARES TO ITS INDEPENDENT,
OUTSIDE ACCOUNTANT.  THE COMPANY SHALL CAUSE THE INVESTMENT BANKING FIRM 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 FORTY-EIGHT
(48) HOURS FROM THE TIME IT RECEIVES THE DISPUTED DETERMINATIONS OR
CALCULATIONS.  SUCH INVESTMENT BANKING FIRM’S OR ACCOUNTANT’S DETERMINATION OR
CALCULATION, AS THE CASE MAY BE, SHALL BE DEEMED CONCLUSIVE ABSENT MANIFEST
ERROR.

 

(C) UNLESS THE RIGHTS REPRESENTED BY THIS WARRANT SHALL HAVE EXPIRED OR SHALL
HAVE BEEN FULLY EXERCISED, THE COMPANY SHALL, AS SOON AS PRACTICABLE AND IN NO
EVENT LATER THAN FIVE (5) BUSINESS DAYS AFTER ANY EXERCISE AND AT ITS OWN
EXPENSE, ISSUE A NEW WARRANT IDENTICAL IN ALL RESPECTS TO THIS WARRANT EXERCISED
EXCEPT IT SHALL REPRESENT RIGHTS TO PURCHASE THE NUMBER OF WARRANT SHARES
PURCHASABLE IMMEDIATELY PRIOR TO SUCH EXERCISE UNDER THIS WARRANT EXERCISED,
LESS THE NUMBER OF WARRANT SHARES WITH RESPECT TO WHICH SUCH WARRANT IS
EXERCISED.

 

(D) NO FRACTIONAL WARRANT SHARES ARE TO BE ISSUED UPON ANY PRO RATA EXERCISE OF
THIS WARRANT, BUT RATHER THE NUMBER OF WARRANT SHARES ISSUED UPON SUCH EXERCISE
OF THIS WARRANT SHALL BE ROUNDED UP OR DOWN TO THE NEAREST WHOLE NUMBER.

 

(E) IF THE COMPANY OR ITS TRANSFER AGENT SHALL FAIL FOR ANY REASON OR FOR NO
REASON TO ISSUE TO THE HOLDER WITHIN TEN (10) DAYS OF RECEIPT OF THE EXERCISE
DELIVERY DOCUMENTS, A CERTIFICATE FOR THE NUMBER OF WARRANT SHARES TO WHICH THE
HOLDER IS ENTITLED OR TO CREDIT THE HOLDER’S BALANCE ACCOUNT WITH THE DEPOSITORY
TRUST COMPANY FOR SUCH NUMBER OF WARRANT

 

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SHARES TO WHICH THE HOLDER IS ENTITLED UPON THE HOLDER’S EXERCISE OF THIS
WARRANT, THE COMPANY SHALL, IN ADDITION TO ANY OTHER REMEDIES UNDER THIS WARRANT
OR OTHERWISE AVAILABLE TO SUCH HOLDER, PAY AS ADDITIONAL DAMAGES IN CASH TO SUCH
HOLDER ON EACH DAY THE ISSUANCE OF SUCH CERTIFICATE FOR WARRANT SHARES IS NOT
TIMELY EFFECTED AN AMOUNT EQUAL TO 0.025% OF THE PRODUCT OF (A) THE SUM OF THE
NUMBER OF WARRANT SHARES NOT ISSUED TO THE HOLDER ON A TIMELY BASIS AND TO WHICH
THE HOLDER IS ENTITLED, AND (B) THE VWAP OF THE COMMON STOCK FOR THE TRADING DAY
IMMEDIATELY PRECEDING THE LAST POSSIBLE DATE WHICH THE COMPANY COULD HAVE ISSUED
SUCH COMMON STOCK TO THE HOLDER WITHOUT VIOLATING THIS SECTION 2.

 

(F) IF WITHIN TEN (10) DAYS AFTER THE COMPANY’S RECEIPT OF THE EXERCISE DELIVERY
DOCUMENTS, THE COMPANY FAILS TO DELIVER A NEW WARRANT TO THE HOLDER FOR THE
NUMBER OF WARRANT SHARES TO WHICH SUCH HOLDER IS ENTITLED PURSUANT TO SECTION 2
HEREOF, THEN, IN ADDITION TO ANY OTHER AVAILABLE REMEDIES UNDER THIS WARRANT, OR
OTHERWISE AVAILABLE TO SUCH HOLDER, THE COMPANY SHALL PAY AS ADDITIONAL DAMAGES
IN CASH TO SUCH HOLDER ON EACH DAY AFTER SUCH TENTH (10TH) DAY THAT SUCH
DELIVERY OF SUCH NEW WARRANT IS NOT TIMELY EFFECTED IN AN AMOUNT EQUAL TO 0.25%
OF THE PRODUCT OF (A) THE NUMBER OF WARRANT SHARES REPRESENTED BY THE PORTION OF
THIS WARRANT WHICH IS NOT BEING EXERCISED AND (B) THE VWAP OF THE COMMON STOCK
FOR THE TRADING DAY IMMEDIATELY PRECEDING THE LAST POSSIBLE DATE WHICH THE
COMPANY COULD HAVE ISSUED SUCH WARRANT TO THE HOLDER WITHOUT VIOLATING THIS
SECTION 2.

 

SECTION 3.               COVENANTS AS TO COMMON STOCK.  THE COMPANY HEREBY
COVENANTS AND AGREES AS FOLLOWS:

 

(A) THIS WARRANT IS, AND ANY WARRANTS ISSUED IN SUBSTITUTION FOR OR REPLACEMENT
OF THIS WARRANT WILL UPON ISSUANCE BE, DULY AUTHORIZED AND VALIDLY ISSUED.

 

(B) SUBJECT TO THE AVAILABILITY OF SUFFICIENT AUTHORIZED SHARES, ALL WARRANT
SHARES WHICH MAY BE ISSUED UPON THE EXERCISE OF THE RIGHTS REPRESENTED BY THIS
WARRANT WILL, UPON ISSUANCE, BE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND
FREE FROM ALL TAXES, LIENS AND CHARGES WITH RESPECT TO THE ISSUE THEREOF.

