Unassociated Document


    THIS
      AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT AMENDS AND RESTATES THE
      COMMON STOCK PURCHASE WARRANT ORIGINALLY ISSUED PURSUANT TO THE SECURITIES
      PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2008, BY AND BETWEEN BLUE HOLDINGS,
      INC., A NEVADA CORPORATION, AND THE PURCHASER NAMED THEREIN. 

    


    NEITHER
      THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS
      SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE
      PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
      BY
      SUCH SECURITIES.

    


    


    AMENDED
      AND RESTATED

    COMMON
      STOCK PURCHASE WARRANT

    


    


    BLUE
      HOLDINGS, INC.

     

    
      	Warrant Shares: 2,187,500	 	Issue Date: March 5,
              2008


    

     

     

    THIS
      COMMON STOCK PURCHASE WARRANT (the “Warrant”)
      certifies that, for value received, GEMINI MASTER FUND, LTD. (the “Holder”)
      is
      entitled, upon the terms and subject to the limitations on exercise and the
      conditions hereinafter set forth, at any time on or after the Issue Date (as
      defined above) and on or prior to the close of business on the fifth
      (5th)
      anniversary of the Issue Date (the “Termination
      Date”)
      but
      not thereafter, to subscribe for and purchase from Blue Holdings, Inc., a Nevada
      corporation (the “Company”),
      up to
      2,187,500 shares (the “Warrant
      Shares”)
      of
      Common Stock. The purchase price of one share of Common Stock under this Warrant
      shall be equal to the Exercise Price, as defined in Section 2(b). 

     

    Section
      1. Definitions.
      Capitalized terms used and not otherwise defined herein shall have the meanings
      set forth in that certain Securities Purchase Agreement (the “Purchase
      Agreement”),
      dated
      March 5, 2008, among the Company and the purchasers signatory
      thereto.

     

    
      
        
        

      

      
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    Section
      2. Exercise.

     

    a)  Exercise
      of Warrant.
      Exercise of the purchase rights represented by this Warrant may be made, in
      whole or in part, at any time and from time to time on or after the Issue Date
      and on or before the Termination Date by delivery to the Company of a duly
      executed facsimile copy of the Notice of Exercise Form (“Notice
      of Exercise”)
      annexed hereto (or such other office or agency of the Company as it may
      designate by notice in writing to the registered Holder at the address of the
      Holder appearing on the books of the Company); and, within 3 Trading Days of
      the
      date said Notice of Exercise is delivered to the Company, the Company shall
      have
      received payment of the aggregate Exercise Price of the shares thereby purchased
      by wire transfer or cashier’s check drawn on a United States bank, unless
      payment is being made by cashless exercise as provided in Section 2(c) below.
      Notwithstanding anything herein to the contrary, the Holder shall not be
      required to physically surrender this Warrant to the Company until the Holder
      has purchased all of the Warrant Shares available hereunder and the Warrant
      has
      been exercised in full, in which case the Holder shall surrender this Warrant
      to
      the Company for cancellation within 3 Trading Days of the date the final Notice
      of Exercise is delivered to the Company. Partial exercises of this Warrant
      resulting in purchases of a portion of the total number of Warrant Shares
      available hereunder shall have the effect of lowering the outstanding number
      of
      Warrant Shares purchasable hereunder in an amount equal to the applicable number
      of Warrant Shares purchased. The Holder and the Company shall maintain records
      showing the number of Warrant Shares purchased and the date of such purchases.
      In the event of any dispute or discrepancy, the records of the Company shall
      be
      controlling and determinative in the absence of manifest error. The Holder
      and
      any assignee, by acceptance of this Warrant, acknowledge and agree that, by
      reason of the provisions of this paragraph, following the purchase of a portion
      of the Warrant Shares hereunder, the number of Warrant Shares available for
      purchase hereunder at any given time may be less than the amount stated on
      the
      face hereof.

     

    b)  Exercise
      Price.
      The
      exercise price per share of the Common Stock under this Warrant shall be $0.40,
      subject to adjustment hereunder (the “Exercise
      Price”).

