Document:

Exhibit 10.1

Exhibit 10.1

SUBSCRIPTION AGREEMENT

Cereplast, Inc.

300 N. Continental Blvd.

Suite 300

El Segundo, CA 90245

Gentlemen:

The undersigned (the “Investor”) hereby confirms its agreement with Cereplast, Inc., a Nevada
corporation (the “Company”), as follows:

1. This Subscription Agreement, including the Terms and Conditions for Purchase of Securities
attached hereto as Annex I (collectively, this “Agreement”) is made as of the date set
forth below between the Company and the Investor.

The Company has authorized the sale and issuance to certain investors of up to an aggregate of
 3,125,000 units (the “Units”), with each Unit consisting of (i) one share (a “Share,” collectively,
the “Shares”) of its voting common stock, par value $0.001 per share (the “Common Stock”), and (ii)
one warrant (the “Warrant,” collectively, the “Warrants”) to
purchase 0.75 of a share of Common Stock (and the fractional amount being the “Warrant Ratio”), in substantially the form attached
hereto as Exhibit B, for a purchase price
of $1.60 per Unit (the “Purchase Price”). The
Units will not be issued or certificated. The Shares and Warrants are immediately separable and
will be issued separately. The shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the “Warrant Shares” and, together with the Units, the Shares and the
Warrants, are referred to herein as the “Securities”).

2.
The offering and sale of the Securities (the “Offering”) is being made pursuant to (a) an
effective Registration Statement on Form S-3, No. 333-166307 (the “Registration Statement”) filed
by the Company with the Securities and Exchange Commission (the “Commission”) on April 26, 2010,
amended on May 21, 2010 and declared effective by the Commission on May 26, 2010, including the
Prospectus contained therein (the “Base Prospectus”), (b) if applicable, certain “free writing
prospectuses” (as that term is defined in Rule 405 under the Securities Act of 1933, as amended
(the “Act”)), that have been or will be filed, if required, with the Commission and delivered to
the Investor on or prior to the date hereof (the “Issuer Free Writing Prospectus”), containing
certain supplemental information regarding the Securities, the terms of the Offering and the
Company, (c) if applicable, a Preliminary Prospectus Supplement (the “Preliminary Prospectus
Supplement”) containing certain supplemental information regarding the Securities, the terms of the
Offering and the Company and (d) a Prospectus Supplement (the “Prospectus Supplement” and, together
with the Base Prospectus, the “Prospectus”) containing certain supplemental information regarding
the Securities and the terms of the Offering that will be filed with the Commission and delivered
to the Investor (or made available to the Investor by the filing by the Company of an electronic
version thereof with the Commission).

 

 

 

3. The Company and the Investor agree that the Investor will purchase from the Company and the
Company will issue and sell to the Investor the Units set forth below for the aggregate purchase
price set forth below. The Units shall be purchased pursuant to the Terms and Conditions for
Purchase of Units attached hereto as Annex I and incorporated herein by this reference as
if fully set forth herein. The Investor acknowledges that the Offering is not being underwritten
by Lazard Capital Markets LLC (the “Placement Agent” or “LCM”) named in the Prospectus Supplement
and that there is no minimum offering amount.

4. The manner of settlement of the Securities included in the Units purchased by the Investor
shall be as follows:

Delivery versus payment (“DVP”) through DTC (i.e., on the Closing Date, the Company
shall deliver the Shares registered in the Investor’s name and address as set forth below
and released by Computershare Investor Services LLC, the Company’s “Transfer Agent”, to the
Investor through DTC at the Closing directly to the account(s) at LCM identified by the
Investor; upon receipt of such Shares, LCM shall promptly electronically deliver such Shares
to the Investor, and simultaneously therewith payment shall be made by LCM by wire transfer
to the Company). NO LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS AGREEMENT
BY THE INVESTOR AND THE COMPANY, THE INVESTOR SHALL:

