Emmaus Life Sciences, Inc. 8-K  [ex10-4.htm]

Exhibit 10.4

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED FOR VALUE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION (INCLUDING, WITHOUT LIMITATION, A PLEDGE PERMITTED HEREUNDER
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES WHERE THE PLEDGEE ACKNOWLEDGES THE RESTRICTIONS ON TRANSFER OF SUCH
SECURITIES) NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

FORM OF COMMON STOCK PURCHASE WARRANT

 

EMMAUS LIFE SCIENCES, INC.

 

Warrant Shares:___________Initial Exercise Date: ____________ Warrant No.
____________  

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received, T.R. Winston & Company, LLC (the “Placement Agent”) or its registered
assigns (the Placement Agent or its registered assigns, the “Holder”) is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the
“Initial Exercise Date”) and on or prior to the close of business on the five
(5) year anniversary of the Initial Exercise Date (the “Termination Date”) but
not thereafter, to subscribe for and purchase from Emmaus Life Sciences, Inc., a
Delaware corporation (the “Company”), up to shares (as subject to adjustment
hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

Except as specifically otherwise provided herein, the Warrant Shares shall bear
the same terms and conditions as such securities described under the caption
“Description of Common Stock” in the Memorandum and as designated in the
Company’s Certificate of Incorporation and any amendments thereto, and the
Holder shall have such registration rights under the Securities Act for the
Warrant Shares as set forth in the Subscription Agreements. The Holder of this
Warrant, by its acceptance thereof, represents and warrants to, and covenants
and agrees with, the Company that the Warrant and the Warrant Shares issuable
upon exercise of the Warrant may not be transferred unless such securities are
either registered under the Securities Act and any applicable state securities
law or an exemption from such registration is available. In connection with any
purchase of the Warrant Shares, the Holder agrees to execute any documents which
may be reasonably required by counsel to the Company to comply with the
provisions of the Securities Act and applicable state securities laws.

 

 

Section 1.                  Definitions. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in those certain
Subscription Agreements (the “Subscription Agreements”), dated September 11,
2013, between the Company and the purchasers named therein (each, a
“Purchaser”).

Section 2.                  Exercise.

a)               Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at any time or
times on or after the Initial Exercise Date and until 5:00 p.m., Los Angeles
time, on the Termination Date by delivery to the Company (or such other office
or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the notice of exercise (“Notice of
Exercise”) in the form annexed hereto and, within three (3) Trading Days of the
date said Notice of Exercise is delivered to the Company, payment to the Company
of the aggregate Exercise Price of the shares thereby purchased by wire transfer
or cashier’s check drawn on a United States bank or, if available, pursuant to
the cashless exercise procedure specified in Section 2(c) below. As used herein,
“Trading Day” means a day on which the NYSE MKT, the NASDAQ Capital Market, the
NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board (or any successors to any of the foregoing)
are open for trading. No ink-original Notice of Exercise shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of
any Notice of Exercise form be required. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
three (3) Trading Days of the date the final Notice of Exercise is delivered to
the Company. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall have the
effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing the number
of Warrant Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise within two (2) Business Days of
receipt of such notice. The Holder and any assignee, by acceptance of this
Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder,
the number of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof. Notwithstanding any
provision herein to the contrary, the Company shall not be required to register
any Warrant Shares issued or issuable upon exercise of this Warrant (in whole or
in part) in the name of any person who acquired such Warrant Shares or this
Warrant (in whole or in part) in a transaction that contravenes the restrictions
on transfer of this Warrant and the Warrant Shares set forth in this Warrant.

b)                Exercise Price. The exercise price per share of the Common
Stock under this Warrant shall be $3.50, subject to adjustment hereunder (the
“Exercise Price”).

c)                 Cashless Exercise. If at any time after the twelve (12) month
anniversary of the Initial Exercise Date, there is no effective Registration
Statement registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) x (X)] by (A), where:

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(A)  =the VWAP (as defined below) on the Trading Day immediately preceding the
date on which Holder elects to exercise this Warrant by means of a “cashless
exercise,” as set forth in the applicable Notice of Exercise;      (B) =the
Exercise Price of this Warrant, as adjusted hereunder; and      (X)  =the number
of Warrant Shares that would be issuable upon exercise of this Warrant in
accordance with the terms of this Warrant if such exercise, in whole or in part,
were by means of a cash exercise rather than a cashless exercise.