     

    c)  Cashless
      Exercise.
      This
      Warrant may also be exercised by means of a “cashless exercise” in which the
      Holder shall be entitled to receive a certificate for the number of Warrant
      Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
      where:

     

    (A)
      = the
      VWAP on the Trading Day immediately preceding the date of such
      election;

    


    (B)
      = the
      Exercise Price of this Warrant, as adjusted; and 

    


    (X)
      = the
      number of Warrant Shares issuable upon exercise of this Warrant in accordance
      with the terms of this Warrant by means of a cash exercise rather than a
      cashless exercise.

    


    Notwithstanding
      anything herein to the contrary, on the Termination Date, this Warrant shall
      be
      automatically exercised via cashless exercise pursuant to this Section
      2(c).

     

    
      
        
        

      

      
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    d)  Holder’s
      Restrictions.
      The
      Company shall not effect any exercise of this Warrant, and a Holder shall not
      have the right to exercise any portion of this Warrant, pursuant to Section
      2 or
      otherwise, to the extent that after giving effect to such issuance after
      exercise as set forth on the applicable Notice of Exercise, the Holder (together
      with the Holder’s Affiliates, and any other person or entity acting as a group
      together with the Holder or any of the Holder’s Affiliates), would beneficially
      own in excess of the Beneficial Ownership Limitation (as defined below). 
For purposes of the foregoing sentence, the number of shares of Common Stock
      beneficially owned by the Holder and its Affiliates shall include the number
      of
      shares of Common Stock issuable upon exercise of this Warrant with respect
      to
      which such determination is being made, but shall exclude the number of shares
      of Common Stock which would be issuable upon (A) exercise of the remaining,
      nonexercised portion of this Warrant beneficially owned by the Holder or any
      of
      its Affiliates and (B) exercise or conversion of the unexercised or nonconverted
      portion of any other securities of the Company (including, without limitation,
      any other Common Stock Equivalents) subject to a limitation on conversion or
      exercise analogous to the limitation contained herein beneficially owned by
      the
      Holder or any of its Affiliates.  Except as set forth in the preceding
      sentence, for purposes of this Section 2(d), beneficial ownership shall be
      calculated in accordance with Section 13(d) of the Exchange Act and the rules
      and regulations promulgated thereunder, it being acknowledged by the Holder
      that
      the Company is not representing to the Holder that such calculation is in
      compliance with Section 13(d) of the Exchange Act and the Holder is solely
      responsible for any schedules required to be filed in accordance therewith.
      To
      the extent that the limitation contained in this Section 2(d) applies, the
      determination of whether this Warrant is exercisable (in relation to other
      securities owned by the Holder together with any Affiliates) and of which
      portion of this Warrant is exercisable shall be in the sole discretion of the
      Holder, and the submission of a Notice of Exercise shall be deemed to be the
      Holder’s determination of whether this Warrant is exercisable (in relation to
      other securities owned by the Holder together with any Affiliates) and of which
      portion of this Warrant is exercisable, in each case subject to the Beneficial
      Ownership Limitation, and the Company shall have no obligation to verify or
      confirm the accuracy of such determination. In addition, a determination as
      to
      any group status as contemplated above shall be determined in accordance with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder. For purposes of this Section 2(d), in determining the number of
      outstanding shares of Common Stock, a Holder may rely on the number of
      outstanding shares of Common Stock as reflected in (x) the Company’s most recent
      periodic or annual report, as the case may be, (y) a more recent public
      announcement by the Company or (z) any other notice by the Company or the
      Company’s Transfer Agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the Company
      shall within three Trading Days confirm orally and in writing to the Holder
      the
      number of shares of Common Stock then outstanding.  In any case, the number
      of outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this Warrant,
      by the Holder or its Affiliates since the date as of which such number of
      outstanding shares of Common Stock was reported. The “Beneficial
      Ownership Limitation”
shall
      be 4.9% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      exercise of this Warrant. By written notice to the Company, the Holder may
      at
      any time and from time to time increase or decrease the Beneficial Ownership
      Limitation to any other percentage specified in such notice (or specify that
      the
      Beneficial Ownership Limitation shall no longer be applicable), provided,
      however, that (A) any such increase (or inapplicability) shall not be effective
      until the sixty-first (61st) day after such notice is delivered to the Company,
      and (B) any such increase or decrease shall apply only to the Holder and not
      to
      any other holder of Warrants. The provisions of this paragraph shall be
      construed and implemented in a manner otherwise than in strict conformity with
      the terms of this Section 2(d) to correct this paragraph (or any portion hereof)
      which may be defective or inconsistent with the intended Beneficial Ownership
      Limitation herein contained or to make changes or supplements necessary or
      desirable to properly give effect to such limitation. The limitations contained
      in this paragraph shall apply to a successor holder of this
      Warrant.