	 	(I)	 	NOTIFY LCM OF THE ACCOUNT OR ACCOUNTS AT LCM TO BE CREDITED
WITH THE SHARES BEING PURCHASED BY SUCH INVESTOR, AND

	 
	 	(II)	 	CONFIRM THAT THE ACCOUNT OR ACCOUNTS AT LCM TO BE CREDITED
WITH THE SHARES BEING PURCHASED BY THE INVESTOR HAVE A MINIMUM BALANCE EQUAL
TO THE AGGREGATE PURCHASE PRICE FOR THE UNITS BEING PURCHASED BY THE INVESTOR.

IT IS THE INVESTOR’S RESPONSIBILITY TO (A) MAKE THE NECESSARY WIRE TRANSFER OR CONFIRM THE
PROPER ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR SETTLEMENT BY WAY OF DVP IN A TIMELY
MANNER. IF THE INVESTOR DOES NOT DELIVER THE AGGREGATE PURCHASE PRICE FOR THE UNITS OR DOES NOT
MAKE PROPER ARRANGEMENTS FOR SETTLEMENT IN A TIMELY MANNER, THE SHARES AND WARRANTS MAY NOT BE
DELIVERED AT CLOSING TO THE INVESTOR OR THE INVESTOR MAY BE EXCLUDED FROM THE CLOSING
ALTOGETHER.

5. The executed Warrants included in the Units purchased by the Investor shall be delivered in
accordance with the terms of the Warrants.

 

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6. The Investor represents that, except as set forth below, (a) it has had no position, office
or other material relationship within the past three years with the Company or persons known to it
to be affiliates of the Company, (b) it is not a member of the Financial Industry Regulatory
Authority, Inc. or an Associated Person (as such term is defined under FINRA’s Membership and
Registration Rules Section 1011) as of the Closing, and (c) neither the Investor nor any group of
Investors (as identified in a public filing made with the Commission) of which the Investor is a
part in connection with the Offering of the Units, acquired, or obtained the right to acquire, 20%
or more of the Common Stock (or securities convertible into or exercisable for Common Stock) or the
voting power of the Company on a post-transaction basis. Exceptions:

 

(If no exceptions, write “none.” If left blank, response will be deemed to be “none.”)

7. The Investor represents that it has received (or otherwise had made available to it by the
filing by the Company of an electronic version thereof with the Commission) the Base Prospectus
which is a part of the Company’s Registration Statement, the documents incorporated by reference
therein and any free writing prospectus (collectively, the “Disclosure Package”), prior to or in
connection with the receipt of this Agreement. The Investor acknowledges that, prior to the
delivery of this Agreement to the Company, the Investor will receive certain additional information
regarding the Offering, including pricing information (the “Offering Information”). Such
information may be provided to the Investor by any means permitted under the Act, including the
Prospectus Supplement, a free writing prospectus and oral communications.

8. No offer by the Investor to buy Units will be accepted and no part of the Purchase Price
will be delivered to the Company until the Investor has received the Offering Information and the
Company has accepted such offer by countersigning a copy of this Agreement, and any such offer may
be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to the
Company (or the Placement Agent on behalf of the Company) sending (orally, in writing or by
electronic mail) notice of its acceptance of such offer. An indication of interest will involve no
obligation or commitment of any kind until the Investor has been delivered the Offering Information
and this Agreement is accepted and countersigned by or on behalf of the Company.

9. The Company acknowledges that the only material, non-public information relating to the
Company it has provided to the Investor in connection with the Offering prior to the date hereof is
the existence of the Offering.

 

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Number of Units:                                         

Total Warrant Shares:                                         

Purchase price per Unit: $                                        

Aggregate Purchase Price: $                                        

Please confirm that the foregoing correctly sets forth the agreement between us by signing in the
space provided below for that purpose.