 

(C) DURING THE PERIOD WITHIN WHICH THE RIGHTS REPRESENTED BY THIS WARRANT MAY BE
EXERCISED, AND SUBJECT TO THE AVAILABILITY OF SUFFICIENT AUTHORIZED SHARES THE
COMPANY WILL AT ALL TIMES HAVE AUTHORIZED AND RESERVED AT LEAST ONE HUNDRED
PERCENT (100%) OF THE NUMBER OF SHARES OF COMMON STOCK NEEDED TO PROVIDE FOR THE
EXERCISE OF THE RIGHTS THEN REPRESENTED BY THIS WARRANT AND THE PAR VALUE OF
SAID SHARES WILL AT ALL TIMES BE LESS THAN OR EQUAL TO THE APPLICABLE WARRANT
EXERCISE PRICE.  IF AT ANY TIME AFTER DECEMBER 31, 2006 THE COMPANY DOES NOT
HAVE A SUFFICIENT NUMBER OF SHARES OF COMMON STOCK AUTHORIZED AND AVAILABLE,
THEN THE COMPANY SHALL CALL AND HOLD A SPECIAL MEETING OF ITS STOCKHOLDERS
WITHIN SIXTY (60) DAYS OF THAT TIME FOR THE SOLE PURPOSE OF INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.

 

(D) THE COMPANY WILL NOT, BY AMENDMENT OF ITS ARTICLES OF INCORPORATION OR
THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION, MERGER,
DISSOLUTION, ISSUE OR SALE OF SECURITIES, OR ANY OTHER VOLUNTARY ACTION, AVOID
OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS TO BE
OBSERVED OR PERFORMED BY IT HEREUNDER, BUT WILL AT ALL TIMES IN GOOD FAITH
ASSIST IN THE CARRYING OUT OF ALL THE PROVISIONS OF THIS WARRANT AND IN THE
TAKING OF ALL SUCH ACTION AS MAY REASONABLY BE REQUESTED BY THE HOLDER OF THIS
WARRANT IN ORDER TO PROTECT THE EXERCISE

 

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PRIVILEGE OF THE HOLDER OF THIS WARRANT AGAINST DILUTION OR OTHER IMPAIRMENT,
CONSISTENT WITH THE TENOR AND PURPOSE OF THIS WARRANT.  THE COMPANY WILL NOT
INCREASE THE PAR VALUE OF ANY SHARES OF COMMON STOCK RECEIVABLE UPON THE
EXERCISE OF THIS WARRANT ABOVE THE WARRANT EXERCISE PRICE THEN IN EFFECT, AND
(II) WILL 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 ASSUMING THAT THERE IS AN
EXEMPTION AVAILABLE FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933 AND APPLICABLE STATE LAW FOR SUCH EXERCISE.

 

(E) THIS WARRANT WILL BE BINDING UPON ANY ENTITY SUCCEEDING TO THE COMPANY BY
MERGER, CONSOLIDATION OR ACQUISITION OF ALL OR SUBSTANTIALLY ALL OF THE
COMPANY’S ASSETS.

 

SECTION 4.               TAXES.  THE COMPANY SHALL PAY ANY AND ALL TAXES, EXCEPT
ANY APPLICABLE WITHHOLDING, WHICH MAY BE PAYABLE WITH RESPECT TO THE ISSUANCE
AND DELIVERY OF WARRANT SHARES UPON EXERCISE OF THIS WARRANT.

 

SECTION 5.               WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  EXCEPT AS
OTHERWISE SPECIFICALLY PROVIDED HEREIN, NO HOLDER, AS SUCH, OF THIS WARRANT
SHALL BE ENTITLED TO VOTE OR RECEIVE DIVIDENDS OR BE DEEMED THE HOLDER OF SHARES
OF CAPITAL STOCK OF THE COMPANY FOR ANY PURPOSE, NOR SHALL ANYTHING CONTAINED IN
THIS WARRANT BE CONSTRUED TO CONFER UPON THE HOLDER HEREOF, AS SUCH, ANY OF THE
RIGHTS OF A STOCKHOLDER OF THE COMPANY OR ANY RIGHT TO VOTE, GIVE OR WITHHOLD
CONSENT TO ANY CORPORATE ACTION (WHETHER ANY REORGANIZATION, ISSUE OF STOCK,
RECLASSIFICATION OF STOCK, CONSOLIDATION, MERGER, CONVEYANCE OR OTHERWISE),
RECEIVE NOTICE OF MEETINGS, RECEIVE DIVIDENDS OR SUBSCRIPTION RIGHTS, OR
OTHERWISE, PRIOR TO THE ISSUANCE TO THE HOLDER OF THIS WARRANT OF THE WARRANT
SHARES WHICH HE OR SHE 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 SUCH HOLDER TO PURCHASE ANY SECURITIES (UPON
EXERCISE OF THIS WARRANT OR OTHERWISE) OR AS A STOCKHOLDER OF THE COMPANY,
WHETHER SUCH LIABILITIES ARE ASSERTED BY THE COMPANY OR BY CREDITORS OF THE
COMPANY.  NOTWITHSTANDING THIS SECTION 5, THE COMPANY WILL PROVIDE THE HOLDER OF
THIS WARRANT WITH COPIES OF THE SAME NOTICES AND OTHER INFORMATION GIVEN TO THE
STOCKHOLDERS OF THE COMPANY GENERALLY, CONTEMPORANEOUSLY WITH THE GIVING THEREOF
TO THE STOCKHOLDERS.

 

SECTION 6.               REPRESENTATIONS OF HOLDER.  THE HOLDER OF THIS WARRANT,
BY THE ACCEPTANCE HEREOF, REPRESENTS THAT IT IS ACQUIRING THIS WARRANT AND THE
WARRANT SHARES FOR ITS OWN ACCOUNT FOR INVESTMENT ONLY AND NOT WITH A VIEW
TOWARDS, OR FOR RESALE IN CONNECTION WITH, THE PUBLIC SALE OR DISTRIBUTION OF
THIS WARRANT OR THE WARRANT SHARES, EXCEPT PURSUANT TO SALES REGISTERED OR
EXEMPTED UNDER THE SECURITIES ACT; PROVIDED, HOWEVER, THAT BY MAKING THE
REPRESENTATIONS HEREIN, THE HOLDER DOES NOT AGREE TO HOLD THIS WARRANT OR ANY OF
THE WARRANT SHARES FOR ANY MINIMUM OR OTHER SPECIFIC TERM AND RESERVES THE RIGHT
TO DISPOSE OF THIS WARRANT AND THE WARRANT SHARES AT ANY TIME IN ACCORDANCE WITH
OR PURSUANT TO A REGISTRATION STATEMENT OR AN EXEMPTION UNDER THE SECURITIES
ACT.  THE HOLDER OF THIS WARRANT FURTHER REPRESENTS, BY ACCEPTANCE HEREOF, THAT,
AS OF THIS DATE, SUCH HOLDER IS AN “ACCREDITED INVESTOR” AS SUCH TERM IS DEFINED
IN RULE 501(A)(1) OF REGULATION D PROMULGATED BY THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT (AN “ACCREDITED INVESTOR”).  UPON EXERCISE
OF THIS WARRANT THE HOLDER SHALL, IF REQUESTED BY THE COMPANY, CONFIRM IN
WRITING, IN A FORM SATISFACTORY TO THE COMPANY, THAT THE WARRANT SHARES SO
PURCHASED ARE BEING ACQUIRED SOLELY FOR THE HOLDER’S OWN ACCOUNT AND NOT AS A
NOMINEE FOR ANY OTHER PARTY, FOR INVESTMENT, AND NOT WITH A VIEW TOWARD
DISTRIBUTION OR RESALE