 

For purposes of this Warrant, the term “VWAP” means, for any date, the price
determined by the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on the NYSE MKT, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock
Exchange (each, a “Trading Market”), the daily volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or
quoted on a Trading Market and is then listed or quoted for trading on the OTC
Bulletin Board, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the
Common Stock is not then listed or quoted for trading on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the “Pink Sheets”
published by OTC Link LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair market value of a
share of Common Stock as determined in good faith by the independent members of
the Board of Directors of the Company.

 

d)                   Mechanics of Exercise.

 

i.            Delivery of Warrant Shares Upon Exercise. Warrant Shares purchased
hereunder shall be transmitted by the Transfer Agent to the Holder by crediting
the account of the Holder’s prime broker with The Depository Trust Company
through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is
then a participant in such system and either (A) there is an effective
registration statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by the Holder or (B) the shares are eligible for
resale by the Holder without volume or manner-of-sale limitations pursuant to
Rule 144, and otherwise by physical delivery of one or more certificates, as
requested by the Holder, representing such Warrant Shares to the address
specified by the Holder in the Notice of Exercise by the date that is three (3)
Trading Days after the latest of (A) the delivery to the Company of the Notice
of Exercise, (B) receipt by the Company of the aggregate Exercise Price for the
Warrant Shares (unless exercised on a cashless basis pursuant to Section 2(c),
and (C) surrender of this Warrant (if required) (such date, the “Warrant Share
Delivery Date”). The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of
such shares, having been paid.

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ii.             Delivery of New Warrants Upon Exercise. If this Warrant shall
have been exercised in part, the Company shall, at the request of a Holder and
upon surrender of this Warrant certificate, at the time of delivery of the
Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant.

iii.          Rescission Rights. If the Company fails to cause the Transfer
Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.

iv.          Compensation for Buy-In on Failure to Timely Deliver Warrant Shares
Upon Exercise. In addition to any other rights available to the Holder, if (A)
the Company fails to cause the Transfer Agent to transmit to the Holder the
Warrant Shares pursuant to an exercise on or before the second Trading Day
following the Warrant Share Delivery Date, (B) as a result of such failure,
either the Holder or the Holder’s broker is required to purchase in an open
market transaction or otherwise shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder
anticipated receiving upon such exercise (such purchase of such shares of Common
Stock being required for such delivery being a “Buy-In”), and (C) the total
purchase price (including brokerage commissions, if any) payable by the Holder
for such Buy-In exceeds the proceeds to the Holder from such sale of such
Warrant Shares (such excess being the “Excess Buy-In Cost”), then the Company
shall pay in cash to the Holder the amount of the Excess Buy-In Cost within five
(5) Trading Days of the second Trading Day following the Warrant Share Delivery
Date; provided, however, that the obligation of the Company to make payment of
any Excess Buy-in Cost shall only apply to the Warrant Shares issuable upon
exercise of this Warrant in respect of which the Holder satisfied the
requirements hereunder in respect of such exercise, and in respect of any
portion of this Warrant in respect of which the Holder did not so comply with
such requirements, the Company shall reinstate to this Warrant the number of
Warrant Shares represented by such portion of this Warrant for which such
requirements were not so satisfied; provided further, however, that, in the
event the sale by the Holder giving rise to the Buy-In is executed at less than
a then-current market price, the Excess Buy-In Cost shall be equal to the lesser
of (x) the Excess Buy-In Cost as determined in accordance with the foregoing
provisions of this Section 2(d)(iv) and (y) the amount by which (1) the total
purchase price (including brokerage commissions, if any) payable by the Holder
for such Buy-In exceeds (2) the product obtained by multiplying the VWAP on the
date of such sale transaction (or, if such date is not a Trading Day, the
immediately preceding Trading Day) by the number of Warrant Shares sold in such
sale transaction. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company prompt written notice indicating the occurrence of a Buy-in and the
amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver shares
of Common Stock upon exercise of the Warrant as required pursuant to the terms
hereof.

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v.      No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise (after aggregating all the Warrant
Shares then being purchased by the Holder upon exercise of Warrants held by the
Holder), the Company shall, at its election, either pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price or round up to the next whole share.

vi.      Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made
without charge to the Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued
in the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event that Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto. The Company shall pay all Transfer Agent fees required for
same-day processing of any Notice of Exercise.

vii.      Closing of Books. The Company will not, except upon dissolution,
liquidation, or winding up of the Company, close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

Section 3.                  Certain Adjustments.

a)               Stock Dividends and Subdivisions; Combinations;
Reclassifications. If the Company, at any time and from time to time while this
Warrant is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon exercise of this Warrant), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be proportionately
adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

b)              Adjustment for Diluting Issuances.