	 	 	 	 	 	 	 	 	 
	 	 	Dated as of: November ____, 2011	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	INVESTOR	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Print Name:	 	 	 	 
	 

	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 

Agreed and Accepted

this
 _____ 
day of November, 2011:

CEREPLAST, INC.

	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

 

ANNEX I

TERMS AND CONDITIONS FOR PURCHASE OF UNITS

1. Authorization and Sale of the Units. Subject to the terms and conditions of this
Agreement, the Company has authorized the sale of the Units.

2.  Agreement to Sell and Purchase the Units; Placement Agent.

2.1 At the Closing (as defined in Section 3.1), the Company will sell to the Investor,
and the Investor will purchase from the Company, upon the terms and conditions set forth herein,
the number of Units set forth on the last page of the Agreement to which these Terms and Conditions
for Purchase of Units are attached as Annex I (the “Signature Page”) for the aggregate
purchase price therefor set forth on the Signature Page.

2.2 The Company proposes to enter into substantially this same form of Subscription Agreement
with certain other investors (the “Other Investors”) and expects to complete sales of Units to
them. The Investor and the Other Investors are hereinafter sometimes collectively referred to as
the “Investors,” and this Agreement and the Subscription Agreements executed by the Other Investors
are hereinafter sometimes collectively referred to as the “Agreements.”

2.3 Investor acknowledges that the Company has agreed to pay Lazard Capital Markets LLC (the
“Placement Agent” or “LCM”) a fee (the “Placement Fee”) in respect of the sale of Units to the
Investor.

2.4 The Company has entered into a Placement Agent Agreement, dated November [_____], 2011 (the
“Placement Agreement”), with the Placement Agent that contains certain representations, warranties,
covenants and agreements of the Company that may be relied upon by the Investor, which shall be a
third party beneficiary thereof.

3.  Closing and Delivery of the Shares, Warrants and Funds.

3.1 Closing. The completion of the purchase and sale of the Units (the “Closing”)
shall occur at a place and time (the “Closing Date”) to be specified by the Company and the
Placement Agent, and of which the Investors will be notified in advance by the Placement Agent, in
accordance with Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). At the Closing, (a) the Company shall cause the Transfer Agent to deliver to the
Investor through DTC the number of Shares included in the Units set forth on the Signature Page
registered in the name of the Investor or, if so indicated on the Investor Questionnaire attached
hereto as Exhibit A, in the name of a nominee designated by the Investor, (b) the Company
shall cause to be delivered to the Investor a Warrant to purchase a number of whole Warrant Shares
as set forth on the signature page hereto and (c) the aggregate purchase price for the Units being
purchased by the Investor will be delivered by or on behalf of the Investor to the Company.

 

 

 

3.2 Conditions to the Obligations of the Parties.

(a)  Conditions to the Company’s Obligations. The Company’s obligation to issue and
sell the Units to the Investor shall be subject to: (i) the receipt by the Company of the purchase
price for the Units being purchased hereunder as set forth on the Signature Page and (ii) the
accuracy of the representations and warranties made by the Investor and the fulfillment of those
undertakings of the Investor to be fulfilled prior to the Closing Date.

(b)  Conditions to the Investor’s Obligations. The Investor’s obligation to purchase
the Units is subject to (i) the accuracy of the representations and warranties made by the Company
and the fulfillment of those undertakings of the Company to be fulfilled prior to the Closing Date,
including the representations and warranties and undertakings of the Company in the Placement
Agreement, (ii) the satisfaction of the conditions contained in the Placement Agreement, (iii) the
Placement Agreement being in full force and effect and not having been terminated and (iv) the
Placement Agent not having determined that the conditions to the closing in the Placement Agreement
have not been satisfied. The Investor understands and agrees that, in the event that the Placement
Agent in its sole discretion determines that the conditions to closing in the Placement Agreement
have not been satisfied or if the Placement Agent Agreement may be terminated for any other reason
permitted by such Agreement, then the Placement Agent may, but shall not be obligated to, terminate
such Agreement, which shall have the effect of terminating this Subscription Agreement pursuant to
Section 13 below.

