exhibit_10-3.htm


    Exhibit
10.3

    
      No.
____

      


      THIS
WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF (THE

      "SECURITIES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

      AMENDED
(THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE

      SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144
OR

      UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND
THE

      SECURITIES
LAWS OF ANY STATE COVERING SUCH SECURITIES OR THE COMPANY RECEIVES
AN

      OPINION
OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY
TO

      THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS

      EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
1933

      ACT AND
APPLICABLE STATE SECURITIES LAWS.

      


                                         SCOLR,
INC.

      


                                    COMMON
STOCK WARRANT

      


      ISSUE
DATE: September 30,
2002                    750,000
shares of common stock

      


      


              THIS
IS TO CERTIFY THAT FOR GOOD AND VALUABLE CONSIDERATION, Clyde Berg,

      an
individual residing in the State of California, whose principal place
of

      residence
is 10050 Bandley Dr., Cupertino, CA 95014 (the "Holder"), is
entitled

      to
subscribe for and purchase from SCOLR, Inc. (the "Company"), Seven
Hundred

      Fifty
Thousand (750,000) shares of the Company's common stock (the
"Warrant

      Shares")
at an exercise price, subject to adjustment as set forth below, of

      $0.50 per
share (the "Exercise Price"). This Warrant is issued in connection

      with that
certain Promissory Note dated as of the date hereof (the "Note"),

      purchased
by the Holder from the Company in the principal amount set forth on

      the Note.
The Holder is subject to certain restrictions, and is entitled to

      certain
rights and privileges, set forth in the Note.

      


      ARTICLE
1.     EXERCISE OF WARRANT.

      


              1.01.
EXERCISE OF WARRANT. This Warrant will expire (the "Expiration

      Date"),
upon the earliest of (i) ten (10) years from the Issue Date (as
defined

      in
Section 5.01(b) hereof), and (ii) a "Change of Control" (as defined
in

      Section
5.01(a) hereof). The Holder may exercise this Warrant, in whole or
in

      part, at
any time or from time to time, commencing on the earliest to occur
of

      June 30,
2003 or immediately prior to a Change of Control (the "Commencement

      Date"),
and continuing thereafter until the Expiration Date.

      


              1.02.
METHOD OF EXERCISE.

      


                     (a)
At any time on or after the Commencement Date, the Holder

      shall
exercise this Warrant, in whole or in part, at any time or from time
to

      time, at
or prior to the

      


      


      


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      Expiration
Date, by surrendering it at the offices of the Company at the
address

      designated
for notice purposes under Section 5.03 below, together with either

      (i) a
duly executed and completed subscription in substantially the form of
the

      Subscription
Notice attached hereto as Exhibit A, and a check payable to the

      Company
in the amount equal to the aggregate Exercise Price, for the number
of

      Warrant
Shares being purchased, or (ii) a duly executed and completed
Conversion

      Notice in
the form attached hereto as Exhibit B. Upon exercise through a

      conversion
(subject to Section 3.03 and without payment by the Holder of the

      Exercise
Price), the Holder shall be entitled to receive that number of
Warrant

      Shares
equal to the quotient obtained by dividing ((A-B) x C) by A, where:

      


                            A
= The Fair Market Value of one (1) Warrant Share on the

                     date
of exercise of the Warrant;

      


                            B
= The per share Exercise Price; and

      


                            C
= The total number of Warrant Shares subject to purchase

                     upon
exercise of the Warrant.

      


      If the
above calculation results in a number less than one (1), then no
Warrant

      Shares
shall be issuable or issued pursuant to a conversion.

      


                     (b)
For purposes of the foregoing, the term "Fair Market Value"

      of a
Warrant Share shall mean:

      


                            (i)
The average of the closing bid and asked prices of the

      Company's
common stock quoted in the Over-The-Counter Market Summary, the
last

      reported
sale price quoted on the Nasdaq National Market or on any exchange
on

      which the
common stock is listed, whichever is applicable, as published in
the

      Western
Edition of the Wall Street Journal for the ten (10) trading days
prior

      to the
date of determination of Fair Market Value; or

      


                            (ii)
In the event of an exercise in connection with a

      Change of
Control, the Fair Market Value shall be the value received per
share

      of common
stock by all holders of common stock in such transaction as
determined

      by the
Board of Directors of the Company; or

      


                            (iii)
In any other instance, the Fair Market Value shall

      be as
determined in good faith by the Board of Directors of the Company.

      


                     (c)
Surrendered Warrants shall be canceled by or on behalf of the

      Company.
In the event of a partial exercise, the Company will forthwith
issue

      and
deliver to the Holder a new Warrant of like tenor for the number of
Warrant

      Shares
represented by the Warrant after giving effect to the partial exercise
as

      set forth
above.

      


              1.03.
SHARES ISSUED UPON EXERCISE OF WARRANT. As soon as practicable

      after the
Warrant has been so exercised, and in any event within twenty (20)

      days
thereafter, the Company shall issue and deliver, in such name or names
as

      Holder
may direct, a certificate or certificates for the number of Warrant

      Shares to
which such Holder is entitled. All Warrant Shares shall be

      


      


      


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      duly
authorized, validly issued, fully paid and nonassessable. The Company
shall

      pay all
documentary stamp taxes attributable to the initial issuance of the

      Warrant
Shares, but shall not be required to pay any tax imposed in
connection

      with any
transfer involved in the issue of the Warrant Shares in a name
other

      than that
of the Holder. Irrespective of the date of issue of certificates
for

      the
Warrant Shares, the Holder shall be deemed to have become the holder
of

      record of
the Warrant Shares represented thereby on the date on which the

      Warrant
is exercised and payment of the Exercise Price is received by the

      Company
as provided in Section 1.02.

      


      ARTICLE
2.     TRANSFER OF THE WARRANT.