     

    
      
        
        

      

      
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    e)  Mechanics
      of Exercise.
      

     

    i.  Delivery
      of Certificates Upon Exercise.
      Certificates for shares purchased hereunder shall be transmitted by the transfer
      agent of the Company to the Holder by crediting the account of the Holder’s
      prime broker with the Depository Trust Company (“DTC”)
      through its Deposit Withdrawal Agent Commission (“DWAC”)
      system
      if the Company is a participant in such system and either (x) there is an
      effective Registration Statement permitting the resale of the Warrant Shares
      by
      the Holder, or (y) such shares may be sold pursuant to Rule 144, and otherwise
      by physical delivery to the address specified by the Holder in the Notice of
      Exercise, within 3 Trading Days from the delivery to the Company of the Notice
      of Exercise, surrender of this Warrant (if required) and payment of the
      aggregate Exercise Price as set forth above (“Warrant
      Share Delivery Date”).
      This
      Warrant shall be deemed to have been exercised on the date the Exercise Price
      is
      received by the Company. The Warrant Shares shall be deemed to have been issued,
      and the Holder or any other person so designated to be named therein shall
      be
      deemed to have become a holder of record of such shares for all purposes, as
      of
      the date the Warrant has been exercised by payment to the Company of the
      Exercise Price (or by cashless exercise) and all taxes required to be paid
      by
      the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such
      shares, have been paid. If the Company fails for any reason to deliver to the
      Holder the Warrant Shares or certificates evidencing the Warrant Shares subject
      to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall
      pay to the Holder, in cash, as liquidated damages and not as a penalty, for
      each
      $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the
      Common Stock on the date of the applicable Notice of Exercise), $10 per Trading
      Day (increasing to $17.50 per Trading Day on the fifth Trading Day after such
      liquidated damages begin to accrue) for each Trading Day after such Warrant
      Share Delivery Date until such shares or certificates are delivered.


     

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

     

    
      
        
        

      

      
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    iii.  Rescission
      Rights.
      If the
      Company fails to cause its transfer agent to transmit to the Holder a
      certificate or certificates representing the Warrant Shares (or otherwise
      transmit such shares via DWAC to the Holder’s DTC account) pursuant to this
      Section 2(e) by the Warrant Share Delivery Date, then the Holder will have
      the
      right to rescind such exercise.

     

    iv.  Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Exercise.
      In
      addition to any other rights available to the Holder, if the Company fails
      to
      cause its transfer agent to transmit to the Holder a certificate or certificates
      representing the Warrant Shares (or otherwise transmit such shares via DWAC
      to
      the Holder’s DTC account) pursuant to an exercise on or before the Warrant Share
      Delivery Date, and if after such date the Holder is required by its broker
      to
      purchase (in an open market transaction or otherwise) or the Holder’s brokerage
      firm otherwise purchases, shares of Common Stock to deliver in satisfaction
      of a
      sale by the Holder of the Warrant Shares which the Holder anticipated receiving
      upon such exercise (a “Buy-In”),
      then
      the Company shall (1) pay in cash to the Holder the amount by which (x) the
      Holder’s total purchase price (including brokerage commissions, if any) for the
      shares of Common Stock so purchased exceeds (y) the amount obtained by
      multiplying (A) the number of Warrant Shares that the Company was required
      to
      deliver to the Holder in connection with the exercise at issue times (B) the
      price at which the sell order giving rise to such purchase obligation was
      executed, and (2) at the option of the Holder, either reinstate the portion
      of
      the Warrant and equivalent number of Warrant Shares for which such exercise
      was
      not honored or deliver to the Holder the number of shares of Common Stock that
      would have been issued had the Company timely complied with its exercise and
      delivery obligations hereunder. For example, if the Holder purchases Common
      Stock having a total purchase price of $11,000 to cover a Buy-In with respect
      to
      an attempted exercise of shares of Common Stock with an aggregate sale price
      giving rise to such purchase obligation of $10,000, under clause (1) of the
      immediately preceding sentence the Company shall be required to pay the Holder
      $1,000. The Holder shall provide the Company written notice indicating the
      amounts payable to the Holder in respect of the Buy-In and, upon request of
      the
      Company, evidence of the amount of such loss. Nothing herein shall limit a
      Holder’s right to pursue any other remedies available to it hereunder, at law or
      in equity including, without limitation, a decree of specific performance and/or
      injunctive relief with respect to the Company’s failure to timely deliver the
      Warrant Shares or certificates representing shares of Common Stock upon exercise
      of the Warrant as required pursuant to the terms hereof.