                                                               i.           
Deemed Issue of Additional Shares of Common Stock.

 

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A.         If the Company at any time or from time to time after the date hereof
shall issue any Options or Convertible Securities (excluding Options or
Convertible Securities which are themselves Exempted Securities (as defined
herein)) or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto, assuming the satisfaction of any conditions to
exercisability, convertibility or exchangeability but without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date.

 

B.         If the terms of any Option or Convertible Security, the issuance of
which resulted in an adjustment to the Exercise Price pursuant to the terms of
Section 3(b)(ii), are revised as a result of an amendment to such terms or any
other adjustment pursuant to the provisions of such Option or Convertible
Security (but excluding automatic adjustments to such terms pursuant to
anti-dilution or similar provisions of such Option or Convertible Security) to
provide for either (1) any increase or decrease in the number of shares of
Common Stock issuable upon the exercise, conversion and/or exchange of any such
Option or Convertible Security or (2) any increase or decrease in the
consideration payable to the Company upon such exercise, conversion and/or
exchange, then, effective upon such increase or decrease becoming effective, the
Exercise Price computed upon the original issue of such Option or Convertible
Security (or upon the occurrence of a record date with respect thereto) shall be
readjusted to such Exercise Price as would have obtained had such revised terms
been in effect upon the original date of issuance of such Option or Convertible
Security. Notwithstanding the foregoing, no readjustment pursuant to this
Section 3(b)(i)(B) shall have the effect of increasing the Exercise Price to an
amount which exceeds the lower of (i) the Exercise Price in effect immediately
prior to the original adjustment made as a result of the issuance of such Option
or Convertible Security, or (ii) the Exercise Price that would have resulted
from any issuances of Additional Shares of Common Stock (other than deemed
issuances of Additional Shares of Common Stock as a result of the issuance of
such Option or Convertible Security) between the original adjustment date and
such readjustment date.

 

C.         If the terms of any Option or Convertible Security (excluding Options
or Convertible Securities which are themselves Exempted Securities), the
issuance of which did not result in an adjustment to the Exercise Price pursuant
to the terms of Section 3(b)(ii) (either because the consideration per share
(determined pursuant to Section 3(b)(iii)) of the Additional Shares of Common
Stock subject thereto was equal to or greater than the Exercise Price then in
effect, or because such Option or Convertible Security was issued before the
date hereof), are revised after the date hereof as a result of an amendment to
such terms or any other adjustment pursuant to the provisions of such Option or
Convertible Security (but excluding automatic adjustments to such terms pursuant
to anti-dilution or similar provisions of such Option or Convertible Security)
to provide for either (1) any increase in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any such Option or
Convertible Security or (2) any decrease in the consideration payable to the
Company upon such exercise, conversion or exchange, then such Option or
Convertible Security, as so amended or adjusted, and the Additional Shares of
Common Stock subject thereto (determined in the manner provided in Section
3(b)(i)) shall be deemed to have been issued effective upon such increase or
decrease becoming effective.

 

D.          Upon the expiration or termination of any unexercised Option or
unconverted or unexchanged Convertible Security (or portion thereof) which
resulted (either upon its original issuance or upon a revision of its terms) in
an adjustment to the Exercise Price pursuant to the terms of Section 3(b)(ii),
the Exercise Price shall be readjusted to such Exercise Price as would have
obtained had such Option or Convertible Security (or portion thereof) never been
issued.

6

 

E.          If the number of shares of Common Stock issuable upon the exercise,
conversion and/or exchange of any Option or Convertible Security, or the
consideration payable to the Company upon such exercise, conversion and/or
exchange, is calculable at the time such Option or Convertible Security is
issued or amended but is subject to adjustment based upon subsequent events, any
adjustment to the Exercise Price provided for in this Section 3(b)(i)(E) shall
be effected at the time of such issuance or amendment based on such number of
shares or amount of consideration without regard to any provisions for
subsequent adjustments (and any subsequent adjustments shall be treated as
provided in clauses (B) and (C) of this subsection). If the number of shares of
Common Stock issuable upon the exercise, conversion and/or exchange of any
Option or Convertible Security, or the consideration payable to the Company upon
such exercise, conversion and/or exchange, cannot be calculated at all at the
time such Option or Convertible Security is issued or amended, any adjustment to
the Exercise Price that would result under the terms of this subsection at the
time of such issuance or amendment shall instead be effected at the time such
number of shares and/or amount of consideration is first calculable (even if
subject to subsequent adjustments), assuming for purposes of calculating such
adjustment to the Exercise Price that such issuance or amendment took place at
the time such calculation can first be made.