      


              Subject
to Section 4.11 hereof, this Warrant may be transferred in whole

      or in
part, including to any "affiliate" of the Holder, as such term is
defined

      in Rule
144 of the Securities Act of 1933, as amended (the "Securities Act"),
by

      presentation
of the Warrant to the Company with written instructions for

      transfer;
provided however, that Holder agrees not to transfer the Warrant or

      the
Warrant Shares in any manner that would result in a violation of
the

      registration
provisions of the Securities Act or any applicable state securities

      laws, and
the Company shall not be required to take any action hereunder that

      would
result in a violation of such provisions. On presentation for
transfer,

      the
Company will execute and deliver a new Warrant in the name of the

      transferee.

      


      ARTICLE
3.     PROVISIONS FOR PROTECTION OF THE
HOLDER.

      


              3.01.
LOST, STOLEN OR MUTILATED WARRANT. If this Warrant is lost,

      stolen,
mutilated or destroyed, the Company will, on such reasonable terms
with

      respect
to indemnity or otherwise as it may in its discretion impose, issue
a

      new
warrant of like denomination, tenor and date as this Warrant. Any such
new

      warrant
shall constitute an original contractual obligation of the Company,
and

      the lost,
stolen, mutilated or destroyed, as applicable, Warrant shall be
null

      and
void.

      


              3.02.
HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the

      Holder,
as such, any rights or liabilities whatsoever as a shareholder of
the

      Company,
whether such rights or liabilities are asserted by the Company or
by

      its
creditors.

      


              3.03.  COMPLIANCE
WITH SECURITIES LAWS.

      


                            (a)
Neither this Warrant nor the Warrant Shares have been

      registered
under the Securities Act or any state securities laws. This Warrant

      has been
acquired for investment purposes and not with a view to distribution
or

      resale
and may not be pledged, hypothecated, sold or otherwise transferred

      without
an effective registration statement for such Warrant under the

      Securities
Act or any applicable state securities laws or an opinion of
counsel

      or other
evidence reasonably satisfactory to the Company that registration
is

      not
required thereunder. Certificates representing the Warrant Shares shall
bear

      a legend
substantially in the following form:

      


              THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED

              UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE

              SECURITIES
LAWS OF ANY STATE, AND

      


      


      


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              MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT

              TO
SEC RULE 144 OR UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT

              UNDER
THE 1933 ACT AND THE SECURITIES LAWS OF ANY STATE COVERING SUCH

              SECURITIES
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER

              OF
THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT

              SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE

              REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND

              APPLICABLE
STATE SECURITIES LAWS.

      


                            (b)
The Holder represents and warrants to the Company as

      follows:

      


                                   (i)
This Warrant and the Warrant Shares issuable

      upon
exercise thereof are being acquired for the Holder's own account,
for

      investment
and not with a view to, or for resale in connection with, any

      distribution
or public offering thereof within the meaning of the Securities

      Act. Upon
exercise of this Warrant, the Holder shall, if so requested by the

      Company,
confirm in writing, in a form satisfactory to the Company, that the

      securities
issuable upon exercise of this Warrant are being acquired for

      investment
and not with a view toward distribution or resale.

      


                                   (ii)
The Holder understands that the Warrant and

      the
Warrant Shares have not been registered under the Securities Act by
reason

      of their
issuance in a transaction exempt from the registration and
prospectus

      delivery
requirements of the Securities Act pursuant to Section 4(2) or
Section

      4(6)
thereof, and that they must be held by the Holder indefinitely, and
that

      the
Holder must therefore bear the economic risk of such investment

      indefinitely,
unless a subsequent disposition thereof is registered under the

      Securities
Act or is exempted from such registration. The Holder understands

      that the
Company is under no obligation to register any of the securities
sold

      hereunder.

      


                                   (iii)
The Holder is an "accredited investor" within

      the
meaning of Regulation D promulgated under the Securities Act.

      


              3.04.
ADJUSTMENT FOR STOCK DIVIDENDS, SPLITS, ETC. If at any time after

      the Issue
Date of this Warrant the number of shares into which this Warrant
is

      exercisable
is increased by a stock dividend or other distribution thereon

      payable
or by a subdivision, split-up or reclassification thereof, then

      immediately
after the record date fixed for the determination of holders of
such

      stock
entitled to receive such stock dividend or the effective date of
such

      subdivision,
split-up or reclassification, as the case may be, the Exercise

      Price
shall be reduced and the number of Warrant Shares issuable hereunder
shall

      be
increased, in each case appropriately so that the Holder shall be entitled
to

      receive
the number of Warrant Shares thereof that it would have owned

      immediately
following such action had this Warrant been exercised in full for

      cash
immediately prior thereto.

      


              3.05.
ADJUSTMENT FOR COMBINATION OF WARRANT SHARES. If at any time after

      the Issue
Date of this Warrant the number of Warrant Shares into which this

      Warrant
is exercisable is

      


      


      


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      decreased
by a combination or reclassification of such shares, then,
immediately

      after the
effective date of such combination or reclassification, the number
of

      Warrant
Shares shall be decreased appropriately and the Exercise Price
shall

      increase
proportionately, as applicable, so that the Holder shall be entitled
to

      receive
the number of Warrant Shares which it would have owned immediately

      following
such action had this Warrant been exercised immediately prior
thereto.

      


              3.06.
ADJUSTMENT FOR CAPITAL REORGANIZATION OR RECLASSIFICATION. If the

      Company's
common stock is changed into the same or a different number of
shares

      of any
class or classes of stock, whether by capital reorganization,

      reclassification
or otherwise (other than a subdivision or combination of shares

      or stock
dividend provided for above), then in each such event, the Holder
shall

      have the
right thereafter to exercise this Warrant into the kind and amount
of

      shares of
stock and other securities and property that would have been

      receivable
upon such reorganization, reclassification or other change in
respect

      of the
number of such shares into which this Warrant could have been
exercised

      in full
for cash immediately prior to such reorganization, reclassification
or

      change,
all subject to further adjustment as provided herein.