 

8

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AND THAT SUCH HOLDER IS AN ACCREDITED INVESTOR.  IF SUCH HOLDER CANNOT MAKE SUCH
REPRESENTATIONS BECAUSE THEY WOULD BE FACTUALLY INCORRECT, IT SHALL BE A
CONDITION TO SUCH HOLDER’S EXERCISE OF THIS WARRANT THAT THE COMPANY RECEIVE
SUCH OTHER REPRESENTATIONS AS THE COMPANY CONSIDERS REASONABLY NECESSARY TO
ASSURE THE COMPANY THAT THE ISSUANCE OF ITS SECURITIES UPON EXERCISE OF THIS
WARRANT SHALL NOT VIOLATE ANY UNITED STATES OR STATE SECURITIES LAWS.

 

SECTION 7.               OWNERSHIP AND TRANSFER.

 

(A) THE COMPANY SHALL MAINTAIN AT ITS PRINCIPAL EXECUTIVE OFFICES (OR SUCH OTHER
OFFICE OR AGENCY OF THE COMPANY AS IT MAY DESIGNATE BY NOTICE TO THE HOLDER
HEREOF), A REGISTER FOR THIS WARRANT, IN WHICH THE COMPANY SHALL RECORD THE NAME
AND ADDRESS OF THE PERSON IN WHOSE NAME THIS WARRANT HAS BEEN ISSUED, AS WELL AS
THE NAME AND ADDRESS OF EACH TRANSFEREE.  THE COMPANY MAY TREAT THE PERSON IN
WHOSE NAME ANY WARRANT IS REGISTERED ON THE REGISTER AS THE OWNER AND HOLDER
THEREOF FOR ALL PURPOSES, NOTWITHSTANDING ANY NOTICE TO THE CONTRARY, BUT IN ALL
EVENTS RECOGNIZING ANY TRANSFERS MADE IN ACCORDANCE WITH THE TERMS OF THIS
WARRANT.

 

SECTION 8.               ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF
SHARES.  THE WARRANT EXERCISE PRICE AND THE NUMBER OF SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT SHALL BE ADJUSTED FROM TIME TO TIME AS
FOLLOWS:

 

(A) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
COMMON STOCK.  IF AND WHENEVER ON OR AFTER THE ISSUANCE DATE OF THIS WARRANT,
THE COMPANY ISSUES OR SELLS, OR IS DEEMED TO HAVE ISSUED OR SOLD, ANY SHARES OF
COMMON STOCK (OTHER THAN (I) EXCLUDED SECURITIES, (II) SHARES OF COMMON STOCK
WHICH ARE ISSUED OR DEEMED TO HAVE BEEN ISSUED BY THE COMPANY IN CONNECTION WITH
AN APPROVED STOCK PLAN, OR (III) THE OTHER SECURITIES) (THE NEW SHARES) FOR A
CONSIDERATION PER SHARE LESS THAN A PRICE (THE “APPLICABLE PRICE”) EQUAL TO THE
WARRANT EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ISSUANCE OR SALE,
THEN IMMEDIATELY AFTER SUCH ISSUE OR SALE THE WARRANT EXERCISE PRICE THEN IN
EFFECT SHALL BE ADJUSTED (THE “WEIGHTED ADJUSTMENT”) TO A PRICE DETERMINED BY
MULTIPLYING SUCH EXERCISE PRICE BY A FRACTION,

 

THE NUMERATOR OF WHICH SHALL BE THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
IMMEDIATELY BEFORE SUCH ISSUANCE PLUS THE NUMBER OF SHARES OF COMMON STOCK THAT
THE AGGREGATE CONSIDERATION RECEIVED BY THE COMPANY FOR SUCH ISSUANCE WOULD
PURCHASE AT THE WARRANT EXERCISE PRICE THEN IN EFFECT; AND

 

THE DENOMINATOR OF WHICH SHALL BE THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING IMMEDIATELY PRIOR TO SUCH ISSUANCE PLUS THE NUMBER OF NEW SHARES.

 

FOR THE PURPOSES OF THIS SECTION 8(A), THE TERM “COMMON STOCK OUTSTANDING”
INCLUDES ALL SHARES OF COMMON STOCK THEN OUTSTANDING CALCULATED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES CONSISTENTLY APPLIED.

 

UPON EACH SUCH ADJUSTMENT OF THE WARRANT EXERCISE PRICE HEREUNDER, THE NUMBER OF
WARRANT SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT SHALL BE ADJUSTED TO THE
NUMBER OF SHARES DETERMINED BY MULTIPLYING THE WARRANT EXERCISE PRICE IN EFFECT
IMMEDIATELY PRIOR TO SUCH ADJUSTMENT BY THE NUMBER OF WARRANT SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT IMMEDIATELY PRIOR TO SUCH ADJUSTMENT AND DIVIDING
THE PRODUCT THEREOF BY THE WARRANT EXERCISE PRICE RESULTING FROM SUCH
ADJUSTMENT.

 

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(B) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS.  FOR PURPOSES OF
DETERMINING THE ADJUSTED WARRANT EXERCISE PRICE UNDER SECTION 8(A) ABOVE, THE
FOLLOWING SHALL BE APPLICABLE:

 

