Form of Underwriter's Warrant


 EXHIBIT 4.2 
  

THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT UNLESS EITHER (i) THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO RULE 144 PROMULGATED PURSUANT TO THE
SECURITIES ACT. 
  
 WARRANT TO PURCHASE COMMON STOCK

 OF 
 SHOE PAVILION,
INC. 
  

			
	NO.	  	March     , 2006

  
 THIS CERTIFIES THAT, for value
received by SHOE PAVILION, INC. a Delaware corporation (the “Company”), Wedbush Morgan Securities Inc., or its permitted registered assigns (the “Holder”), is entitled, subject to the terms and
conditions of this Warrant, at any time or from time to time after the issuance date of this Warrant (the “Effective Date”), and before 5:00 p.m. Pacific Time on the third anniversary of the Effective Date (the
“Expiration Date”), to purchase from the Company the Shares at a per-share price equal to the Purchase Price. Both the number of shares of Common Stock purchasable upon exercise of this Warrant and the Purchase Price are
subject to adjustment and change as provided herein. 
  

	1.	CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have the following respective meanings: 

  
 1.1 “Common Stock” shall mean the Common
Stock of the Company and any other securities at any time receivable or issuable upon exercise of this Warrant. 
  
 1.2 “Fair Market Value” of a share of Common Stock as of a particular date shall mean: 
  
 (a) If traded on a securities exchange or the Nasdaq National Market, the
Fair Market Value shall be deemed to be the average of the closing prices of Common Stock on such exchange or market over the last five (5) trading days ending immediately prior to the applicable date of valuation; 
  
 (b) If actively traded over-the-counter, the Fair Market Value shall be
deemed to be the average of the closing bid prices over the thirty (30)-day period ending immediately prior to the applicable date of valuation; and 
  
 (c) If there is no active public market, the Fair Market Value shall be the value thereof, as agreed upon by the Company and the Holder; provided,
however, that if the Company and the Holder cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses such as the Company and jointly selected in good faith by the Company and the
Holder. Fees and expenses of the valuation firm shall be paid for by the Company. 
  
 1.3 “Purchase Price” shall mean a price of $            per share. 






 1.4 “Registered Holder” shall mean any holder in whose name this Warrant
is registered upon the books and records maintained by the Company. 
  
 1.5 “Shares” shall mean 150,000 shares of the Company’s Common Stock. 
  
 1.6 “Warrant” as used herein shall include this Warrant and any warrant delivered in substitution or exchange therefor as
provided herein. 
  

	2.	EXERCISE OF WARRANT. 

  
 2.1 Payment. Subject to compliance with the terms and conditions of this Warrant and applicable securities laws, this Warrant may be
exercised, in whole or in part at any time or from time to time, on or before the Expiration Date by the delivery (including, without limitation, delivery by facsimile) of the form of Notice of Exercise attached hereto as
Exhibit A (the “Notice of Exercise”), duly executed by the Holder, at the principal office of the Company, and as soon as practicable after such date, surrendering: 
  
 (a) this Warrant at the principal office of the
Company; and 
  
 (b) payment, (i) in cash (by check)
or by wire transfer, (ii) by cancellation by the Holder of indebtedness of the Company to the Holder; or (iii) by a combination of (i) and (ii), of an amount equal to the product obtained by multiplying the number of shares of Common
Stock being purchased upon such exercise by the then effective Purchase Price (the “Exercise Amount”). 
  
 2.2 Net Issue Exercise. In lieu of the payment methods set forth in Section 2.1(b) above, the Holder may elect to exchange all
or some of this Warrant for shares of Common Stock equal to the value of the amount of this Warrant being exchanged on the date of exchange. If the Holder elects to exchange this Warrant as provided in this Section 2.2, the Holder shall
tender to the Company this Warrant for the amount being exchanged, along with written notice of Holder’s election to exchange some or all of this Warrant, and the Company shall issue to the Holder the number of shares of Common Stock computed
using the following formula: 
  

							
	 X =
	 	 Y (A–B)

 A
	  	 
			
	 Where:
	 	X=	 	The number of shares of Common Stock to be issued to the Holder.
			