      


              3.07.
ADJUSTMENT FOR MERGER OR CONSOLIDATION. If at any time while the

      Warrant
remains outstanding, any capital reorganization or reclassification
of

      the
Company, or any consolidation or merger of the Company with another

      corporation
occurs in which the Company is the continuing or surviving

      corporation,
the Holder shall have the right upon the exercise of this Warrant

      to
receive the kind and amount of shares or other securities and
property

      receivable
by a holder of shares of common stock upon such reorganization,

      reclassification,
consolidation, or merger in exchange for the number of shares

      that
might have been purchased upon exercise of such Warrant, immediately
prior

      to such
reorganization, reclassification, consolidation or merger.

      


              3.08.
ANTI-DILUTION ADJUSTMENTS.

      


                     (a)
FULL RATCHET ANTI-DILUTION. Upon the occurrence of any

      issuance
or sale of any Additional Stock (as defined below) without

      consideration
or for a consideration per share less than the Exercise Price then

      in
effect, as of the close of business on the date of such issuance or sale,
the

      Exercise
Price shall be adjusted to equal the price paid per share for such

      Additional
Stock.

      


                     (b)
DEFINITION OF "ADDITIONAL STOCK". For purposes of this

      Section
3.08, "Additional Stock" shall mean any shares of common stock
issued

      other
than:

      


                            (1)
common stock issued pursuant to a transaction

      described
in Sections 3.04 -- 3.07 hereof;

      


                            (2)
common stock issuable or issued to employees,

      consultants
or directors of the Company directly or pursuant to a stock option

      plan or
restricted stock plan approved by the Company's Board of Directors;

      


      


      


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                            (3)
capital stock, or warrants or options to purchase

      capital
stock, issued to financial institutions or lessors in connection
with

      commercial
credit arrangements, equipment financings or similar transactions;

      


                            (4)
capital stock issuable upon exercise or conversion of

      options,
warrants, capital stock or other convertible securities outstanding
or

      which the
Company is obligated to issue as of the date hereof; and

      


                            (5)
capital stock, or warrants or options to purchase

      capital
stock, issued in connection with bona fide acquisitions, mergers,
joint

      venture
agreements, distribution agreements, other strategic alliances, or

      similar
transactions, the terms of which are approved by the Company's Board
of

      Directors.

      


                     (c)
NO FRACTIONAL ADJUSTMENTS. No adjustment of the Exercise

      Price
shall be made in an amount less than one cent per share, provided that
any

      adjustments
which are not required to be made by reason of this sentence shall

      be
carried forward and shall be either taken into account in any
subsequent

      adjustment
made prior to three (3) years from the date of the event giving
rise

      to the
adjustment being carried forward, or shall be made at the end of
three

      (3) years
from the date of the event giving rise to the adjustment being
carried

      forward.

      


                     (d)
DETERMINATION OF CONSIDERATION. In the case of the issuance

      of common
stock for cash, the consideration shall be deemed to be the amount
of

      cash paid
therefor before deducting any reasonable discounts, commissions or

      other
expenses allowed, paid or incurred by the Company for any underwriting
or

      otherwise
in connection with the issuance and sale thereof. In the case of
the

      issuance
of common stock for a consideration in whole or in part other than

      cash, the
consideration other than cash shall be deemed to be the fair value

      thereof
as determined by the Company's Board of Directors irrespective of
any

      accounting
treatment.

      


              3.09.
NOTICE TO HOLDER OF CERTAIN EVENTS. In the event the Company shall

      propose
to take any action of the type described in Sections 3.04, 3.05,
3.06,

      3.07,
3.08 or a Change of Control, the Company shall give notice to the
Holder,

      which
notice shall specify the record date, if any, with respect to any
such

      action
and the approximate date on which such action is to take place. In
the

      case of
any action which would require the fixing of a record date, such
notice

      shall be
given at least ten (10) days prior to the date so fixed, and in case
of

      all other
action, such notice shall be given at least fifteen (15) days prior
to

      the
taking of such proposed action. Failure to give such notice, or any
defect

      therein,
shall not affect the legality or validity of any such action.

      


              3.10.
NO IMPAIRMENT. The Company will not, by amendment of its

      Certificate
of Incorporation or through any reorganization, transfer of assets,

      issuance
or sale of securities or otherwise, avoid or seek to avoid the

      observance
or performance of any of the terms of this Article 3 or the other

      provisions
of this Warrant and will at all times in good faith assist in the

      carrying
out of all provisions hereof and in the taking of all actions as may
be

      necessary
in order to protect the rights of the Holder hereunder against

      impairment.

      


      ARTICLE
4.     REGISTRATION RIGHTS.

      


      


      


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              The
Company covenants and agrees as follows:

      


              4.01.
DEFINITIONS. For purposes of this Article 4:

      


                     (a)
The term "FORM S-3" means such form under the Securities Act

      as in
effect on the date hereof or any registration form under the
Securities

      Act
subsequently adopted by the SEC that permits inclusion or incorporation
of

      substantial
information by reference to other documents filed by the Company

      with the
SEC.

      


                     (b)
The term "HOLDER" means any person owning or having the right

      to
acquire Registrable Securities or any assignee thereof to whom
registration

      rights
under this Warrant are assigned in accordance with Section 4.11
hereof.

      


                     (c)
The term "EXCHANGE ACT" means the Securities Exchange Act of

      1934, as
amended.

      


                     (d)
The term "REGISTER," "REGISTERED" and "REGISTRATION" refer to

      a
registration effected by preparing and filing a registration statement
or

      similar
document in compliance with the Securities Act, and the declaration
or

      ordering
of effectiveness of such registration statement or document.