 

ii.                  Adjustment of Exercise Price Upon Issuance of Additional
Shares of Common Stock.

A.         Adjustment of Warrant Shares. The Exercise Price shall be subject to
adjustment from time to time as set forth in this Section 3(b)(ii). Upon each
adjustment of the Exercise Price pursuant to this Section 3(b)(ii), the
registered holder shall (until another such adjustment) thereafter be entitled
to purchase at the Exercise Price the number of shares of Common Stock obtained
by dividing (a) the product of the number of Warrant Shares multiplied by the
initial Exercise Price by (b) the adjusted Exercise Price.

 

B.         Adjustment of the Exercise Price for Common Stock Issuances. In the
event the Company shall at any time after the date hereof issue Additional
Shares of Common Stock (excluding Additional Shares of Common Stock deemed to be
issued pursuant to Section 3(b)(i)), without consideration or for a
consideration per share less than the lower of (i) the Exercise Price in effect
immediately prior to such issue or (ii) $2.50, then the Exercise Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
one-hundredth of a cent) determined in accordance with the formula set forth in
Section 3(b)(ii)(D).

 

C.         Adjustment of the Exercise Price for Options or Convertible
Securities Issuances. In the event the Company shall at any time after the date
hereof issue Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 3(b)(i), without consideration or for a consideration per share less
than the Exercise Price in effect immediately prior to such issue, then the
Exercise Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest one-hundredth of a cent) determined in accordance
with the formula set forth in Section 3(b)(ii)(D).

 

D.         Exercise Adjustment Formula. Any reductions in the Exercise Price
pursuant to Sections 3(b)(ii)(B) or 3(b)(ii)(C) shall be determined in
accordance with the following formula:

 

EP2 = EP1 * (A + B) ÷ (A + C)

For purposes of the foregoing formula, the following definitions shall apply:

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“EP2” shall mean the Exercise Price in effect immediately after such issue of
Additional Shares of Common Stock

“EP1” shall mean the Exercise Price in effect immediately prior to such issue of
Additional Shares of Common Stock;

“A” shall mean the number of shares of Common Stock outstanding immediately
prior to such issue of Additional Shares of Common Stock assuming conversion of
all warrants to purchase Common Stock issued pursuant to the Company’s Amended
and Restated Confidential Private Placement Memorandum dated September 9, 2013,
as amended and supplemented, that are outstanding immediately prior to such
issue, including, without limitation, this Warrant;

“B” shall mean the number of shares of Common Stock that would have been issued
if such Additional Shares of Common Stock had been issued at a price per share
equal to EP1 (determined by dividing the aggregate consideration received by the
Company in respect of such issue by EP1); and

“C” shall mean the number of such Additional Shares of Common Stock issued in
such transaction.

iii.                   Determination of Consideration. For purposes of this
Section 3(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:

A.         Cash and Property: Such consideration shall: (i) insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Company, excluding amounts paid or payable for accrued interest; (ii) insofar as
it consists of property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith by the Board of
Directors of the Company; and (iii) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (i) and (ii) above,
as determined in good faith by the Board of Directors of the Company.

 

B.         Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 3(b)(i), relating to Options and Convertible
Securities, shall be determined by dividing: (i) the total amount, if any,
received or receivable by the Company as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Company upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities.