	 	 	Y=	 	The number of shares of Common Stock purchasable under the amount of this Warrant being exchanged
(as adjusted to the date of such calculation).
			
	 	 	A=	 	The Fair Market Value of one share of Common Stock.
			
	 	 	B=	 	The Purchase Price (as adjusted to the date of such calculation).

  
 2.3
“Easy Sale” Exercise. In lieu of the payment methods set forth in Section 2.1(b) above, when permitted by law and applicable regulations (including rules of Nasdaq and National Association of Securities Dealers (the
“NASD”)), the Holder may pay the Exercise Amount through a “same day sale” commitment from the Holder (and if applicable a broker-dealer that is a member of the NASD (an “NASD Dealer”)),
whereby the Holder irrevocably elects to exercise this Warrant and to sell a portion of the shares so purchased to pay the Exercise Amount and the Holder (or, if applicable, the NASD Dealer) 

  

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commits upon sale (or, in the case of the NASD Dealer, upon receipt) of such shares to forward the Exercise Amount directly to the Company. 
  
 2.4 Stock Certificates; Fractional Shares. As soon as
practicable on or after the date of any exercise of this Warrant, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share equal to such fraction of the current Fair Market Value of one whole share of Common Stock as of such date of exercise. No fractional shares or scrip representing fractional shares
shall be issued upon an exercise of this Warrant. 
  
 2.5
Partial Exercise; Effective Date of Exercise. In case of any partial exercise of this Warrant, the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver a new Warrant of like tenor and date for the balance of
the shares of Common Stock purchasable hereunder. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above. The person entitled to receive the shares
of Common Stock issuable upon exercise of this Warrant shall be treated for all purposes as the holder of record of such shares as of the close of business on the date the Holder is deemed to have exercised this Warrant. 
  
 2.6 Vesting. This Warrant shall vest fully upon issuance.

  
 3. VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required to
pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for shares of Common Stock in any name other than that of the Registered Holder of this Warrant, and in such case the Company shall not
be required to issue or deliver any stock certificate or security until such tax or other charge has been paid, or it has been established to the Company’s reasonable satisfaction that no tax or other charge is due. 
  
 4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares of Common
Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property receivable or issuable upon exercise of this Warrant) and the Purchase Price are subject to adjustment upon occurrence of the following events:

  
 4.1 Adjustment for Stock Splits, Stock Subdivisions
or Combinations of Shares. The Purchase Price of this Warrant shall be proportionally decreased and the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon
exercise of this Warrant) shall be proportionally increased to reflect any stock split or subdivision of shares of Common Stock. The Purchase Price of this Warrant shall be proportionally increased and the number of shares of Common Stock issuable
upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally decreased to reflect any combination or reverse split of shares of Common Stock. 
  
 4.2 Adjustment for Dividends or Distributions of Stock or Other
Securities or Property. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to Common Stock (or any shares of stock or
other securities at the time issuable upon exercise of this Warrant) payable in (a) securities of the Company or (b) assets (excluding cash dividends paid or payable solely out of retained earnings), then, in each such case, the Holder on
exercise of this Warrant at any time after the consummation, effective date or record date of such dividend or other distribution, shall receive, in addition to the shares of Common Stock (or such other stock or securities) issuable on such exercise
prior to such date, and without the 

  

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payment of additional consideration therefor, the securities or such other assets of the Company to which the Holder would have been entitled upon such date
if the Holder had exercised this Warrant on the date hereof and had thereafter, during the period from the Effective Date to and including the date of such exercise, retained such shares and all such additional securities or other assets distributed
with respect to such shares as aforesaid during such period giving effect to all adjustments called for by this Section 4. 
  
 4.3 Reclassification. If the Company, by reclassification of securities or otherwise, shall change any of the securities as to which
purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as
the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change, and the Purchase Price therefor shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any conversion or redemption of Common Stock that is the subject of Section 4.5. 
  