      


                     (e)
The term "REGISTRABLE SECURITIES" means (i) the Warrant

      Shares,
and (ii) any common stock of the Company issued as a dividend or
other

      distribution
with respect to, or in exchange for, or in replacement of, the

      shares
referenced in (i) above; provided, however, that the foregoing
definition

      shall
exclude in all cases any Registrable Securities sold by a person in
a

      transaction
in which his, her or its rights under this Warrant are not
assigned.

      In
addition, Warrant Shares or other securities shall only be treated
as

      Registrable
Securities if and so long as they have not been (A) sold to or

      through a
broker or dealer or underwriter in a public distribution or a
public

      securities
transaction, including sales made pursuant to Rule 144 promulgated

      under the
Securities Act or (B) sold in a transaction exempt from the

      registration
and prospectus delivery requirements of the Securities Act under

      Section
4(1) thereof so that all transfer restrictions, and restrictive
legends

      with
respect thereto, if any, are removed upon the consummation of such
sale.

      The
number of shares of "Registrable Securities" outstanding shall be the sum
of

      the
number of shares of common stock outstanding that are Registrable
Securities

      plus the
number of shares of common stock issuable pursuant to then
exercisable

      or
convertible securities that are Registrable Securities.

      


                     (f)
The term "SEC" shall mean the Securities and Exchange

      Commission.

      


      


      


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              4.02
REQUEST FOR REGISTRATION.

      


                     (a)
Subject to the conditions of this Section 4.02, if the

      Company
shall receive at any time after two (2) years after the date of
this

      Warrant a
written request from the Holder that the Company file a
registration

      statement
under the Securities Act covering the registration of Registrable

      Securities
with an anticipated aggregate offering price of at least $1,000,000

      net of
underwriter discounts and commissions, then the Company shall, subject
to

      the
limitations of this Section 4.02, use all reasonable efforts to file,
within

      forty-five
days, a registration statement under the Securities Act covering
the

      Registrable
Securities that the Holder requests to be registered, and to use

      reasonable
efforts to cause such registration statement to become effective

      within
one hundred twenty days of the Holder's request for registration.

      


                     (b)
If the Holder intends to distribute the Registrable

      Securities
covered by the Holder's request by means of an underwriting, the

      Holder
shall so advise the Company as a part of the request made pursuant
to

      this
Section 4.02.

      


                     (c)
The Company shall not be required to effect a registration

      pursuant
to this Section 4.02:

      


                            (1)
in any particular jurisdiction in which the Company

      would be
required to execute a general consent to service of process in

      effecting
such registration, unless the Company is already subject to service
in

      such
jurisdiction and except as may be required under the Securities
Act;

      


                            (2)
after the Company has effected one (1) registration

      pursuant
to this Section 4.02, and such registrations have been declared or

      ordered
effective;

      


                            (3)
during the period starting with the date sixty days

      prior to
the Company's good faith estimate of the date of the filing of, and

      ending on
a date one hundred eighty days following the effective date of, a

      Company-initiated
registration subject to Section 4.03 below, provided that the

      Company
is actively employing in good faith all reasonable efforts to cause
such

      registration
statement to become effective;

      


                            (4)
if the Holder proposes to dispose of Registrable

      Securities
that may be registered on Form S-3 pursuant to Section 4.04 hereof;

      or

      


                            (5)
if the Company shall furnish to the Holder requesting

      a
registration statement pursuant to this Section 1.2, a certificate signed
by

      the
Company's Chief Executive Officer or Chairman of the Board stating that
in

      the good
faith judgment of the Board of Directors of the Company, it would
be

      seriously
detrimental to the Company and its stockholders for such
registration

      statement
to be effected at such time, in which event the Company shall have
the

      right to
defer such filing for a period of not more than one hundred twenty
days

      after
receipt of the request of the Holder, provided that such right to delay
a

      request
shall be exercised by the Company not more than once in any
twelve-month

      period.

      


              1.3
COMPANY REGISTRATION.

      


      


      


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                     (a)
If the Company proposes to register (including for this

      purpose a
registration initiated by the Company for shareholders other than
the

      Holder)
any of its stock or other securities under the Securities Act in

      connection
with the public offering for cash of such securities (other than a

      registration
relating solely to the sale of securities to participants in a

      Company
stock plan, a registration relating to a corporate reorganization
or

      other
transaction under Rule 145 of the Securities Act, a registration on
any

      form that
does not include substantially the same information as would be

      required
to be included in a registration statement covering the sale of the

      Registrable
Securities, or a registration in which the only common stock being

      registered
is common stock issuable upon conversion of debt securities that
are

      also
being registered), the Company shall, at such time, promptly give
the

      Holder
written notice of such registration. Upon the written request of
the

      Holder
given within twenty days after mailing of such notice by the Company,
the

      Company
shall use all reasonable efforts to cause to be registered under
the

      Securities
Act all of the Registrable Securities that the Holder has requested

      to be
registered.

      


                     (b)
RIGHT TO TERMINATE REGISTRATION. The Company shall have the

      right to
terminate or withdraw any registration initiated by it under this

      Section
4.03 prior to the effectiveness of such registration whether or not
the

      Holder
has elected to include securities in such registration. The expenses
of

      such
withdrawn registration shall be borne by the Company in accordance
with

      Section
4.07 hereof.

      


                     (c)
UNDERWRITING REQUIREMENTS. In connection with any offering

      involving
an underwriting of shares of the Company's capital stock, the
Company

      shall not
be required under this Section 4.03 to include any of the Holder's

      securities
in such underwriting unless the Holder accepts the terms of the

      underwriting
as agreed upon between the Company and the underwriters selected by

      it (or by
other persons entitled to select the underwriters) and enters into
an

      underwriting
agreement in customary form with an underwriter or underwriters

      selected
by the Company, and then only in such quantity as the underwriters

      determine
in their sole discretion will not jeopardize the success of the

      offering
by the Company. If the total amount of securities, including

      Registrable
Securities, requested by shareholders to be included in such

      offering
exceeds the amount of securities sold other than by the Company
that

      the
underwriters determine in their sole discretion is compatible with
the

      success
of the offering, then the Company shall be required to include in
the

      offering
only that number of such securities, including Registrable
Securities,

      that the
underwriters determine in their sole discretion will not jeopardize
the

      success
of the offering.