                                                                 

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iv.                Term of Adjustment for Diluting Issuances. The requirement to
perform adjustments for diluting issuances under this Section 3(b) shall
terminate and be of no further force or effect on the earliest to occur of the
following: (i) immediately prior to a firm commitment underwritten public
offering by the Company of shares of its Common Stock which results in aggregate
cash proceeds to the Company of not less than $20,000,000 and in connection
therewith the Company lists its Common Stock on a national securities exchange
provided that the price per share of such Common Stock is at least $5.00 at the
time of such listing or (ii) the fifth (5th) anniversary of the date hereof.

v.                  Exempted Securities. “Exempted Securities” shall mean (1)
the following shares of Common Stock and (2) shares of Common Stock deemed
issued pursuant to the following Options and Convertible Securities:

A. all Options, Convertible Securities and Promissory Notes outstanding as of
the Private Placement Closing Date;

B. shares of Common Stock, Options or Convertible Securities issued by reason of
a dividend, stock split, split-up or similar transaction or other distribution
on shares of Common Stock;

C. shares of Common Stock or Options issued to employees or directors of, or
consultants or advisors to, the Company or any of its subsidiaries or authorized
to be issued pursuant to a plan, agreement or arrangement approved by the board
of directors of the Company (the “Board”);

D. shares of Common Stock or Convertible Securities actually issued upon the
exercise of Options or shares of Common Stock actually issued upon the
conversion or exchange of Convertible Securities or Promissory Notes, in each
case provided such issuance is pursuant to the terms of such Option or
Convertible Security or in the case of Promissory Notes such issuance is not
below the fair market value of Common Stock as determined by the Board, provided
that the Company may not issue more than 2.55 million shares of Common Stock at
a fair market value less than $2.50 in exchange of Promissory Notes under this
clause (iv);

E. shares of Common Stock, Options or Convertible Securities issued to banks,
equipment lessors or other financial institutions, or to real property lessors,
pursuant to a debt financing, equipment leasing or real property leasing
transaction approved by the Board that do not exceed an aggregate of $500,000 of
the Company’s shares of Common Stock at the fair market value of Common Stock as
determined by the Board (including shares underlying (directly or indirectly)
any such Options or Convertible Securities);

F. shares of Common Stock, Options or Convertible Securities issued to suppliers
or third party service providers in connection with the provision of goods or
services pursuant to transactions approved by the Board that do not exceed an
aggregate of $500,000 of the Company’s shares of Common Stock at the fair market
value of Common Stock as determined by the Board (including shares underlying
(directly or indirectly) any such Options or Convertible Securities);

9

 

G. shares of Common Stock, Options or Convertible Securities issued pursuant to
the acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization or to a joint venture
agreement, provided that such issuances are approved by the Board and do not
exceed an aggregate of 10% of the outstanding shares of Common Stock at the time
immediately preceding such transaction (including shares underlying (directly or
indirectly) any such Options or Convertible Securities); and

H. shares of Common Stock, Options or Convertible Securities issued in
connection with sponsored research, collaboration, technology license,
development, marketing or other similar agreements or strategic partnerships
approved by the Board that do not exceed an aggregate of $500,000 of the
Company’s shares of Common Stock at the fair market value of Common Stock as
determined by the Board (including shares underlying (directly or indirectly)
any such Options or Convertible Securities).

c)                    [RESERVED]

d)                   Pro Rata Distributions. If the Company, at any time while
this Warrant is outstanding, shall distribute to all holders of Common Stock
(and not to the Holder) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock, then in each such case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then per share fair market value
at such record date of the portion of such assets or evidence of indebtedness or
rights or warrants so distributed applicable to one outstanding share of the
Common Stock as determined by the board of directors of the Company in good
faith. In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above. At the time
of any such distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this subsection or an adjustment to
the Exercise Price, which shall be effective as of the day following the record
date for such distribution.

e)               Fundamental Transaction.

i.                        For purposes of this Warrant, the term “Fundamental
Transaction” means a transaction whereby (1) the Company, directly or
indirectly, in one or more related transactions effects any merger or
consolidation of the Company with or into another Person, (2) the Company,
directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions, (3) any, direct or indirect, purchase
offer, tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has
been accepted by the holders of 50% or more of the outstanding Common Stock, (4)
the Company, directly or indirectly, in one or more related transactions effects
any reclassification, reorganization or recapitalization of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, or (5) the
Company, directly or indirectly, in one or more related transactions consummates
a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person or group of Persons whereby such other Person
or group acquires more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business combination).