(I)            ISSUANCE OF OPTIONS.  IF AFTER THE DATE HEREOF, THE COMPANY IN
ANY MANNER GRANTS ANY OPTIONS AND THE LOWEST PRICE PER SHARE FOR WHICH ONE SHARE
OF COMMON STOCK IS ISSUABLE UPON THE EXERCISE OF ANY SUCH OPTION OR UPON
CONVERSION OR EXCHANGE OF ANY CONVERTIBLE SECURITIES ISSUABLE UPON EXERCISE OF
ANY SUCH OPTION IS LESS THAN THE APPLICABLE PRICE (NOT INCLUDING EXCLUDED
SECURITIES), THEN SUCH SHARE OF COMMON STOCK SHALL BE DEEMED TO BE OUTSTANDING
AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY AT THE TIME OF THE GRANTING OR
SALE OF SUCH OPTION FOR SUCH PRICE PER SHARE AND SHALL BE SUBJECT TO THE
WEIGHTED ADJUSTMENT.  FOR PURPOSES OF THIS SECTION 8(B)(I), THE LOWEST PRICE PER
SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON EXERCISE OF SUCH
OPTIONS OR UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES SHALL BE
EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF CONSIDERATION (IF ANY) RECEIVED OR
RECEIVABLE BY THE COMPANY WITH RESPECT TO ANY ONE SHARE OF COMMON STOCK UPON THE
GRANTING OR SALE OF THE OPTION, UPON EXERCISE OF THE OPTION OR UPON CONVERSION
OR EXCHANGE OF ANY CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE OF SUCH OPTION. 
NO FURTHER ADJUSTMENT OF THE WARRANT EXERCISE PRICE SHALL BE MADE UPON THE
ACTUAL ISSUANCE OF SUCH COMMON STOCK OR OF SUCH CONVERTIBLE SECURITIES UPON THE
EXERCISE OF SUCH OPTIONS OR UPON THE ACTUAL ISSUANCE OF SUCH COMMON STOCK UPON
CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES.

 

(II)           ISSUANCE OF CONVERTIBLE SECURITIES.  IF THE COMPANY IN ANY MANNER
ISSUES OR SELLS ANY CONVERTIBLE SECURITIES AND THE LOWEST PRICE PER SHARE FOR
WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON THE CONVERSION OR EXCHANGE
THEREOF IS LESS THAN THE APPLICABLE PRICE (NOT INCLUDING EXCLUDED SECURITIES),
THEN SUCH SHARE OF COMMON STOCK SHALL BE DEEMED TO BE OUTSTANDING AND TO HAVE
BEEN ISSUED AND SOLD BY THE COMPANY AT THE TIME OF THE ISSUANCE OR SALE OF SUCH
CONVERTIBLE SECURITIES FOR SUCH PRICE PER SHARE AND SHALL BE SUBJECT TO THE
WEIGHTED ADJUSTMENT.  FOR THE PURPOSES OF THIS SECTION 8(B)(II), THE LOWEST
PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON SUCH
CONVERSION OR EXCHANGE SHALL BE EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF
CONSIDERATION (IF ANY) RECEIVED OR RECEIVABLE BY THE COMPANY WITH RESPECT TO ONE
SHARE OF COMMON STOCK UPON THE ISSUANCE OR SALE OF THE CONVERTIBLE SECURITY AND
UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITY.  NO FURTHER ADJUSTMENT
OF THE WARRANT EXERCISE PRICE SHALL BE MADE UPON THE ACTUAL ISSUANCE OF SUCH
COMMON STOCK UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES, AND IF
ANY SUCH ISSUE OR SALE OF SUCH CONVERTIBLE SECURITIES IS MADE UPON EXERCISE OF
ANY OPTIONS FOR WHICH ADJUSTMENT OF THE WARRANT EXERCISE PRICE HAD BEEN OR ARE
TO BE MADE PURSUANT TO OTHER PROVISIONS OF THIS SECTION 8(B), NO FURTHER
ADJUSTMENT OF THE WARRANT EXERCISE PRICE SHALL BE MADE BY REASON OF SUCH ISSUE
OR SALE.

 

(III)          CHANGE IN OPTION PRICE OR RATE OF CONVERSION.  IF THE PURCHASE
PRICE PROVIDED FOR IN ANY OPTIONS, THE ADDITIONAL CONSIDERATION, IF ANY, PAYABLE
UPON THE ISSUE, CONVERSION OR EXCHANGE OF ANY CONVERTIBLE SECURITIES, OR THE
RATE AT WHICH ANY CONVERTIBLE SECURITIES ARE CONVERTIBLE INTO OR EXCHANGEABLE
FOR COMMON STOCK CHANGES AT ANY TIME, THE WARRANT EXERCISE PRICE IN EFFECT AT
THE TIME OF SUCH CHANGE SHALL BE ADJUSTED AND SHALL BE SUBJECT TO THE WEIGHTED
ADJUSTMENT TO THE WARRANT EXERCISE PRICE WHICH WOULD HAVE BEEN IN EFFECT AT SUCH
TIME HAD SUCH OPTIONS OR CONVERTIBLE SECURITIES PROVIDED FOR SUCH CHANGED
PURCHASE PRICE, ADDITIONAL CONSIDERATION OR CHANGED CONVERSION RATE, AS THE CASE
MAY BE, AT THE TIME INITIALLY GRANTED, ISSUED OR SOLD AND THE NUMBER OF WARRANT
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT

 

10

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SHALL BE CORRESPONDINGLY READJUSTED.  FOR PURPOSES OF THIS SECTION 8(B)(III), IF
THE TERMS OF ANY OPTION OR CONVERTIBLE SECURITY THAT WAS OUTSTANDING AS OF THE
ISSUANCE DATE OF THIS WARRANT ARE CHANGED IN THE MANNER DESCRIBED IN THE
IMMEDIATELY PRECEDING SENTENCE, THEN SUCH OPTION OR CONVERTIBLE SECURITY AND THE
COMMON STOCK DEEMED ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE THEREOF SHALL
BE DEEMED TO HAVE BEEN ISSUED AS OF THE DATE OF SUCH CHANGE.  NO ADJUSTMENT
PURSUANT TO THIS SECTION 8(B) SHALL BE MADE IF SUCH ADJUSTMENT WOULD RESULT IN
AN INCREASE OF THE WARRANT EXERCISE PRICE THEN IN EFFECT.