      


              4.04
FORM S-3 REGISTRATION. In case the Company shall receive from the

      Holder a
written request that the Company effect a registration on Form S-3
and

      any
related qualification or compliance with respect to all or a part of
the

      Registrable
Securities owned by the Holder, the Company shall use all
reasonable

      efforts
to effect, within forty-five days of the initial request for

      registration
pursuant to Section 4.04, such registration and all such

      qualifications
and compliances as may be so requested and as would permit or

      facilitate
the sale and distribution of all or such portion of the Holder's

      Registrable
Securities as are specified in such request; provided, however,
that

      the
Company shall not be obligated to effect any such registration,

      qualification
or compliance, pursuant to this Section 4.04:

      


      


      


                                             9

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


                            (1)
if Form S-3 is not available for use by the Company

      with
respect to such offering by the Holder;

      


                            (2)
if the Holder, together with the holders of any other

      securities
of the Company entitled to inclusion in such registration, propose
to

      sell
Registrable Securities and such other securities (if any) at an
aggregate

      price to
the public (net of any underwriters' discounts or commissions) of
less

      than
$500,000;

      


                            (3)
if the Company shall furnish to the Holder a

      certificate
signed by the Chief Executive Officer or Chairman of the Board of

      the
Company stating that in the good faith judgment of the Board of Directors
of

      the
Company, it would be seriously detrimental to the Company and its

      shareholders
for such Form S-3 Registration to be effected at such time, in

      which
event the Company shall have the right to defer the filing of the Form
S-3

      registration
statement for a period of not more than one hundred twenty days

      after
receipt of the request of the Holder under this Section 4.04;
provided,

      however,
that the Company shall not utilize this right more than once in any

      twelve
month period;

      


                            (4)
if the Company has already effected one (1)

      registration
on Form S-3 for the Holder pursuant to this Section 4.04; or

      


                            (5)
in any particular jurisdiction in which the Company

      would be
required to qualify to do business or to execute a general consent
to

      service
of process in effecting such registration, qualification or
compliance.

      


              4.05.
OBLIGATIONS OF THE COMPANY. Whenever required under this Article 4

      to effect
the registration of any Registrable Securities, the Company shall,
as

      expeditiously
as reasonably possible:

      


                     (a)
prepare and file with the SEC a registration statement with

      respect
to such Registrable Securities and use all reasonable efforts to
cause

      such
registration statement to become effective, and, upon the request of
the

      Holder,
keep such registration statement effective for a period of up to
one

      hundred
twenty days or, if earlier, until the distribution contemplated in
the

      Registration
Statement has been completed;

      


                     (b)
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;

      


                     (c)
furnish to the Holder such numbers of copies of a prospectus,

      including
a preliminary prospectus, in conformity with the requirements of
the

      Securities
Act, and such other documents as the Holder may reasonably request
in

      order to
facilitate the disposition of Registrable Securities owned by the

      Holder;

      


      


      


                                             10

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


                     (d)
use reasonable 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 Holder,

      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;

      


                     (e)
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 of such offering;

      


                     (f)
notify the Holder at any time when a prospectus relating

      thereto
is required to be delivered under the Securities Act or 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;

      


                     (g)
cause all such Registrable Securities registered pursuant to

      this
Warrant to be listed on each securities exchange on which similar

      securities
issued by the Company are then listed;

      


                     (h)
provide a transfer agent and registrar for all Registrable

      Securities
registered pursuant to this Warrant and a CUSIP number for all such

      Registrable
Securities, in each case not later than the effective date of such

      registration;
and

      


                     (i)
use its best efforts to furnish, at the request of the

      Holder,
on the date that such Registrable Securities are delivered to the

      underwriters
for sale in connection with a registration pursuant to this Article

      4, if
such securities are being sold through underwriters, or, if such

      securities
are not being sold through underwriters, on the date that the

      registration
statement with respect to such securities becomes effective, (1) an

      opinion,
dated 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, addressed to the underwriters,

      if any,
and to the Holder and (2) a letter dated 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, addressed to the underwriters, if any, and
to

      the
Holder.

      


              4.06
INFORMATION FROM HOLDER. It shall be a condition precedent to the

      obligations
of the Company to take any action pursuant to this Article 4 with

      respect
to the Registrable Securities of the Holder that the Holder shall

      furnish
to the Company such information regarding the Holder, the
Registrable

      Securities
held by the Holder, and the intended method of disposition of such

      securities
as shall be required to effect the registration of the Holder's

      Registrable
Securities.

      


      


      


                                             11

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


              4.07
EXPENSES OF REGISTRATION. All expenses other than underwriting

      discounts
and commissions incurred in connection with registrations, filings
or

      qualifications
pursuant to Sections 4.02, 4.03 and 4.04, including (without

      limitation)
all registration, filing and qualification fees, printer's and

      accounting
fees, fees and disbursements of counsel for the Company and fees
and

      disbursements
of one counsel for the Holder (subject to a maximum limit of

      $15,000
for registrations pursuant to Sections 4.02 and 4.03 and $10,000
for

      registrations
pursuant to Section 4.04, shall be borne by the Company.

      Notwithstanding
the foregoing, the Company shall not be required to pay for any

      expenses
of any registration proceeding begun pursuant to Section 4.04 if
the

      registration
request is subsequently withdrawn at the request of the Holder (in

      which
case the Holder shall bear all such expenses).