 4.4 Adjustment for Capital Reorganization, Merger or
Consolidation. In case of any capital reorganization of the capital stock of the Company (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or any merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the assets of the Company (any such transaction a “Sale of the Company”) then, and in each such case, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Amount then in effect, the number of
shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this
Section 4. The foregoing provisions of this Section 4.4 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant. If the per-share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Company’s Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant. 
  
 4.5 Conversion of Common Stock. In case all or any portion of the authorized and outstanding shares of Common are redeemed or converted or reclassified into other securities or property pursuant to the Company’s
Certificate of Incorporation or otherwise, or Common Stock otherwise ceases to exist, then, in such case, the Holder, upon exercise of this Warrant at any time after the date on which Common Stock is so redeemed or converted, reclassified or ceases
to exist (the “Termination Date”), shall receive, in lieu of the number of shares of Common Stock that would have been issuable upon such exercise immediately prior to the Termination Date, the securities or property that
would have been received if this Warrant had been exercised in full and the shares of Common Stock received thereupon had been simultaneously converted immediately prior to the Termination Date, all subject to further adjustment as provided in this
Warrant. Additionally, the Purchase Price shall be immediately adjusted to equal the quotient obtained by dividing (x) the aggregate Purchase Price of the maximum number of shares of Common Stock for which this Warrant was exercisable
immediately prior to the Termination 

  

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Date by (y) the number of shares of Common Stock of the Company for which this Warrant is exercisable immediately after the Termination Date, all
subject to further adjustment as provided herein. 
  
 5. CERTIFICATE AS TO
ADJUSTMENTS. In the event of any adjustment in the Purchase Price, or number or type of shares issuable upon exercise of this Warrant, the Chief Financial Officer or Controller of the Company shall compute such adjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Purchase Price. The Company shall promptly send (by facsimile
and by either first class mail, postage prepaid or overnight delivery) a copy of each such certificate to the Holder. 
  
 6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and of indemnity reasonably satisfactory to the Company, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor as the lost, stolen,
destroyed or mutilated Warrant. 
  
 7. RESERVATION OF COMMON STOCK. The
Company hereby covenants that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company as are from time to time issuable upon
exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive
rights, except encumbrances or restrictions arising under federal or state securities laws. Issuance of this Warrant shall constitute full authority to the Company’s officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant. 
  
 8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this Warrant and compliance with all applicable securities laws, this Warrant and all rights hereunder may be transferred to any Registered
Holder’s parent, subsidiary or affiliate, or, if the Registered Holder is a partnership, to any partner of such Registered Holder, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the
Company, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any
permitted partial transfer, the Company will issue and deliver to the Registered Holder a new Warrant or Warrants with respect to the shares of Common Stock not so transferred. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that, when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding; provided, however, that, until a transfer of this Warrant is duly registered on the books of the Company, the Company may treat the Registered
Holder hereof as the owner for all purposes. 
  
 9. RESTRICTIONS ON
TRANSFER. The Holder, by acceptance hereof, agrees that, absent an effective registration statement filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the
“Securities Act”) covering the disposition or sale of this Warrant or shares of Common Stock issued or issuable upon exercise hereof, as the case may be, and registration or qualification under applicable state securities
laws, the Holder will not sell, transfer, pledge, or 

  

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hypothecate any or all of this Warrant or such shares of Common Stock, as the case may be, unless either (i) the Company has received an opinion of
counsel, in form and substance reasonably satisfactory to the Company, to the effect that such registration is not required in connection with such disposition or (ii) the sale of such securities is made pursuant to Rule 144 promulgated by the
SEC pursuant to the Securities Act (“Rule 144”). 
  