 

(C) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS.  FOR PURPOSES OF
DETERMINING THE ADJUSTED WARRANT EXERCISE PRICE UNDER SECTIONS 8(A) AND 8(B),
THE FOLLOWING SHALL BE APPLICABLE:

 

(I)            CALCULATION OF CONSIDERATION RECEIVED.  IF ANY COMMON STOCK,
OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD OR DEEMED TO HAVE BEEN
ISSUED OR SOLD FOR CASH, THE CONSIDERATION RECEIVED THEREFORE WILL BE DEEMED TO
BE THE GROSS AMOUNT RECEIVED BY THE COMPANY THEREFORE.  IF ANY COMMON STOCK,
OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD FOR A CONSIDERATION OTHER
THAN CASH, THE AMOUNT OF SUCH CONSIDERATION RECEIVED BY THE COMPANY WILL BE THE
FAIR VALUE OF SUCH CONSIDERATION, EXCEPT WHERE SUCH CONSIDERATION CONSISTS OF
MARKETABLE SECURITIES, IN WHICH CASE THE AMOUNT OF CONSIDERATION RECEIVED BY THE
COMPANY WILL BE THE MARKET PRICE OF SUCH SECURITIES ON THE DATE OF RECEIPT OF
SUCH SECURITIES.  IF ANY COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES ARE
ISSUED TO THE OWNERS OF THE NON-SURVIVING ENTITY IN CONNECTION WITH ANY MERGER
IN WHICH THE COMPANY IS THE SURVIVING ENTITY, THE AMOUNT OF CONSIDERATION
THEREFORE WILL BE DEEMED TO BE THE FAIR VALUE OF SUCH PORTION OF THE NET ASSETS
AND BUSINESS OF THE NON-SURVIVING ENTITY AS IS ATTRIBUTABLE TO SUCH COMMON
STOCK, OPTIONS OR CONVERTIBLE SECURITIES, AS THE CASE MAY BE.  THE FAIR VALUE OF
ANY CONSIDERATION OTHER THAN CASH OR SECURITIES WILL BE DETERMINED JOINTLY BY
THE COMPANY AND THE HOLDERS OF WARRANTS REPRESENTING AT LEAST A MAJORITY OF THE
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS AND COMPANION WARRANTS
THEN OUTSTANDING.  IF SUCH PARTIES ARE UNABLE TO REACH AGREEMENT WITHIN
TEN (10) DAYS AFTER THE OCCURRENCE OF AN EVENT REQUIRING VALUATION (THE
“VALUATION EVENT”), THE FAIR VALUE OF SUCH CONSIDERATION WILL BE DETERMINED
WITHIN FIVE (5) BUSINESS DAYS AFTER THE TENTH (10TH) DAY FOLLOWING THE VALUATION
EVENT BY AN INDEPENDENT, REPUTABLE APPRAISER JOINTLY SELECTED BY THE COMPANY AND
THE HOLDERS OF WARRANTS REPRESENTING AT LEAST A MAJORITY OF THE WARRANT SHARES
ISSUABLE UPON EXERCISE OF THE WARRANTS (INCLUDING THE COMPANION WARRANTS) THEN
OUTSTANDING.  THE DETERMINATION OF SUCH APPRAISER SHALL BE FINAL AND BINDING
UPON ALL PARTIES AND THE FEES AND EXPENSES OF SUCH APPRAISER SHALL BE BORNE
EQUALLY BY THE COMPANY AND THE HOLDERS OF WARRANTS.

 

(II)           INTEGRATED TRANSACTIONS.  IN CASE ANY OPTION IS ISSUED IN
CONNECTION WITH THE ISSUE OR SALE OF OTHER SECURITIES OF THE COMPANY, TOGETHER
COMPRISING ONE INTEGRATED TRANSACTION IN WHICH NO SPECIFIC CONSIDERATION IS
ALLOCATED TO SUCH OPTIONS BY THE PARTIES THERETO, THE OPTIONS WILL BE DEEMED TO
HAVE BEEN ISSUED FOR A CONSIDERATION OF $.01.

 

(III)          TREASURY SHARES.  THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT ANY GIVEN TIME DOES NOT INCLUDE SHARES OWNED OR HELD BY OR FOR
THE ACCOUNT OF THE COMPANY, AND THE DISPOSITION OF ANY SHARES SO OWNED OR HELD
WILL BE CONSIDERED AN ISSUE OR SALE OF COMMON STOCK.

 

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(IV)          RECORD DATE.  IF THE COMPANY TAKES A RECORD OF THE HOLDERS OF
COMMON STOCK FOR THE PURPOSE OF ENTITLING THEM (1) TO RECEIVE A DIVIDEND OR
OTHER DISTRIBUTION PAYABLE IN COMMON STOCK, OPTIONS OR IN CONVERTIBLE SECURITIES
OR (2) TO SUBSCRIBE FOR OR PURCHASE COMMON STOCK, OPTIONS OR CONVERTIBLE
SECURITIES, THEN SUCH RECORD DATE WILL BE DEEMED TO BE THE DATE OF THE ISSUE OR
SALE OF THE SHARES OF COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR SOLD UPON THE
DECLARATION OF SUCH DIVIDEND OR THE MAKING OF SUCH OTHER DISTRIBUTION OR THE
DATE OF THE GRANTING OF SUCH RIGHT OF SUBSCRIPTION OR PURCHASE, AS THE CASE MAY
BE.

 

(D) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK.  IF THE COMPANY AT ANY TIME AFTER THE DATE OF ISSUANCE OF THIS
WARRANT 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, ANY WARRANT EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR
TO SUCH SUBDIVISION WILL BE PROPORTIONATELY REDUCED AND THE NUMBER OF SHARES OF
COMMON STOCK OBTAINABLE UPON EXERCISE OF THIS WARRANT WILL BE PROPORTIONATELY
INCREASED.  IF THE COMPANY AT ANY TIME AFTER THE DATE OF ISSUANCE OF THIS
WARRANT 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, ANY WARRANT EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH
COMBINATION WILL BE PROPORTIONATELY INCREASED AND THE NUMBER OF WARRANT SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT WILL BE PROPORTIONATELY DECREASED.  ANY
ADJUSTMENT UNDER THIS SECTION 8(D) SHALL BECOME EFFECTIVE AT THE CLOSE OF
BUSINESS ON THE DATE THE SUBDIVISION OR COMBINATION BECOMES EFFECTIVE.

 

(E) 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 COMMON STOCK, BY WAY OF RETURN OF CAPITAL OR OTHERWISE (INCLUDING, WITHOUT
LIMITATION, ANY DISTRIBUTION OF CASH, STOCK OR OTHER SECURITIES, PROPERTY OR
OPTIONS BY WAY OF A DIVIDEND, SPIN OFF, RECLASSIFICATION, CORPORATE
REARRANGEMENT OR OTHER SIMILAR TRANSACTION) (A “DISTRIBUTION”), AT ANY TIME
AFTER THE ISSUANCE OF THIS WARRANT, THEN, IN EACH SUCH CASE:

 