     

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

     

    
      
        
        

      

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

     

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

     

    Section
      3. Certain
      Adjustments.

     

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

     

    b)  Subsequent
      Equity Sales.
      If the
      Company or any Subsidiary thereof, as applicable, at any time while this Warrant
      is outstanding, shall sell or grant any option to purchase, or sell or grant
      any
      right to reprice, or otherwise dispose of or issue (or announce any offer,
      sale,
      grant or any option to purchase or other disposition) any Common Stock or Common
      Stock Equivalents entitling any Person to acquire shares of Common Stock, at
      an
      effective price per share less than the then Exercise Price (such issuances
      collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or Common Stock Equivalents so issued shall
      at
      any time, whether by operation of purchase price adjustments, reset provisions,
      floating conversion, exercise or exchange prices or otherwise, or due to
      warrants, options or rights per share which are issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share which is less than the Exercise Price, such issuance shall be deemed
      to have occurred for less than the Exercise Price on such date of the Dilutive
      Issuance), then the Exercise Price shall be reduced and only reduced to equal
      an
      amount (“Adjusted Price”) determined by multiplying the Exercise Price then in
      effect by a fraction (a) the numerator of which shall be the sum of (1) the
      number of shares of Common Stock outstanding immediately prior to such issue
      or
      sale, plus (2) the number of shares of Common Stock which the aggregate
      consideration received by the Company for such additional shares would purchase
      at such Exercise Price, and (b) the denominator of which shall be the number
      of
      shares of Common Stock of the Company outstanding immediately after such issue
      or sale, and the number of Warrant Shares issuable hereunder shall be increased
      such that the aggregate Exercise Price payable hereunder, after taking into
      account the decrease in the Exercise Price, shall be equal to the aggregate
      Exercise Price prior to such adjustment. Such adjustment shall be made whenever
      such Common Stock or Common Stock Equivalents are issued. Notwithstanding the
      foregoing, no adjustments shall be made, paid or issued under this Section
      3(b)
      in respect of an Exempt Issuance or
      in the
      event that such adjustment will result in the issuance of more than 42,000,000
      shares of Common Stock (as appropriately and equitably adjusted for stock
      splits, stock dividends and similar events) when
      aggregated with any shares of Common Stock issued on or after the Issue Date
      and
      prior to the Termination Date (A) in connection with the conversion of any
      Notes
      issued pursuant to the Purchase Agreement or as payment of principal, interest
      or liquidated damages, (B) in connection with the exercise of any Warrants
      issued pursuant to the Purchase Agreement, including this Warrant, and (C)
      in
      connection with any warrants issued to any registered broker-dealer as a fee
      in
      connection with the issuance of the Securities pursuant to the Purchase
      Agreement. The Company shall notify the Holder in writing, no later than the
      third (3rd)
      Trading
      Day following the issuance of any Common Stock or Common Stock Equivalents
      subject to this Section 3(b), indicating therein the applicable issuance price,
      or applicable reset price, exchange price, conversion price and other pricing
      terms (such notice the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
      Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
      entitled to receive a number of Warrant Shares based upon the Adjusted Price
      regardless of whether the Holder accurately refers to the Adjusted Price in
      the
      Notice of Exercise.

     

    
      
        
        

      

      
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    c)  Subsequent
      Rights Offerings.
      If the
      Company, at any time while the Warrant is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to Holders in their
      capacity as holders of Warrants) entitling them to subscribe for or purchase
      shares of Common Stock at a price per share less than the VWAP at the record
      date mentioned below, then the Exercise Price shall be multiplied by a fraction,
      of which the denominator shall be the number of shares of the Common Stock
      outstanding on the date of issuance of such rights or warrants plus the number
      of additional shares of Common Stock offered for subscription or purchase,
      and
      of which the numerator shall be the number of shares of the Common Stock
      outstanding on the date of issuance of such rights or warrants plus the number
      of shares which the aggregate offering price of the total number of shares
      issued (assuming receipt by the Company in full of all consideration payable
      upon exercise of such rights, options or warrants) would purchase at such VWAP.
      Such adjustment shall be made whenever such rights or warrants are issued,
      and
      shall become effective immediately after the record date for the determination
      of stockholders entitled to receive such rights, options or warrants.