 10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant shall be acquired for investment only and not
with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as the Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder
to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of stock acquired pursuant to the exercise of this Warrant will not be registered under the Securities Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, granted to the
Registered Holder) and will be “restricted securities” within the meaning of Rule 144 and that the exemption from registration under Rule 144 will not be available for at least one (1) year from the date of exercise of this Warrant,
subject to any special treatment by the SEC for exercise of this Warrant pursuant to Section 2.2, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then
available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed
thereto a legend substantially in the following form: 
  
 THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 
  
 11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by the Holder to purchase Common Stock
by exercise of this Warrant or Common Stock upon conversion thereof, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Holder hereof shall cause any holder of this Warrant to be a stockholder of the Company
for any purpose. 
  
 12. REGISTRATION RIGHTS. All shares of Common Stock
issuable upon exercise of this Warrant shall be “Registrable Securities” or such other definition of securities entitled to registration rights pursuant to Exhibit C to this Warrant. 
  

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 13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Holder that:

  
 13.1 Due Authorization; Consents. All corporate
action on the part of the Company, its officers, directors and shareholders necessary for (a) the authorization, execution and delivery of, and the performance of all obligations of the Company under, this Warrant, and (b) the
authorization, issuance, reservation for issuance and delivery of all of the shares of Common Stock issuable upon exercise of this Warrant, has been duly taken. This Warrant constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles. All consents,
approvals and authorizations of, and registrations, qualifications and filings with, any federal or state governmental agency, authority or body, or any third party, required in connection with the execution, delivery and performance of this Warrant
and the consummation of the transactions contemplated hereby and thereby have been obtained. 
  
 13.2 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power to own, lease and
operate its property and to carry on its business as now being conducted and as currently proposed to be conducted. 
  
 13.3 Valid Issuance of Stock. The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and
non-assessable, and, except as previously disclosed to the Holder in writing, such shares, and all outstanding options and other securities of the Company, have been issued in full compliance with the registration and prospectus delivery
requirements of the Securities Act and the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state
securities laws, including without limitation, anti-fraud provisions. 
  
 13.4 Governmental Consents. All consents, approvals, orders, authorizations or registrations, qualifications, declarations or filings with any federal or state governmental authority on the part of the Company required in
connection with the consummation of the transactions contemplated herein shall have been obtained prior to and be effective as of the Effective Date. 
  
 14. NOTICES. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Warrant shall be in writing
and shall be conclusively deemed to have been duly given (a) when hand-delivered to the other party; (b) when received when sent by facsimile at the address and number set forth below; (c) three business days after deposit in the U.S.
mail with first class or certified mail receipt requested postage prepaid and addressed to the other party as set forth below; or (d) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to
the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. 
  

			
	 Company
 Shoe Pavilion, Inc.
 13245 Riverside Drive
 Suite 450
 Sherman Oaks, California 91423
 Phone (818)
907-9975
 Fax (818) 907-9936
	  	 Holder
 Wedbush Morgan Securities Inc.
 1000 Wilshire Boulevard
 Los Angeles, California 90017
 Phone (213) 688-4555
 Fax (213) 688-6642


  

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 Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such
communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 14 by giving the other party written notice of the new address in the manner set forth above. 
  

15. HEADINGS. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 

 
 16. LAW GOVERNING/DISPUTE RESOLUTION. 

 
 (a) This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of California, without regard to conflict of law principles of such state. 
  