(I)            ANY WARRANT EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO THE
CLOSE OF BUSINESS ON THE RECORD DATE FIXED FOR THE DETERMINATION OF HOLDERS OF
COMMON STOCK ENTITLED TO RECEIVE THE DISTRIBUTION SHALL BE REDUCED, EFFECTIVE AS
OF THE CLOSE OF BUSINESS ON SUCH RECORD DATE, TO A PRICE DETERMINED BY
MULTIPLYING SUCH WARRANT EXERCISE PRICE BY A FRACTION OF WHICH (A) THE NUMERATOR
SHALL BE THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE TRADING DAY
IMMEDIATELY PRECEDING SUCH RECORD DATE MINUS THE VALUE OF THE DISTRIBUTION (AS
DETERMINED IN GOOD FAITH BY THE COMPANY’S BOARD OF DIRECTORS) APPLICABLE TO ONE
SHARE OF COMMON STOCK, AND (B) THE DENOMINATOR SHALL BE THE CLOSING SALE PRICE
OF THE COMMON STOCK ON THE TRADING DAY IMMEDIATELY PRECEDING SUCH RECORD DATE;
AND

 

(II)           EITHER (A) THE NUMBER OF WARRANT SHARES OBTAINABLE UPON EXERCISE
OF THIS WARRANT SHALL BE INCREASED TO A NUMBER OF SHARES EQUAL TO THE NUMBER OF
SHARES OF COMMON STOCK OBTAINABLE IMMEDIATELY PRIOR TO THE CLOSE OF BUSINESS ON
THE RECORD DATE FIXED FOR THE DETERMINATION OF HOLDERS OF COMMON STOCK ENTITLED
TO RECEIVE THE DISTRIBUTION MULTIPLIED BY THE RECIPROCAL OF THE FRACTION SET
FORTH IN THE IMMEDIATELY PRECEDING CLAUSE (I), OR (B) IN THE EVENT THAT THE
DISTRIBUTION IS OF COMMON STOCK OF A COMPANY WHOSE COMMON STOCK IS TRADED ON A
NATIONAL SECURITIES EXCHANGE OR A NATIONAL AUTOMATED QUOTATION SYSTEM, THEN THE
HOLDER OF THIS WARRANT SHALL RECEIVE AN ADDITIONAL WARRANT TO PURCHASE COMMON
STOCK, THE TERMS OF WHICH SHALL

 

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BE IDENTICAL TO THOSE OF THIS WARRANT, EXCEPT THAT SUCH WARRANT SHALL BE
EXERCISABLE INTO THE AMOUNT OF THE ASSETS THAT WOULD HAVE BEEN PAYABLE TO THE
HOLDER OF THIS WARRANT PURSUANT TO THE DISTRIBUTION HAD THE HOLDER EXERCISED
THIS WARRANT IMMEDIATELY PRIOR TO SUCH RECORD DATE AND WITH AN EXERCISE PRICE
EQUAL TO THE AMOUNT BY WHICH THE EXERCISE PRICE OF THIS WARRANT WAS DECREASED
WITH RESPECT TO THE DISTRIBUTION PURSUANT TO THE TERMS OF THE IMMEDIATELY
PRECEDING CLAUSE (I).

 

(F) CERTAIN EVENTS.  IF ANY EVENT OCCURS OF THE TYPE CONTEMPLATED BY THE
PROVISIONS OF THIS SECTION 8 BUT NOT EXPRESSLY PROVIDED FOR BY SUCH PROVISIONS
(INCLUDING, WITHOUT LIMITATION, THE GRANTING OF STOCK APPRECIATION RIGHTS,
PHANTOM STOCK RIGHTS OR OTHER RIGHTS WITH EQUITY FEATURES), THEN THE COMPANY’S
BOARD OF DIRECTORS WILL MAKE AN APPROPRIATE ADJUSTMENT IN THE WARRANT EXERCISE
PRICE AND THE NUMBER OF SHARES OF COMMON STOCK OBTAINABLE UPON EXERCISE OF THIS
WARRANT SO AS TO PROTECT THE RIGHTS OF THE HOLDERS OF THE WARRANTS; PROVIDED,
EXCEPT AS SET FORTH IN SECTION 8(D),THAT NO SUCH ADJUSTMENT PURSUANT TO THIS
SECTION 8(F) WILL INCREASE THE WARRANT EXERCISE PRICE OR DECREASE THE NUMBER OF
SHARES OF COMMON STOCK OBTAINABLE AS OTHERWISE DETERMINED PURSUANT TO THIS
SECTION 8.

 

(G) NOTICES.

 

(I)            IMMEDIATELY UPON ANY ADJUSTMENT OF THE WARRANT EXERCISE PRICE,
THE COMPANY WILL GIVE WRITTEN NOTICE THEREOF TO THE HOLDER OF THIS WARRANT,
SETTING FORTH IN REASONABLE DETAIL, AND CERTIFYING, THE CALCULATION OF SUCH
ADJUSTMENT.

 

(II)           THE COMPANY WILL GIVE WRITTEN NOTICE TO THE HOLDER OF THIS
WARRANT AT LEAST TEN (10) 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 COMMON STOCK, (B) WITH RESPECT TO ANY PRO RATA SUBSCRIPTION OFFER TO HOLDERS
OF COMMON STOCK OR (C) FOR DETERMINING RIGHTS TO VOTE WITH RESPECT TO ANY
ORGANIC CHANGE (AS DEFINED BELOW), DISSOLUTION OR LIQUIDATION, PROVIDED THAT
SUCH INFORMATION SHALL BE MADE KNOWN TO THE PUBLIC PRIOR TO OR IN CONJUNCTION
WITH SUCH NOTICE BEING PROVIDED TO SUCH HOLDER.

 

(III)          THE COMPANY WILL ALSO GIVE WRITTEN NOTICE TO THE HOLDER OF THIS
WARRANT AT LEAST TEN (10) DAYS PRIOR TO THE DATE ON WHICH ANY ORGANIC CHANGE,
DISSOLUTION OR LIQUIDATION WILL TAKE PLACE, PROVIDED THAT SUCH INFORMATION SHALL
BE MADE KNOWN TO THE PUBLIC PRIOR TO OR IN CONJUNCTION WITH SUCH NOTICE BEING
PROVIDED TO SUCH HOLDER.

 

(H) LIMITATIONS.  NOTWITHSTANDING THE ABOVE PROVISIONS OF THIS SECTION 8, THE
COMPANY MAY NOT ISSUE ANY SHARES OF COMMON STOCK UPON EXERCISE OF THIS WARRANT
UNTIL THE COMPANY’S SHAREHOLDERS APPROVE (WITHOUT THE VOTE OF ANY SHARES
ACQUIRED IN THIS TRANSACTION AND RELATED TRANSACTIONS) THE ISSUANCE OF THE TOTAL
TRANSACTION SHARES AS DEFINED IN SECTION 4(L) OF THE SECURITIES PURCHASE
AGREEMENT.

 

SECTION 9.               PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE.