3.3 Delivery of Funds.

No later than one (1) business day after the execution of this Agreement by the Investor and
the Company, the Investor shall confirm that the account or accounts at the Placement Agent to be
credited with the number of Securities included in the Units being purchased by the Investor have a
minimum balance equal to the aggregate purchase price for the Units being purchased by the
Investor.

3.4 Delivery of Securities included in the Units.

No later than one (1) business day after the execution of this Agreement by the Investor and
the Company, the Investor shall notify LCM of the account or accounts at LCM to be credited with
the Securities being purchased by such Investor. On the Closing Date, the Company shall (i)
deliver the Shares to the Investor through DTC directly to the account(s) at LCM identified by
Investor, (ii) the Company shall cause to be physically delivered to the Investor a Warrant to
purchase a number of whole Warrant Shares as set forth on the signature page hereto and (iii)
simultaneously therewith, payment shall be made by LCM by wire transfer to the Company.

4. Representations, Warranties and Covenants of the Investor.

The Investor acknowledges, represents and warrants to, and agrees with, the Company and the
Placement Agent that:

4.1 The Investor (a) is knowledgeable, sophisticated and experienced in making, and is
qualified to make decisions with respect to, investments in shares presenting an investment
decision like that involved in the purchase of the Units, including investments in securities
issued by the Company and investments in comparable companies, (b) has answered all questions on
the Signature Page and the Investor Questionnaire and the answers thereto are true and correct as
of the date hereof and will be true and correct as of the Closing Date and (c) in connection with
its decision to purchase the number of Units set forth on the Signature Page, has received and is
relying only upon the Disclosure Package and the documents incorporated by reference therein and
the Offering Information.

 

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4.2 (a) No action has been or will be taken in any jurisdiction outside the United States by
the Company or the Placement Agent that would permit an offering of the Securities, or possession
or distribution of offering materials in connection with the issue of the Securities in any
jurisdiction outside the United States where action for that purpose is required, (b) if the
Investor is outside the United States, it will comply with all applicable laws and regulations in
each foreign jurisdiction in which it purchases, offers, sells or delivers Securities or has in its
possession or distributes any offering material, in all cases at its own expense and (c) the
Placement Agent is not authorized to make and has not made any representation, disclosure or use of
any information in connection with the issue, placement, purchase and sale of the Units, except as
set forth or incorporated by reference in the Base Prospectus or the Prospectus Supplement or any
free writing prospectus.

4.3 (a) The Investor has full right, power, authority and capacity to enter into this
Agreement and to consummate the transactions contemplated hereby and has taken all necessary action
to authorize the execution, delivery and performance of this Agreement, and (b) this Agreement
constitutes a valid and binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding in equity or at
law) and except as to the enforceability of any rights to indemnification or contribution that may
be violative of the public policy underlying any law, rule or regulation (including any federal or
state securities law, rule or regulation).

4.4 The Investor understands that nothing in this Agreement, the Prospectus, the Disclosure
Package, the Offering Information or any other materials presented to the Investor in connection
with the purchase and sale of the Units constitutes legal, tax or investment advice. The Investor
has consulted such legal, tax and investment advisors and made such investigation as it, in its
sole discretion, has deemed necessary or appropriate in connection with its purchase of the Units.
The Investor also understands that there is no established public trading market for the Warrants
being offered in the Offering, and that the Company does not expect such a market to develop. In
addition, the Company does not intend to apply for listing the Warrants on any securities exchange.
Without an active market, the liquidity of the Warrants will be limited.