 (b) The parties hereby agree that, in order to obtain prompt and expeditious resolution of any disputes under this Agreement, each claim, dispute
or controversy of whatever nature, arising out of, in connection with, or in relation to, without limitation, the interpretation, performance or breach of this Agreement (an “Arbitrable Claim”), shall be settled, at the request of
any party of this Agreement, exclusively by final and binding arbitration conducted in Los Angeles, California. All such Arbitrable Claims shall be settled by a single neutral arbitrator designed by the parties in accordance with the Commercial
Arbitration Rules (“CAR”) then in effect of the American Arbitration Association. Each party hereto expressly consents to, and waives any future objection to, such forum and arbitration rules. Judgment upon any award may be
entered by any state or federal court having jurisdiction thereof. Except as provided herein, the California Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Section 16. The parties
further agree that the nature, scope and timing of any production of any documents or other information or witnesses in respect of the resolution of any Arbitrable Claim pursuant to this Section 16 shall be in accordance with the CAR.
Adherence to this dispute resolution process shall not limit the right of the parties hereto to obtain any provisional remedy, including without limitation, injunctive or similar relief, from any court of competent jurisdiction as may be necessary
to protect their respective rights and interests pending arbitration. Notwithstanding the foregoing sentence, this dispute resolution procedure is intended to be the exclusive method of resolving any Arbitrable Claim arising out of or relating to
this Agreement. The arbitration procedures shall follow the substantive law of the State of California, including the provisions of statutory law dealing with arbitration, as it may exist at the time of the demand for arbitration, insofar as said
provisions are not in conflict with this Agreement. 
  
 17. NO IMPAIRMENT.
The Company will not, by amendment of its Certificate of Incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets 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 action as may be necessary or appropriate in order to protect the rights of
the Registered Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon exercise of this
Warrant. 
  

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 18. NOTICES OF RECORD DATE. In case: 
  
 18.1 the Company shall take a record of the holders of Common Stock
(or other stock or securities at the time receivable upon the exercise of this Warrant), for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or
any other securities or to receive any other right; 
  
 18.2 of any consolidation or merger of the Company with or into another entity, any capital reorganization of the Company, any reclassification of the capital stock of the Company, or any conveyance of all or substantially all of the
assets of the Company to another entity in which holders of the Company’s stock are to receive stock, securities or property of such other entity; 
  
 18.3 of any voluntary dissolution, liquidation or winding-up of the Company; or 
  
 18.4 of any redemption or conversion of all outstanding shares of Common Stock; 
  
 then, and in each such case, the Company will mail or cause to be mailed to the Registered
Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock or (such stock or securities as at the time
are receivable upon the exercise of this Warrant), shall be entitled to exchange their shares of Common Stock (or such other stock or securities), for securities or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. The Company shall use all reasonable efforts to ensure that such notice shall be delivered at least thirty (30) days prior to the date on which the event giving rise to
the notice requirement under this Section 18 is to occur. 
  
 19.
SEVERABILITY. If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Warrant
shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 
  
 20. COUNTERPARTS. For the convenience of the parties, any number of counterparts of this Warrant may be executed by the parties hereto and each such executed counterpart shall be, and shall be deemed to be, an
original instrument. 
  
 21. NO INCONSISTENT AGREEMENTS. The Company will
not on or after the date of this Warrant enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holder of this Warrant or otherwise conflicts with the provisions hereof. The Company represents
and warrants to the Holder that the rights granted to the Holder hereunder do not in any way conflict with and are not inconsistent with the rights granted to holders of the Company’s securities under any other agreements, except rights that
have been waived. 
  
 22. SATURDAYS, SUNDAYS AND HOLIDAYS. If the
Expiration Date falls on a Saturday, Sunday or legal holiday, the Expiration Date shall automatically be extended until 5:00 p.m., Pacific Time, the next business day. 
  
 23. ENTIRE AGREEMENT. This Warrant, together with all the exhibits attached hereto, contains the sole and entire agreement and
understanding of the parties with respect to the entire subject matter of this Warrant, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Warrant are
hereby merged herein. 
  

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 IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
Effective Date. 
  

					
	 WEDBUSH MORGAN SECURITIES INC.
  

 By:
	 	 	 	 SHOE PAVILION, INC.
  

 By:

			
	 Michael Gardner, CGA

	 	 	 	

	Printed Name	 	 	 	Printed Name
			
	 Managing Director

	 	 	 	

	Title	 	 	 	Title

  
 SIGNATURE PAGE TO
WARRANT TO PURCHASE COMMON STOCK 
  

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 EXHIBIT A 
  
 NOTICE OF EXERCISE 
  
 (To be executed upon exercise of Warrant) 
  
 The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, the securities
of as provided for therein, and (check the applicable box): 
  

	 ̈	tenders herewith payment of the exercise price in full in the form of cash or a certified or official bank check in same-day funds in the amount of
$             for              shares of such securities. 