 

(A) IN ADDITION TO ANY ADJUSTMENTS PURSUANT TO SECTION 8 ABOVE, IF AT ANY TIME
THE COMPANY GRANTS, ISSUES OR SELLS ANY OPTIONS, CONVERTIBLE SECURITIES OR
RIGHTS TO PURCHASE STOCK, WARRANTS, SECURITIES OR OTHER PROPERTY PRO RATA TO THE
RECORD HOLDERS OF ANY CLASS OF COMMON

 

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STOCK (THE “PURCHASE RIGHTS”), THEN THE HOLDER OF THIS WARRANT WILL BE ENTITLED
TO ACQUIRE, UPON THE TERMS APPLICABLE TO SUCH PURCHASE RIGHTS, THE AGGREGATE
PURCHASE RIGHTS WHICH SUCH HOLDER COULD HAVE ACQUIRED IF SUCH HOLDER HAD HELD
THE NUMBER OF SHARES OF COMMON STOCK ACQUIRABLE UPON COMPLETE EXERCISE OF THIS
WARRANT IMMEDIATELY BEFORE THE DATE ON WHICH A RECORD IS TAKEN FOR THE GRANT,
ISSUANCE OR SALE OF SUCH PURCHASE RIGHTS, OR, IF NO SUCH RECORD IS TAKEN, THE
DATE AS OF WHICH THE RECORD HOLDERS OF COMMON STOCK ARE TO BE DETERMINED FOR THE
GRANT, ISSUE OR SALE OF SUCH PURCHASE RIGHTS.

 

(B) ANY RECAPITALIZATION, REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER, SALE OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS TO ANOTHER
PERSON OR OTHER TRANSACTION IN EACH CASE WHICH IS EFFECTED IN SUCH A WAY THAT
HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE (EITHER DIRECTLY OR UPON
SUBSEQUENT LIQUIDATION) STOCK, SECURITIES OR ASSETS WITH RESPECT TO OR IN
EXCHANGE FOR COMMON STOCK IS REFERRED TO HEREIN AS AN “ORGANIC CHANGE.”  PRIOR
TO THE CONSUMMATION OF ANY (I) SALE OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S
ASSETS TO AN ACQUIRING PERSON OR (II) OTHER ORGANIC CHANGE FOLLOWING WHICH THE
COMPANY IS NOT A SURVIVING ENTITY, THE COMPANY WILL SECURE FROM THE PERSON
PURCHASING SUCH ASSETS OR THE SUCCESSOR RESULTING FROM SUCH ORGANIC CHANGE (IN
EACH CASE, THE “ACQUIRING ENTITY”) A WRITTEN AGREEMENT (IN FORM AND SUBSTANCE
SATISFACTORY TO THE HOLDERS OF WARRANTS REPRESENTING AT LEAST A MAJORITY OF THE
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS THEN OUTSTANDING) TO
DELIVER TO EACH HOLDER OF WARRANTS IN EXCHANGE FOR SUCH WARRANTS, A SECURITY OF
THE ACQUIRING ENTITY EVIDENCED BY A WRITTEN INSTRUMENT SUBSTANTIALLY SIMILAR IN
FORM AND SUBSTANCE TO THIS WARRANT AND SATISFACTORY TO THE HOLDERS OF THE
WARRANTS (INCLUDING AN ADJUSTED WARRANT EXERCISE PRICE EQUAL TO THE VALUE FOR
THE COMMON STOCK REFLECTED BY THE TERMS OF SUCH CONSOLIDATION, MERGER OR SALE,
AND EXERCISABLE FOR A CORRESPONDING NUMBER OF SHARES OF COMMON STOCK ACQUIRABLE
AND RECEIVABLE UPON EXERCISE OF THE WARRANTS WITHOUT REGARD TO ANY LIMITATIONS
ON EXERCISE, IF THE VALUE SO REFLECTED IS LESS THAN ANY APPLICABLE WARRANT
EXERCISE PRICE IMMEDIATELY PRIOR TO SUCH CONSOLIDATION, MERGER OR SALE).  PRIOR
TO THE CONSUMMATION OF ANY OTHER ORGANIC CHANGE, THE COMPANY SHALL MAKE
APPROPRIATE PROVISION (IN FORM AND SUBSTANCE SATISFACTORY TO THE HOLDERS OF
WARRANTS REPRESENTING A MAJORITY OF THE WARRANT SHARES ISSUABLE UPON EXERCISE OF
THE WARRANTS THEN OUTSTANDING) TO INSURE THAT EACH OF THE HOLDERS OF THE
WARRANTS WILL THEREAFTER HAVE THE RIGHT TO ACQUIRE AND RECEIVE IN LIEU OF OR IN
ADDITION TO (AS THE CASE MAY BE) THE WARRANT SHARES IMMEDIATELY THERETOFORE
ISSUABLE AND RECEIVABLE UPON THE EXERCISE OF SUCH HOLDER’S WARRANTS (WITHOUT
REGARD TO ANY LIMITATIONS ON EXERCISE), SUCH SHARES OF STOCK, SECURITIES OR
ASSETS THAT WOULD HAVE BEEN ISSUED OR PAYABLE IN SUCH ORGANIC CHANGE WITH
RESPECT TO OR IN EXCHANGE FOR THE NUMBER OF WARRANT SHARES WHICH WOULD HAVE BEEN
ISSUABLE AND RECEIVABLE UPON THE EXERCISE OF SUCH HOLDER’S WARRANT AS OF THE
DATE OF SUCH ORGANIC CHANGE (WITHOUT TAKING INTO ACCOUNT ANY LIMITATIONS OR
RESTRICTIONS ON THE EXERCISABILITY OF THIS WARRANT).

 

SECTION 10.             LOST, STOLEN, MUTILATED OR DESTROYED WARRANT.  IF THIS
WARRANT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE COMPANY SHALL PROMPTLY, ON
RECEIPT OF AN INDEMNIFICATION UNDERTAKING (OR, IN THE CASE OF A MUTILATED
WARRANT, THE WARRANT), ISSUE A NEW WARRANT OF LIKE DENOMINATION AND TENOR AS
THIS WARRANT SO LOST, STOLEN, MUTILATED OR DESTROYED.