      


              4.08
DELAY OF REGISTRATION. The Holder shall not have any right to

      obtain or
seek an injunction restraining or otherwise delaying any such

      registration
as the result of any controversy that might arise with respect to

      the
interpretation or implementation of this Article 4.

      


              4.09
INDEMNIFICATION. In the event any Registrable Securities are

      included
in a registration statement under this Article 4:

      


                     (a)
To the extent permitted by law, the Company will indemnify

      and hold
harmless the Holder, legal counsel and accountants for the Holder,
any

      underwriter
(as defined in the Securities Act) for the Holder and each person,

      if any,
who controls the underwriter within the meaning of the Securities Act
or

      the
Exchange Act, against any losses, claims, damages or liabilities (joint
or

      several)
to which they may become subject under the Securities Act, the
Exchange

      Act or
any state securities laws, 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"):
(i) any untrue statement or alleged untrue statement of a material

      fact
contained in such registration statement, including any final
prospectus

      contained
therein or any amendments or supplements thereto, (ii) 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 (iii)
any

      violation
or alleged violation by the Company of the Securities Act, the

      Exchange
Act, any state securities laws or any rule or regulation
promulgated

      under the
Securities Act, the Exchange Act or any state securities laws; and
the

      Company
will reimburse the Holder, underwriter or controlling person for
any

      legal or
other expenses reasonably incurred by any of them in connection
with

      investigating
or defending any such loss, claim, damage, liability or action;

      provided,
however, that the indemnity agreement contained in this Section

      4.09(a)
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
that

      occurs in
reliance upon and in conformity with written information furnished

      expressly
for use in connection with such registration by the Holder,

      underwriter
or controlling person.

      


                     (b)
To the extent permitted by law, the Holder will severally but

      not
jointly indemnify and hold harmless the Company, each of its directors,
each

      of its
officers who has signed the registration statement, each person, if
any,

      who
controls the Company within the

      


      


      


                                             12

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      meaning
of the Securities Act, legal counsel and accountants for the
Company,

      any
underwriter, any other shareholder selling securities in such
registration

      statement
and any controlling person of any such underwriter or other

      shareholder,
against any losses, claims, damages or liabilities to which any of

      the
foregoing persons may become subject, under the Securities Act, the
Exchange

      Act or
any state securities laws, 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 the Holder expressly for use in connection with such
registration;

      and the
Holder will reimburse any person intended to be indemnified pursuant
to

      this
Section 4.09(b), for any legal or other expenses reasonably incurred
by

      such
person in connection with investigating or defending any such loss,
claim,

      damage,
liability or action; provided, however, that the indemnity
agreement

      contained
in this Section 4.09(b) 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), provided that in no event shall any indemnity under this

      Section
4.09(b) exceed the net proceeds from the offering received by the

      Holder.

      


                     (c)
Promptly after receipt by an indemnified party under this

      Section
4.09 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 4.09, 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

      (together
with all other indemnified parties that may be represented without

      conflict
by one counsel) shall have the right to retain one separate
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 differing

      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,
if prejudicial to its ability to defend such action, shall relieve
such

      indemnifying
party of any liability to the indemnified party under this Section

      4.09, but
the omission so to deliver written notice to the indemnifying party

      will not
relieve it of any liability that it may have to any indemnified
party

      otherwise
than under this Section 4.09.

      


                     (d)
If the indemnification provided for in this Section 4.09 is

      held by a
court of competent jurisdiction to be unavailable to an indemnified

      party
with respect to any loss, liability, claim, damage or expense referred
to

      herein,
then the indemnifying party, in lieu of indemnifying such
indemnified

      party
hereunder, shall contribute to the amount paid or payable by such

      indemnified
party as a result of such loss, liability, claim, damage or expense

      in such
proportion as is appropriate to reflect the relative fault of the

      indemnifying
party on the one hand and of the indemnified party on the other in

      connection
with the statements or omissions that resulted in such loss,

      liability,
claim, damage or expense, as well as any other relevant equitable

      considerations;
provided, however, that the Holder will not be obligated to

      contribute
more than the net proceeds received by the Holder from such
offering.

      The
relative fault of the

      


      


      


                                             13

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      indemnifying
party and of the indemnified party shall be determined by reference

      to, among
other things, whether the untrue or alleged untrue statement of a

      material
fact or the omission to state a material fact relates to
information

      supplied
by the indemnifying party or by the indemnified party and the
parties'

      relative
intent, knowledge, access to information, and opportunity to correct
or

      prevent
such statement or omission.

      


                     (e)
Notwithstanding the foregoing, to the extent that the

      provisions
on indemnification and contribution contained in the underwriting

      agreement
entered into in connection with an underwritten public offering are
in

      conflict
with the foregoing provisions, the provisions in the underwriting

      agreement
shall control.

      


                     (f)
The obligations of the Company and the Holder under this

      Section
4.09 shall survive the completion of any offering of Registrable

      Securities
in a registration statement under this Article 4, and otherwise.

      


              4.10.
REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to

      making
available to the Holder the benefits of Rule 144 promulgated under
the

      Securities
Act and any other rule or regulation of the SEC that may at any
time

      permit
the Holder to sell securities of the Company to the public without

      registration
or pursuant to a registration on Form S-3, the Company agrees to:

      


                     (a)
make and keep public information available, as those terms

      are
understood and defined in SEC Rule 144, at all times;

      


                     (b)
file with the SEC in a timely manner all reports and other

      documents
required of the Company under the Securities Act and the Exchange
Act;

      and

      


                     (c)
furnish to the Holder, forthwith upon request (i) a written

      statement
by the Company that it has complied with the reporting requirements
of

      SEC Rule
144 (at any time after ninety days after the effective date of the

      first
registration statement filed by the Company), the Securities Act and
the

      Exchange
Act (at any time after it has become subject to such reporting

      requirements),
or that it qualifies as a registrant whose securities may be

      resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy
of

      the most
recent annual or quarterly report of the Company and such other
reports

      and
documents so filed by the Company, and (iii) such other information as
may

      be
reasonably requested in availing the Holder of any rule or regulation of
the

      SEC that
permits the selling of any such securities without registration or

      pursuant
to such form.