     

    
      
        
        

      

      
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    d)  Pro
      Rata Distributions.
      If the
      Company, at any time while this Warrant is outstanding, shall distribute to
      all
      holders of Common Stock (and not to Holders in their capacity as holders of
      Warrants) evidences of its indebtedness or assets (including cash and cash
      dividends) or rights or warrants to subscribe for or purchase any security
      other
      than the Common Stock (which shall be subject to Section 3(b)), then in each
      such case the Exercise Price shall be adjusted by multiplying the Exercise
      Price
      in effect immediately prior to the record date fixed for determination of
      stockholders entitled to receive such distribution by a fraction of which the
      denominator shall be the VWAP determined as of the record date mentioned above,
      and of which the numerator shall be such VWAP on such record date less the
      then
      per share fair market value at such record date of the portion of such assets
      or
      evidence of indebtedness so distributed applicable to one outstanding share
      of
      the Common Stock as determined by the Board of Directors in good faith. In
      either case the adjustments shall be described in a statement provided to the
      Holder of the portion of assets or evidences of indebtedness so distributed
      or
      such subscription rights applicable to one share of Common Stock. Such
      adjustment shall be made whenever any such distribution is made and shall become
      effective immediately after the record date mentioned above.

     

    e)  Fundamental
      Transaction.
      If, at
      any time while this Warrant is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their shares for other securities,
      cash or property, or (D) the Company effects any reclassification of the Common
      Stock or any compulsory share exchange pursuant to which the Common Stock is
      effectively converted into or exchanged for other securities, cash or property
      (each a “Fundamental
      Transaction”),
      then,
      upon any subsequent exercise of this Warrant, the Holder shall have the right
      to
      receive, for each Warrant Share that would have been issuable upon such exercise
      immediately prior to the occurrence of such Fundamental Transaction, the number
      of shares of Common Stock of the successor or acquiring corporation or of the
      Company, if it is the surviving corporation, and any additional consideration
      (the “Alternate
      Consideration”)
      receivable as a result of such merger, consolidation or disposition of assets
      by
      a holder of the number of shares of Common Stock for which this Warrant is
      exercisable immediately prior to such event. For purposes of any such exercise,
      the determination of the Exercise Price shall be appropriately adjusted to
      apply
      to such Alternate Consideration based on the amount of Alternate Consideration
      issuable in respect of one share of Common Stock in such Fundamental
      Transaction, and the Company shall apportion the Exercise Price among the
      Alternate Consideration in a reasonable manner reflecting the relative value
      of
      any different components of the Alternate Consideration. If holders of Common
      Stock are given any choice as to the securities, cash or property to be received
      in a Fundamental Transaction, then the Holder shall be given the same choice
      as
      to the Alternate Consideration it receives upon any exercise of this Warrant
      following such Fundamental Transaction. To the extent necessary to effectuate
      the foregoing provisions, any successor to the Company or surviving entity
      in
      such Fundamental Transaction shall issue to the Holder a new warrant consistent
      with the foregoing provisions and evidencing the Holder’s right to exercise such
      warrant into Alternate Consideration. The terms of any agreement pursuant to
      which a Fundamental Transaction is effected shall include terms requiring any
      such successor or surviving entity to comply with the provisions of this Section
      3(e) and insuring that this Warrant (or any such replacement security) will
      be
      similarly adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction. Notwithstanding anything to the contrary, in the event of a
      Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
      transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
      as amended, or (3) a Fundamental Transaction involving a person or entity not
      traded on a national securities exchange, the Nasdaq Global Select Market,
      the
      Nasdaq Global Market, the Nasdaq Capital Market or the OTC Bulletin Board,
      the
      Company or any successor entity shall pay at the Holder’s option, exercisable at
      any time concurrently with or within 30 days after the consummation of the
      Fundamental Transaction, an amount of cash equal to the value of this Warrant
      as
      determined in accordance with the Black Scholes Option Pricing Model obtained
      from the “OV” function on Bloomberg L.P. using (i) a price per share of Common
      Stock equal to the VWAP of the Common Stock for the Trading Day immediately
      preceding the date of consummation of the applicable Fundamental Transaction,
      (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
      a
      period equal to the remaining term of this Warrant as of the date of
      consummation of the applicable Fundamental Transaction and (iii) an expected
      volatility equal to the 100 day volatility obtained from the “HVT” function on
      Bloomberg L.P. determined as of the Trading Day immediately following the public
      announcement of the applicable Fundamental Transaction.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    f)  Calculations.
      All
      calculations under this Section 3 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      3,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      treasury shares, if any) issued and outstanding.