 

SECTION 11.             NOTICE.  ANY NOTICES, CONSENTS, WAIVERS OR OTHER
COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS OF THIS WARRANT
MUST BE IN WRITING AND WILL BE DEEMED TO HAVE BEEN DELIVERED:  (I) UPON RECEIPT,
WHEN DELIVERED PERSONALLY; (II) UPON RECEIPT, WHEN SENT BY FACSIMILE (PROVIDED
CONFIRMATION OF RECEIPT IS RECEIVED BY THE SENDING PARTY TRANSMISSION IS

 

14

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MECHANICALLY OR ELECTRONICALLY GENERATED AND KEPT ON FILE BY THE SENDING PARTY);
OR (III) ONE BUSINESS DAY AFTER DEPOSIT WITH A NATIONALLY RECOGNIZED OVERNIGHT
DELIVERY SERVICE, IN EACH CASE PROPERLY ADDRESSED TO THE PARTY TO RECEIVE THE
SAME.  THE ADDRESSES AND FACSIMILE NUMBERS FOR SUCH COMMUNICATIONS SHALL BE:

 

If to Holder:

Cornell Capital Partners, LP

 

101 Hudson Street – Suite 3700

 

Jersey City, NJ 07302

 

Attention:

Mark A. Angelo

 

Telephone:

(201) 985-8300

 

Facsimile:

(201) 985-8266

 

 

With Copy to:

David Gonzalez, Esq.

 

101 Hudson Street – Suite 3700

 

Jersey City, NJ 07302

 

Telephone:

(201) 985-8300

 

Facsimile:

(201) 985-8266

 

 

If to the Company, to:

Isonics Corporation

 

5906 McIntyre Street

 

Golden, CO 80403

 

Attention:

James E. Alexander, President

 

Telephone:

(303) 279-7900

 

Facsimile:

(303) 279-7300

 

 

With a copy (which does
not constitute notice) to:

Burns, Figa & Will, P.C.

 

6400 South Fiddler’s Green Circle – Suite 1000

 

Greenwood Village, CO 80111

 

Attention:

Herrick K. Lidstone, Jr., Esq.

 

Telephone:

(303) 796-2626

 

Facsimile:

(303) 796-2777

 

If to a holder of this Warrant, to it at the address and facsimile number set
forth on Exhibit C hereto, with copies to such holder’s representatives as set
forth on Exhibit C, or at such other address and facsimile as shall be delivered
to the Company upon the issuance or transfer of this Warrant.  Each party shall
provide five days’ prior written notice to the other party of any change in
address or facsimile number.  Written confirmation of receipt (A) given by the
recipient of such notice, consent, facsimile, waiver or other communication, (or
(B) provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

 

SECTION 12.             DATE.  THE DATE OF THIS WARRANT IS SET FORTH ON PAGE 1
HEREOF.  THIS WARRANT, IN ALL EVENTS, SHALL BE WHOLLY VOID AND OF NO EFFECT
AFTER THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, EXCEPT THAT NOTWITHSTANDING
ANY OTHER PROVISIONS HEREOF, THE PROVISIONS OF

 

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SECTION 8(B) SHALL CONTINUE IN FULL FORCE AND EFFECT AFTER SUCH DATE AS TO ANY
WARRANT SHARES OR OTHER SECURITIES ISSUED UPON THE EXERCISE OF THIS WARRANT.

 

SECTION 13.             AMENDMENT AND WAIVER.  EXCEPT AS OTHERWISE PROVIDED
HEREIN, THE PROVISIONS OF THE WARRANTS MAY BE AMENDED 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
HOLDERS OF WARRANTS REPRESENTING AT A MAJORITY OF THE WARRANT SHARES ISSUABLE
UPON EXERCISE OF THE WARRANTS THEN OUTSTANDING; PROVIDED THAT, EXCEPT FOR
SECTION 8(D), NO SUCH ACTION MAY INCREASE THE WARRANT EXERCISE PRICE OR DECREASE
THE NUMBER OF SHARES OR CLASS OF STOCK OBTAINABLE UPON EXERCISE OF ANY WARRANT
WITHOUT THE WRITTEN CONSENT OF THE HOLDER OF SUCH WARRANT.

 

SECTION 14.             DESCRIPTIVE HEADINGS; GOVERNING LAW.  THE DESCRIPTIVE
HEADINGS OF THE SEVERAL SECTIONS AND PARAGRAPHS OF THIS WARRANT ARE INSERTED FOR
CONVENIENCE ONLY AND DO NOT CONSTITUTE A PART OF THIS WARRANT.  THE CORPORATE
LAWS OF THE STATE OF NEW JERSEY SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE
RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS.  ALL OTHER QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL
BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW JERSEY OR ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION
OF THE LAWS OF ANY JURISDICTIONS OTHER THAN THE STATE OF NEW JERSEY.  EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY SITTING IN NEWARK NEW JERSEY, FOR
THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
THEREWITH, 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.  EACH PARTY 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 SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS 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.

 

SECTION 15.            WAIVER OF JURY TRIAL.  AS A MATERIAL INDUCEMENT FOR EACH
PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS
TRANSACTION.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.

 

 

ISONICS CORPORATION

 

 

 

By:

 

 

 

Name:

 James E. Alexander

 

Title:

President and Chief Executive Officer

 

17

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EXHIBIT A TO WARRANT

 

EXERCISE NOTICE

 

TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

 

ISONICS CORPORATION

 

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

 

Specify Method of exercise by check mark:

 

1.  o       Cash Exercise

 

(a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate
Exercise Price of $                     to the Company in accordance with the
terms of the Warrant.

 

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

 

2.  o       Cashless Exercise

 

(a) Payment of Warrant Exercise Price.  In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such exercise the
Net Number of shares of Common Stock determined in accordance with the terms of
the Warrant.

 

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

 

By submitting this Exercise Notice, the undersigned holder represents and
warrants to the Company that it is an accredited investor as that term is
defined in SEC Rule 501(a), it is a sophisticated investor as required by SEC
Rule 506, that it has completed such investigation into the Company and the
securities being acquired pursuant to this Exercise Notice as the undersigned
(in consultation with its advisors) has determined appropriate, and that it is
submitting this Exercise Notice of its own volition and free will.

 

Date:                                   ,          

 

Name of Registered Holder

 

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By:

 

 

Name:

 

 

Title:

 

 

 

2

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EXHIBIT B TO WARRANT

 

FORM OF WARRANT POWER

 

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
                       , Federal Identification No.                , a warrant
to purchase                       shares of the capital stock of Isonics
Corporation represented by warrant certificate no.           , standing in the
name of the undersigned on the books of said corporation.  The undersigned does
hereby irrevocably constitute and appoint                       , attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

 

In submitting this Warrant Power, the undersigned represents and warrants to
Isonics Corporation that it has not offered the Warrant through any means of
general advertising or public solicitation, and that it will provide Isonics
Corporation such other information and representations of the undersigned or of
the transferee necessary or appropriate to permit Isonics Corporation to
determine whether there is an exemption available for the transfer of this
Warrant.

 

 

Dated:

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

B-1

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