10

 

ii.                     If at any time while this Warrant is outstanding the
Company or its successor engages in, or is the subject of, one or more
Fundamental Transactions, then, in respect of each such Fundamental Transaction,
upon any subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the
option of the Holder, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation, and
any additional consideration (the “Alternate Consideration”) receivable as a
result of such Fundamental Transaction by a holder of the number of shares of
Common Stock for which this Warrant is exercisable (or any successor to this
Warrant arising from a prior Fundamental Transaction) immediately prior to such
Fundamental Transaction.

iii.                  For purposes of any such exercise described in clause (ii)
this Section 3(e), the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction.

iv.                  Prior to the consummation of any Fundamental Transaction,
the Company shall cause any successor entity in a Fundamental Transaction in
which the Company is not the survivor (the “Successor Entity”) to assume in
writing all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section 3(e)
pursuant to written agreements in form and substance reasonably satisfactory to
the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the
Holder in exchange for this Warrant a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this
Warrant which is exercisable for a corresponding number of shares of capital
stock of such Successor Entity (or its parent entity) equivalent to the shares
of Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such number of shares
of capital stock and such exercise price being for the purpose of protecting the
economic value of this Warrant immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and
substance to the Holder. Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant and the other Transaction Documents 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 and the other Transaction Documents with the same effect as
if such Successor Entity had been named as the Company herein.

11

 

f)                       Calculations. All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be; provided, however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any adjustment so carried forward, shall amount to at least one cent or 1/100th
of a share. For purposes of this Section 3, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

g)                      Notice to Holder.

                                                                    
i.                        Adjustment to Exercise Price. Whenever the Exercise
Price is adjusted pursuant to any provision of this Section 3, the Company shall
prepare and promptly mail to the Holder a certificate, executed by the Chief
Financial Officer of the Company, and approved by the independent members of the
Board of Directors of the Company, setting forth the Exercise Price after such
adjustment and any resulting adjustment to the number of Warrant Shares and
setting forth, in reasonable detail, the events requiring such adjustment and
the method by which such adjustment was calculated, including, but not limited
to, a statement of (i) the Exercise Price at the time in effect, and (ii) the
number of additional or fewer securities and the type and amount, if any, of
other property which at the time would be receivable upon exercise of the
Warrants.

                                                                   
ii.                        Notice to Allow Exercise by Holder. If (A) the
Company shall declare a dividend (or any other distribution in whatever form) on
the Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall authorize
the granting to all holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property, or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be mailed to the Holder at its last address as it shall appear upon the
Warrant Register (as defined in Section 4(c)) of the Company, at least twenty
(20) calendar days prior to the applicable record or effective date hereinafter
specified (or such lesser number of calendar days to the extent such lesser
number complies with any law, regulation, or by-law of the Company applicable to
the sending of such notice to the stockholders of the Company), a notice stating

12

 

(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to exercise this Warrant during the period commencing on the date of
such notice to the effective date of the event triggering such notice except as
may otherwise be expressly set forth herein.

iii.                  Notice Deemed Given. Notwithstanding anything contained
herein to the contrary, notice shall be deemed given in the event the Company
makes a public disclosure via the SEC EDGAR website within any applicable time
period for notice as provided for herein.

Section 4.                  Transfer of Warrant.

a)               Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 4(d) and 4(e) hereof,
this Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees,
as applicable, and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. The Warrant, if properly assigned in accordance herewith,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.

b)               New Warrants. This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or
exchanges shall be dated the Initial Exercise Date and shall be identical with
this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.

13

 

c)                Warrant Register. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.

d)                Transfer Restrictions. If, at the time of the surrender of
this Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be either (i) registered pursuant to an effective
registration statement under the Securities Act and under applicable state
securities or blue sky laws or (ii) eligible for resale without volume or
manner-of-sale restrictions or current public information requirements pursuant
to Rule 144, the Company may require, as a condition of allowing such transfer,
that the Holder or transferee of this Warrant, as the case may be, require the
transferee to agree in writing to be bound by the provisions of the Subscription
Agreements relating to any Purchaser thereunder. Notwithstanding any provision
herein to the contrary, the Company shall not be required to register this
Warrant or the Warrant Shares issuable upon exercise (in whole or in part) in
the name of any person who acquired all or any part of this Warrant or the
Warrant Shares directly or indirectly in a transaction that contravenes the
restrictions set forth in Section 4(e) hereof.