4.5 Since the date on which the Placement Agent first contacted the Investor about the
Offering, the Investor has not disclosed any information regarding the Offering to any third
parties (other than its legal, accounting and other advisors) and has not engaged in any purchases
or sales involving the securities of the Company (including, without limitation, any Short Sales
involving the Company’s securities). The Investor covenants that it will not engage in any
purchases or sales involving the securities of the Company (including Short Sales) prior to the
time that the transactions contemplated by this Agreement are publicly disclosed. The Investor
agrees that it will not use any of the Securities acquired pursuant to this Agreement to cover any
short position in the Common Stock if doing so would be in violation of applicable securities laws.
For purposes hereof, “Short Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box,
and all types of direct and indirect stock pledges, forward sales contracts, options, puts, calls,
short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act)
and similar arrangements (including on a total return basis), and sales and other transactions
through non-US broker dealers or foreign regulated brokers.

 

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4.6 Survival of Representations, Warranties and Agreements; Third Party Beneficiary.
Notwithstanding any investigation made by any party to this Agreement or by the Placement Agent,
all covenants, agreements, representations and warranties made by the Company and the Investor
herein will survive the execution of this Agreement, and the delivery to the Investor of the Shares
and Warrants being purchased and the payment therefor. The Placement Agent and Lazard Fréres & Co.
shall be third party beneficiaries with respect to the representations, warranties and agreements
of the Investor in Section 4 hereof.

5. Notices. All notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by first-class registered or
certified airmail, or nationally recognized overnight express courier, postage prepaid, or by
facsimile or (b) if delivered from outside the United States, by International Federal Express or
facsimile, and (c) will be deemed given (i) if delivered by first-class registered or certified
mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by International Federal
Express, two business days after so mailed and (iv) if delivered by facsimile, upon electronic
confirmation of receipt and will be delivered and addressed as follows:

	 	(a)	 	if to the Company, to:

	 
	 	 	 	Cereplast, Inc.

N. Continental Blvd., Suite 300

El Segundo, CA 902

Attention: Heather Sheehan, CFO

Facsimile: 310-615-9800

 

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	 	 	 	with copies to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attention: Gregory Sichenzia, Esq.

Fax: 212-930-9725425 Walnut Street, Suite 1800

	 
	 	(b)	 	if to the Investor, at its address on the
Signature Page hereto, or at such other address or addresses as may have
been furnished to the Company in writing.

6. Changes. This Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Investor.

7. Headings. The headings of the various sections of this Agreement have been inserted for
convenience of reference only and will not be deemed to be part of this Agreement.

8. Severability. In case any provision contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions contained herein will not in any way be affected or impaired thereby.

9. Governing Law. This Agreement will be governed by, and construed in accordance with, the
internal laws of the State of New York, without giving effect to the principles of conflicts of law
that would require the application of the laws of any other jurisdiction.

10. Counterparts. This Agreement may be executed in two or more counterparts, each of which
will constitute an original, but all of which, when taken together, will constitute but one
instrument, and will become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. The Company and the Investor acknowledge and agree that
the Company shall deliver its counterpart to the Investor along with the Prospectus Supplement (or
the filing by the Company of an electronic version thereof with the Commission).

11. Confirmation of Sale. The Investor acknowledges and agrees that such Investor’s receipt
of the Company’s signed counterpart to this Agreement, together with the Prospectus Supplement (or
the filing by the Company of an electronic version thereof with the Commission), shall constitute
written confirmation of the Company’s sale of the Units to such Investor.

12. Press Release. The Company and the Investor agree that the Company shall, prior to the
opening of the financial markets in New York City on the business day immediately after the date
hereof, (a) issue a press release announcing the Offering and disclosing all material information
regarding the Offering and (b) file a Current Report on Form 8-K with the Securities and Exchange
Commission including a form of this Agreement, the Placement Agreement and the form of Warrant as
exhibits thereto.

13. Termination. In the event that the Placement Agreement is terminated by the Placement
Agent pursuant to the terms thereof, this Agreement shall terminate without any further action on
the part of the parties hereto.