      


      


      


                                             14

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

              4.11.
ASSIGNMENT OF REGISTRATION RIGHTS. Subject to Article 2, the

      rights to
cause the Company to register Registrable Securities pursuant to
this

      Article 4
may be assigned (but only with all related obligations) by the
Holder

      to a
transferee or assignee of such securities that after such assignment
or

      transfer,
holds all of the shares of Registrable Securities originally issued
to

      the
Holder (subject to appropriate adjustment for stock splits, stock
dividends,

      combinations
and other recapitalizations), provided: (a) the Company is, within

      a
reasonable time after such transfer, furnished with written notice of the
name

      and
address of such transferee or assignee and the securities with respect
to

      which
such registration rights are being assigned; (b) such transferee or

      assignee
agrees in writing to be bound by and subject to the terms and

      conditions
of this Warrant, including without limitation the provisions of

      Section
4.12 below; and (c) such assignment shall be effective only if

      immediately
following such transfer the further disposition of such securities

      by the
transferee or assignee is restricted under the Securities Act.

      


              4.12
TERMINATION OF REGISTRATION RIGHTS. The Holder shall not be

      entitled
to exercise any right provided for in this Article 4 after such time
at

      which all
Registrable Securities held by the Holder (and any affiliate of the

      Holder
with whom such Holder must aggregate its sales under Rule 144) can
be

      sold in
any three (3)-month period without registration in compliance with
Rule

      144 of
the Securities Act.

      


      ARTICLE
5.     MISCELLANEOUS PROVISIONS.

      


              5.01.
DEFINITIONS. As used herein, the following terms shall have the

      meanings
ascribed below:

      


                     (a)
"Change of Control" means any of the following events: (i)

      consummation
of any merger or consolidation of the Company in which the Company

      is not
the continuing or surviving corporation, or pursuant to which shares
of

      the
Company's common stock are converted into cash, securities, or
other

      property,
if following such merger or consolidation the holders of the
Company's

      outstanding
voting securities immediately prior to such merger or consolidation

      own less
than 50% of the outstanding voting securities of the surviving

      corporation;
or (ii) a change in ownership of the Company's capital stock as a

      result of
which the owners of the Company's outstanding capital stock

      immediately
prior to the change own less than 50% of the Company's outstanding

      capital
stock following such change.

      


                     (b)
"Issue Date" means September 30, 2002.

      


              5.02.
GOVERNING LAW; VENUE. This Warrant shall be governed by and

      construed
in accordance with the laws of the State of Washington, and venue
for

      any
action taken in connection herewith or related hereto shall
exclusively

      reside in
King County, Washington.

      


              5.03.
NOTICES. All notices and other communications required or

      permitted
hereunder shall be in writing and shall be deemed effectively given

      upon
personal delivery; upon confirmed transmission by telecopy or telex;
or

      three (3)
business days after deposit with the United States Post Office, by

      first-class
mail, postage prepaid, or otherwise delivered by hand or by

      messenger,
addressed (a) if to the Company, at 8340 154th Avenue NE, Redmond,

      Washington
98052, to the attention of the President, or at such other address
as

      the
Company shall have furnished to the

      


      


      


                                             15

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      Holder,
and (b) if to the Holder at the last address shown on the books of
the

      Company
or its transfer agent maintained for the registry and transfer of
the

      Warrant.

      


              5.04.
SUCCESSORS. All covenants and provisions of this Warrant by or for

      the
benefit of the Company shall bind and inure to the benefit of its
respective

      successors
and assigns.

      


              5.05.
BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be

      construed
to give to any person or corporation other than the Company and the

      Holder
any legal or equitable right, remedy or claim under this Warrant.
This

      Warrant
shall be for the sole and exclusive benefit of the Company and the

      Holder.

      


              5.06.
WAIVER AND AMENDMENT. Any provision of this Warrant may be

      amended,
waived or modified upon the written consent of the Company and
Holder.

      


      


      


                                             16

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      This
Warrant has been executed and delivered as of the date first above
written.

      


                                                   SCOLR,
INC.

      


      


                                                   By   /s/    David
T. Howard

                                                        ------------------------------

                                                        David
T. Howard

                                                        Print
Name

                                                        Its
President & CEO

      


      


      


                                                   AGREED
AND ACKNOWLEDGED:

      


      


                                                   /s/      Clyde
Berg

                                                   -----------------------------------

                                                   CLYDE
BERG

      


      


      


                                             17

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


                                     SECURITY
AGREEMENT

      


              This
Security Agreement, dated as of September 30, 2002, is being

      entered
into by SCOLR, Inc., a Delaware corporation (the "Company") for the

      benefit
of Clyde Berg, an individual residing in the State of California,
whose

      principal
address is 10050 Bandley Drive, Cupertino, California 95014 (the

      "Lender").

      


                                          RECITALS

      


              WHEREAS,
the Lender has agreed to loan the Company funds in

      consideration
of that certain Promissory Note, dated as of the date hereof,

      executed
by the Company for the benefit of the Lender (the "Promissory
Note");

      and

      


              WHEREAS,
the Company has previously granted a security interest in some

      or all of
the Collateral (as defined below) to Access Business Finance LLC
(the

      "Access
Security Interest"), pursuant to that certain Loan and Security

      Agreement
dated April 30, 2002, by and between the Company and Access
Business

      Finance
LLC.