     

    g)  Voluntary
      Adjustment By Company.
      The
      Company may at any time during the term of this Warrant reduce the then current
      Exercise Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    h)  Notice
      to Holder.
      

     

    i.  Adjustment
      to Exercise Price.
      Whenever the Exercise Price is adjusted pursuant to any provision of this
      Section 3, the Company shall promptly mail to the Holder a notice setting forth
      the Exercise Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment. If the Company enters into a Variable
      Rate
      Transaction (as defined in the Purchase Agreement), despite the prohibition
      thereon in the Purchase Agreement, the Company shall be deemed to have issued
      Common Stock or Common Stock Equivalents at the lowest possible conversion
      or
      exercise price at which such securities may be converted or exercised.


     

    ii.  Notice
      to Allow Exercise by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock; (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock; (C) the Company shall
      authorize the granting to all holders of the Common Stock rights or warrants
      to
      subscribe for or purchase any shares of capital stock of any class or of any
      rights; (D) the approval of any stockholders of the Company shall be required
      in
      connection with any reclassification of the Common Stock, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, of any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property;
      (E) the Company shall authorize the voluntary or involuntary dissolution,
      liquidation or winding up of the affairs of the Company; then, in each case,
      the
      Company shall cause to be mailed to the Holder at its last address as it shall
      appear upon the Warrant Register of the Company, at least 20 calendar days
      prior
      to the applicable record or effective date hereinafter specified, a notice
      stating (x) the date on which a record is to be taken for the purpose of such
      dividend, distribution, redemption, rights or warrants, or if a record is not
      to
      be taken, the date as of which the holders of the Common Stock of record to
      be
      entitled to such dividend, distributions, redemption, rights or warrants are
      to
      be determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange; provided that the
      failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to exercise this Warrant during the
      period commencing on the date of such notice to the effective date of the event
      triggering such notice.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Section
      4. Transfer
      of Warrant.

     

    a)  Transferability.
      Subject
      to compliance with any applicable securities laws and the conditions set forth
      in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
      Agreement, this Warrant and all rights hereunder (including, without limitation,
      any registration rights) are transferable, in whole or in part, upon surrender
      of this Warrant at the principal office of the Company or its designated agent,
      together with a written assignment of this Warrant substantially in the form
      attached hereto duly executed by the Holder or its agent or attorney and funds
      sufficient to pay any transfer taxes payable upon the making of such transfer.
      Upon such surrender and, if required, such payment, the Company shall execute
      and deliver a new Warrant or Warrants in the name of the assignee or assignees
      and in the denomination or denominations specified in such instrument of
      assignment, and shall issue to the assignor a new Warrant evidencing the portion
      of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
      A
      Warrant, if properly assigned, may be exercised by a new holder for the purchase
      of Warrant Shares without having a new Warrant issued. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    d)  Transfer
      Restrictions.
      If,
      at the
time
      of
      the surrender of this Warrant in connection with any transfer of this Warrant,
      the transfer of this Warrant shall not be registered pursuant to an effective
      registration
      statement under the Securities Act
      and
under
      applicable state securities or blue sky laws or eligible for resale under Rule
      144, the Company may require, as a condition of allowing such transfer, that
      the
      Holder or transferee of this Warrant, as the case may be, comply
      with the provisions of Section 5.7 of, and provide or otherwise agree to the
      representations, warranties and covenants applicable to the “Purchasers” as set
      forth in, the Purchase Agreement.

     

    Section
      5. Miscellaneous.

     

    a)  No
      Rights as Shareholder Until Exercise.
      This
      Warrant does not entitle the Holder to any voting rights or other rights as
      a
      shareholder of the Company prior to the exercise hereof as set forth in Section
      2(e)(i). 