e)                 Representation by the Holder. The Holder, by the acceptance
hereof, represents and warrants that it is an accredited investor (as defined
under Regulation D under the Securities Act) and is acquiring this Warrant and,
upon any exercise hereof, will acquire the Warrant Shares issuable upon such
exercise, for its own account and not with a view to or for distributing or
reselling such Warrant Shares or any part thereof in violation of the Securities
Act or any applicable state securities law, except pursuant to sales registered
or exempted under the Securities Act. The Holder covenants that neither it nor
any person acting on its behalf or pursuant to any understanding with it will
(i) directly or indirectly pledge or otherwise transfer or assign to a third
party this Warrant (in whole or in part) or any of the Warrant Shares issuable
upon exercise as security for a margin loan or other loan at any time prior to
the earliest of (A) the date the Common Stock of the Company is listed for
trading on a national securities exchange, (B) the date the Common Stock of the
Company is quoted on an automated quotation system, (C) the date the Common
Stock of the Company listed or quoted for trading on the OTC Bulletin Board, or
(D) the date prices for the Common Stock of the Company are first reported in
the “Pink Sheets” published by OTC Link LLC (or a similar organization or agency
succeeding to its functions of reporting prices) or (ii) engage in any
transactions in the Common Stock or other securities of the Company (including
Short Sales (as defined below)) the intent and purpose of which is to cause a
decrease in the price of such Common Stock or other securities on any Trading
Market, the OTC Bulletin Board, or other market on which such Common Stock or
other securities is then listed or quoted. For purposes of this Section 4(e),
the term “Short Sales” means, without limitation, all “short sales” as defined
in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act
of 1934, as amended, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, swaps and similar arrangements (including
on a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.

Section 5.                  Miscellaneous.

a)               No Rights as Stockholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights, dividends or other rights as a
stockholder of the Company prior to the exercise hereof as set forth in Section
2(d)(i); provided, however, if at any time prior to the expiration of the
warrants and their exercise, any of the following events shall occur: (i) the
Company shall take a record of the holders of its shares of Common Stock for the
purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company or (ii)
the Company shall offer to all the holders of its common stock any additional
shares of capital stock of the company or securities convertible into or
exchangeable for shares of capital stock of the company, or any option, right or
warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up
of the company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business as an
entirety shall be proposed; then, in any one or more of said events, then the
Company shall give written notice of such event to the Holder no later than the
date of prior notice of such event required to be given to the stockholders of
the Company under any applicable law, regulation, rule of any exchange on which
the Company’s shares of Common Stock are then quoted, or by-law of the Company,
but in no event later than twenty (20) calendar days prior to the date fixed as
a record date of the date of closing the transfer books for the determination of
the stockholders of the Company entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notices
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.

14

 

 

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

c)                 Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or
such right may be exercised on the next succeeding Business Day. For purposes of
this Warrant, the term “Business Day” means days other than Saturdays, Sundays,
and days in respect of which banks in the State of California are authorized to
be closed.

d)                Authorized Shares.

The Company covenants that, during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of issuing the necessary Warrant Shares upon the exercise
of the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant and payment for such
Warrant Shares in accordance herewith, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

15

 

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this Warrant.

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

e)                 Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Subscription Agreements.

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

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

h)                Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with Section 12 of the Subscription Agreements.

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

16

 

 

j)                 Remedies. The Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant in respect of
which monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by the Company of the provisions of this Warrant and not
resulting from failure of the Holder to satisfy the requirements of this Warrant
applicable to the Holder, and in respect of any such action for specific
performance by the Holder under such circumstances, the Company hereby agrees to
waive and not to assert the defense that a remedy at law would be adequate in
respect of such loss.

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

l)                 Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts to be wholly-performed within said State, and without regard to the
conflicts of laws principles thereof.

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

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

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

 

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

 

FIRST: (Signature Page Follows)

 

17

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above indicated.

 

EMMAUS LIFE SCIENCES, INC.

  

  By:

    Name:     Title: 

 

 

 

 

NOTICE OF EXERCISE

 

To: EMMAUS LIFE SCIENCES, INC.

 

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

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

[   ] in lawful money of the United States; or

[   ] if permitted, the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

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

_______________________________

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_______________________________

 

_______________________________

 

_______________________________

 

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

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:
________________________________________________________________________

Signature of Authorized Signatory of Investing Entity:
_________________________________________________

Name of Authorized Signatory:
___________________________________________________________________

Title of Authorized Signatory:
____________________________________________________________________

Date:
________________________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to

Name:   (Please Print)     Address:   (Please Print)     Dated: _______________
__, ______       Holder’s Signature: ________________       Holder’s Address:
_________________  

 

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