      


              NOW,
THEREFORE, in consideration of the foregoing recitals and the

      mutual
covenants and agreements set forth below, and for other good and
valuable

      consideration,
the parties hereto agree as follows:

      


                                          AGREEMENT

      


      1. GRANT
OF COLLATERAL. As security for the payment and performance of (i)
the

      obligations
to pay principal of, interest on and all other obligations under
the

      Promissory
Note and (ii) all obligations of the Company under this Agreement

      (all of
the foregoing in the preceding clauses (i) and (ii), collectively,
the

      "Secured
Obligations"), the Company hereby grants a security interest in
favor

      of the
Lender and the other holders from time to time of the Secured
Obligations

      in all of
the Company's right, title and interest in and to (but none of its

      obligations
or liabilities with respect to) the items and types of property

      described
below in this Section 1, whether now owned or hereafter acquired
and

      whether
mentioned once or more than once in the following description:

      


              Accounts,
contract rights, leases, documents, instruments, inventory,

              equipment,
all other goods, intellectual property rights (including, but

              not
limited to: patents, copyrights, trademarks, tradenames, and domain

              names),
goodwill, all other general intangibles, stock or other

              evidences
of ownership, all other investment property, chattel paper,

              instruments,
leases, cash, cash equivalents, deposit accounts,

              letter-of-credit
rights, books, records, insurance proceeds, dividends,

              all
other property, assets and items of value, all supporting

              obligations,
and all proceeds and products of any and all of the

              foregoing
(all of the above being included in the term "Collateral"). As

              used
in this Agreement, the following terms shall have the respective

              meanings
given such terms in the Uniform Commercial Code as adopted in

              the
State of Washington as of the date hereof: accounts, documents,

              instruments,
inventory, equipment, goods, general

      


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


              intangibles,
investment property, chattel paper, instruments, deposit

              accounts,
letter-of-credit rights, supporting obligations and proceeds.

      


      2. NO
VIOLATION. Notwithstanding anything contained in this Agreement to
the

      contrary,
no security interest shall be granted in any item of Collateral to
the

      extent
that the terms of any agreement, including without limitation the

      documents
and instruments governing the Access Security Interest, or the

      provisions
of any law applicable thereto would prohibit the grant of such

      security
interest or to the extent that the grant of such security interest

      would
create a default under any such agreement or a violation of any such
law

      (other
than to the extent that any such term or provision would be
rendered

      ineffective
pursuant to Section 9-406, Section 9-407 or 9-408 of the Uniform

      Commercial
Code).

      


      3.
PERFECTION OF COLLATERAL. Upon the Lender's reasonable request from time
to

      time, the
Company will execute and deliver, and file and record in the proper

      filing
and recording places, all such instruments, and take all such other

      action as
the Lender deems reasonably necessary for perfecting or otherwise

      confirming
to the Lender his security interest in the Collateral. The Company

      hereby
authorizes the Lender to file or record Uniform Commercial Code
financing

      statements
in all jurisdictions and with all filing offices as the Lender may

      deem
necessary or advisable to perfect the security interest guaranteed to
the

      Lender
hereunder. Such financing statements may describe the Collateral in
the

      same
manner as described herein or may contain an indication or description
of

      the
Collateral that describes the Collateral as "all assets" or "all
personal

      property".

      


      4.
INSURANCE. The Company shall at all times maintain comprehensive
casualty

      insurance
on the physical Collateral against such risks, in such amounts,
with

      such
deductibles, and with such insurance companies as is typical in the

      industry
in which the Company is engaged. All such policies shall name the

      Lender as
a loss payee and provide that no such policy may be cancelled or

      materially
amended without providing at least 10 days prior written notice to

      the
Lender of the impending cancellation or amendment. All insurance
proceeds

      shall be
applied by the Company, if no Event of Default then exists, to
either

      the
repair or replacement of the damaged or destroyed Collateral (if such
repair

      or
replacement is practicable) or the payment of the Secured
Obligations,

      provided,
that, if an Event of Default exists, the Lender shall have the
right

      to direct
whether the insurance proceeds are applied to such repair or

      replacement
or to such payment.

      


      5.
GENERAL. The Company hereby acknowledges that the Lender is relying on
this

      Agreement
in making the loans evidenced by the Promissory Note. This
Agreement

      shall
bind and inure to the benefit of the parties hereto and their
respective

      successors
and assigns but no assignment shall release the Company of its

      obligations
hereunder. Notices shall be furnished in writing to each party at

      its
address appearing below or as it may otherwise direct in a writing
actually

      received
by the other party. The invalidity or unenforceability of any
provision

      hereof
shall not affect the validity or enforceability of any other
provision

      hereof,
and any invalid or unenforceable provision shall be modified so as to
be

      enforceable
to the maximum extent of its validity or enforceability. The

      headings
in this Agreement are for convenience of reference only and shall
not

      limit,
alter or otherwise affect the meaning hereof. This Agreement
constitutes

      the
entire understanding of the parties with respect to the subject
matter

      hereof
and supersedes all prior and current understandings and agreements,

      whether
written or oral. This Agreement shall

      


      


      


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      be
governed by and construed in accordance with the laws (other than
the

      conflict
of laws rules) of the State of Washington, except as may be required
by

      the
Uniform Commercial Code of other jurisdictions with respect to
matters

      involving
the perfection of the Lender's lien on the Collateral.

      


              Each
of the undersigned has caused this Agreement to be executed and

      delivered
as of the date first written above.

      


      


                                          SCOLR,
INC.

      


      


                                          By:     /s/
David T. Howard

                                                 -------------------------------------

                                          Name:  David
T. Howard

                                          Title:
President and Chief Executive Officer

      


                                                 Address:  8340
154th Avenue NE

                                                           Redmond,
Washington 98052

      


      


      Acknowledged
and Agreed to:

      


      


           CLYDE
BERG

      


      


           /s/
Clyde Berg

           ------------------------------------------

      


                Address:  10050
Bandley Drive

                          Cupertino,
California 95014

      


      


      


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