  

	 ̈	Elects the [Net Issue Exercise][Easy Sale Exercise] option pursuant to Section 2.2 or 2.3 of the Warrant, and accordingly requests delivery of a net of
             of such securities. 

  
 Please issue a certificate or certificates for such securities in the name of, and pay any cash for any fractional share to (please print name, address and social security number): 
  

			
	 Name:
	 	

		
	 Address:
	 	

		
	 Social Security Number:
	 	

		
	 Signature:
	 	


  
 Note: The above signature should
correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form below. 
  
 If said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher whole number of shares. 






 EXHIBIT B 
  
 ASSIGNMENT 
  
 (To be executed only upon assignment of Warrant Certificate) 
  
 For value received, hereby sells, assigns and transfers unto
                             the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint                          attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number of Warrants set forth below, with full power of substitution in the premises: 
  

					
	 	 	 
	Name(s) of Assignee(s)	 	Address	 	# of Warrants
	 	 	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 

  
 And if said number of Warrants shall
not be all the Warrants represented by the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Warrants registered by said Warrant Certificate. 
  

			
	 Dated:
	 	
  


	 Signature:
	 	  



  
 Notice: The signature to the foregoing
Assignment must correspond to the name as written upon the face of this security in every particular, without alteration or any change whatsoever; signature(s) must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings
and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to Securities and Exchange Commission Rule 17Ad-15. 






 EXHIBIT C 
  
 1. DEFINITIONS. For purposes of this Exhibit C: 
  
 1.1 Registration. The terms “register,” “registered,” and “registration” refer
to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended, (the “Securities Act”), and the declaration or ordering of effectiveness of such
registration statement. 
  
 1.2 Registrable
Securities. The term “Registrable Securities” means: (1) any Common Stock of the Company issued or to be issued upon exercise of the Warrant and (2) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any shares of Common Stock described in clause
(1) of this Section 1.2. Notwithstanding the foregoing, “Registrable Securities” shall exclude any Registrable Securities sold by a person in a transaction in which rights under this Exhibit C are not
assigned in accordance with this Warrant or any Registrable Securities sold in a public offering, whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a registered offering, or otherwise. 
  
 1.3 Registrable Securities Then Outstanding. The number of
shares of “Registrable Securities then outstanding” shall mean the number of shares of Common Stock of the Company that are Registrable Securities and (l) are then issued and outstanding or (2) are then issuable
pursuant to an exercise of the Warrant or pursuant to conversion of securities issuable pursuant to an exercise of the Warrant. 
  
 1.4 Holder. For purposes of this Exhibit C, the term “Holder” means any person owning of record
Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any permitted assignee of record of such Registrable Securities to whom rights under this Exhibit C have been
duly assigned in accordance with this Warrant. 
  
 1.5
Form S-3. The term “Form S-3” means such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 
  
 1.6 SEC. The term “SEC” or “Commission” means the U.S. Securities and Exchange Commission.

  
 2. PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any employee benefit plan or a corporate reorganization) and will afford each such Holder an opportunity
to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder
shall within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in
such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have 







 
the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with
respect to offerings of its securities, all upon the terms and conditions set forth herein. 
  