     

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

     

    c)  Saturdays,
      Sundays, Holidays, etc.
      If the
      last or appointed day for the taking of any action or the expiration of any
      right required or granted herein shall not be a Business Day, then such action
      may be taken or such right may be exercised on the next succeeding Business
      Day.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    d)  Authorized
      Shares.
      

     

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


     

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

     

    Before
      taking any action which would result in an adjustment in the number of Warrant
      Shares for which this Warrant is exercisable or in the Exercise Price, the
      Company shall obtain all such authorizations or exemptions thereof, or consents
      thereto, as may be necessary from any public regulatory body or bodies having
      jurisdiction thereof. Notwithstanding anything herein to the contrary, if the
      Company has not obtained Shareholder Approval, then the Company may not issue,
      upon exercise of this Warrant, a number of shares of Common Stock which, when
      aggregated with any shares of Common Stock issued on or after the Issue Date
      and
      prior to the Termination Date (A) in connection with the conversion of any
      Notes
      issued pursuant to the Purchase Agreement or as payment of principal, interest
      or liquidated damages, (B) in connection with the exercise of any Warrants
      issued pursuant to the Purchase Agreement, including this Warrant, and (C)
      in
      connection with any warrants issued to any registered broker-dealer as a fee
      in
      connection with the issuance of the Securities pursuant to the Purchase
      Agreement, would exceed 19.99% of the number of shares of Common Stock
      outstanding on the Trading Day immediately preceding the date of the Purchase
      Agreement (subject to adjustment for forward and reverse stock splits,
      recapitalizations and the like) (such number of shares, the “Issuable
      Maximum”).
      Each
      Holder shall be entitled to a portion of the Issuable Maximum equal to the
      quotient obtained by dividing (x) the original principal amount of the Holder’s
      Note by (y) the aggregate original principal amount of all Notes issued under
      the Purchase Agreement to all Holders. In addition, each Holder may allocate
      its
      pro-rata portion of the Issuable Maximum among Notes and Warrants held by it
      in
      its sole discretion. Such portion shall be adjusted upward ratably in the event
      a Holder no longer holds any Notes or Warrants and the amount of shares issued
      to the Holder pursuant to the Holder’s Notes and Warrants was less than the
      Holder’s pro-rata share of the Issuable Maximum. .

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    h)  Notices.
      Any
      notice, request or other document required or permitted to be given or delivered
      to the Holder by the Company shall be delivered in accordance with the notice
      provisions of the Purchase Agreement.

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    
      	 	 	 
	 	
              BLUE
                HOLDINGS, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:
                Glenn S. Palmer

            
	 	
              Title:
                CEO

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    NOTICE
      OF EXERCISE

    


    TO: BLUE
      HOLDINGS, INC.

    
      	
              RE:

            	
              Warrant
                originally issued on or about March ___, 2008 to ____________________
                for
                ____________ Warrant Shares.

            


    

    


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

     

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

     

    o
in
      lawful money of the
      United States; or

     

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

     

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

     

    _______________________________

     

    


    The
      Warrant Shares shall be delivered to the following DWAC Account Number or by
      physical delivery of a certificate to:

    


    _______________________________

     

    _______________________________

     

    _______________________________

    


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

    


    [SIGNATURE
      OF HOLDER]

     

    Name
      of
      Warrant Holder:
      ________________________________________________________________________

    Signature
      of Authorized Signatory of Warrant Holder:
      _________________________________________________

    Name
      of
      Authorized Signatory:
      ___________________________________________________________________

    Title
      of
      Authorized Signatory:
      ____________________________________________________________________

    Date:
      ________________________________________________________________________________________

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ASSIGNMENT
      FORM

    


    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information. 

    Do
      not
      use this form to exercise the warrant.)

     

    


    FOR
      VALUE
      RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
      rights evidenced thereby are hereby assigned to

     

    


    _______________________________________________
      whose address is

    


    _______________________________________________________________.

    


    


    


    _______________________________________________________________

    


    Dated:
      ______________, _______

    


    


    Holder’s
      Signature: _____________________________

    


    Holder’s
      Address: _____________________________

     

     
      _____________________________

    


    


    


    Signature
      Guaranteed: ___________________________________________

    


    


    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust company. Officers of
      corporations and those acting in a fiduciary or other representative capacity
      should file proper evidence of authority to assign the foregoing
      Warrant.