 2.1 Underwriting. If a registration statement under which the Company gives notice under this Section 2 is for an underwritten offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder’s Registrable Securities to be included in a registration pursuant to this Section 2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion
of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form
with the managing underwriter or underwriters selected for such underwriting (including a market stand-off agreement of up to 180 days if required by such underwriters). Notwithstanding any other provision of this Warrant, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall include in such offering (i) first, all the securities the Company proposes to register for
its own account, and (ii) second, Holder’s Registrable Securities and other shares of Common Stock of the Company requested to be included by other investors having written registration rights agreements with the Company respecting such
shares (“Other Registrable Securities”), with the Holder and each such investor proposing to sell such shares participating in such registration on a pro rata basis, such participation to be based upon the number of shares of
Registrable Securities and Other Registrable Securities then held by the Holder and each such investor, respectively; provided, however, that the right of the underwriters to exclude shares (including Registrable Securities) from the
registration and underwriting as described above shall be restricted so that all shares that are not Registrable Securities or Other Registrable Securities and are held by any other person, including, without limitation, any person who is an
employee, officer or director of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities and Other Registrable Securities are so excluded. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) business days prior to the effective date of the registration
statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership, the Holder and the partners and retired partners of such Holder, or the
estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons, and for any Holder that is a corporation, the Holder and all corporations that are affiliates of such Holder, shall
be deemed to be a single “Holder,” and any pro rata reduction with respect to such “Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such
“Holder,” as defined in this sentence. 
  
 2.2
Expenses. All expenses incurred in connection with a registration pursuant to this Section 2 (excluding underwriters’ and brokers’ discounts and commissions relating to shares sold by the Holders and legal fees of counsel for
the Holders), including, without limitation all federal and “blue sky” registration, filing and qualification fees, printers’ and accounting fees, and fees and disbursements of counsel for the Company, shall be borne by the Company.

  
 2.3 No Limit on Registrations. Except as
otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2. 
  

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 3. OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities under
this Warrant, the Company shall, as expeditiously as reasonably possible: 
  
 3.1 Registration Statement. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become
effective, provided, however, that the Company shall not be required to keep any such registration statement effective for more than ninety (90) days. 
  
 3.2 Amendments and Supplements. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration
statement. 
  
 3.3 Prospectuses. Furnish to the
Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by them that are included in such registration. 
  
 3.4 Blue Sky. Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 

 
 3.5 Underwriting. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement. 
  
 3.6
Notification. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing. 
  
 3.7 Opinion and Comfort Letter. Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an
underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a
“comfort” letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. If such securities are not being sold
through underwriters, then the Company shall furnish, at the request and at the sole expense of any Holder requesting registration of Registrable Securities, on the date that the registration statement with respect to such securities becomes
effective, an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is 

  

                     - 3- 







 
customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 
  
 4. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2 that the selling Holders
shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable
Securities. 
  
 5. INDEMNIFICATION. In the
event any Registrable Securities are included in a registration statement under Section 2: 
  
 5.1 By the Company. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as determined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the “1934 Act”), against any losses, claims, damages, or Liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): 
  
 (a) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; 
  
 (b) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or 
  
 (c) any
violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection
with the offering covered by such registration statement; 
  
 and the Company
will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained in this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. 
  
 5.2 By Selling Holders. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to 

  

                     - 4- 







 
which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of
such other Holder may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action: provided, however, that the indemnity agreement contained in this Section 5.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided, further, that the total amounts payable in indemnity by a Holder under this Section 5.2 in
respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises. 
  
 5.3 Notice. Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5, deliver to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 5 to the extent the indemnifying party is prejudiced as a result
thereof, but the omission so to deliver written notice to the indemnified party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5. 
  
 5.4 Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any person if
a copy of the Final Prospectus was timely furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 
  
 5.5 Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this
Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject


  

                     - 5- 







 
(after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering
price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are
responsible for the remaining portion; provided, however, that, in any such case: (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and
sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation. 
  
 5.6 Survival. The obligations of the Company and Holders under this Section 5 shall survive until the fifth anniversary of the completion of any offering of Registrable Securities in a registration statement, regardless
of the expiration of any statutes of limitation or extensions of such statutes. 
  
 6. TERMINATION OF THE COMPANY’S OBLIGATIONS. The Company shall have no obligations pursuant to Section 2 with respect to any Registrable Securities proposed to be sold by a Holder in a registration pursuant to
Section 2 more than three (3) years after the date of this Warrant, or, if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may then be sold under Rule 144 in one transaction
without exceeding the volume limitations thereunder. 
  

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