 

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EXHIBIT A

CEREPLAST, INC.

INVESTOR QUESTIONNAIRE

Pursuant to Section 3 of Annex I to the Agreement, please provide us with the
following information:

	 	 	 	 	 
	1. The exact name in which your Shares and Warrants are to be registered. You
may use a nominee name if appropriate:
	 	 	                    	 
	 
	 	 	 	 
	2. The relationship between the Investor and the registered holder listed in
response to item 1 above:
	 	 	                    	 
	 
	 	 	 	 
	3. The mailing address of the registered holder listed in response to item 1
above:
	 	 	                    	 
	 
	 	 	 	 
	4. The Social Security Number or Tax Identification Number of the registered
holder listed in the response to item 1 above:
	 	 	                    	 
	 
	 	 	 	 
	5. Name of DTC Participant (broker-dealer at which the account or accounts to
be credited with the Shares are maintained):
	 	 	                    	 
	 
	 	 	 	 
	6. DTC Participant Number:
	 	 	                    	 
	 
	 	 	 	 
	7. Name of Account at DTC Participant being credited with the Shares:
	 	 	                    	 
	 
	 	 	 	 
	8. Account Number at DTC Participant being credited with the Shares:
	 	 	                    	 

 

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EXHIBIT B

FORM OF WARRANT

 

-7-exv10w2

 Exhibit 10.2

CEREPLAST, INC.

Warrant To Purchase Common Stock

Warrant No.:                     

Number of Shares of Common Stock:                     

Date of Issuance: November 16, 2011 (“Issuance Date”)

Cereplast, Inc. a Nevada corporation (the “Company”), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
[_____], the registered holder hereof or its permitted assigns (the “Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date beginning one-hundred eighty
(180) days after the Issuance Date (the “Exercisability Date”), but not after 11:59 p.m., New York
time, on the Expiration Date (as defined below), [_____ (_____)]1 fully
paid nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in
Section 16. This Warrant is the Warrant to purchase Common Stock (this “Warrant”) issued
pursuant to (i) Section 2 of that certain Subscription Agreement (the “Subscription Agreement”),
dated as of November 10, 2011 (the “Subscription Date”), by and between the Company and the
Holder (the “Subscription Agreement”) and (ii) the Company’s effective Registration Statement on
Form S-3 (File number 333-166307) (the “Registration Statement”).

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof, this Warrant
may be exercised by the Holder on any day on or after the Exercisability Date, in whole or in part,
by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise
Notice”), of the Holder’s election to exercise this Warrant. Within two (2) days following the
Exercise Notice, the Holder shall make payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available
funds, or provided the conditions for cashless exercise set forth in Section 1(d) are
satisfied, by notifying the Company that this Warrant is being exercised pursuant to a Cashless
Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant

 

	 	 	 
	1	 	Insert a number of shares
equal to 75% of the number
of Common Shares purchased under the Subscription Agreement.

 

 

 

evidencing the right to purchase
the remaining number of Warrant Shares. On or before the first
(1st) Business Day following the date on which the Company has received the Exercise Notice, the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Notice to the
Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third
(3rd) Business Day following the date on which the Company has received the Exercise
Notice (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of Warrant Shares to which the Holder
is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by
overnight courier to the address as specified in the Exercise Notice, a certificate, registered in
the Company’s share register in the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of
the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of
the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of Warrant
Shares represented by this Warrant submitted for exercise is greater than the number of Warrant
Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no
event later than three Business Days after any exercise and at its own expense, issue a new Warrant
(in accordance with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common
Stock to be issued shall be rounded down to the nearest whole number. The Company shall pay any
and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

(b) Exercise
Price. For purposes of this Warrant, “Exercise
Price” means $2.20,
subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to issue to the Holder within three (3) Business Days of receipt of the
Exercise Notice in compliance with the terms of this Section 1, a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on
the Company’s share register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant,
and if on or after such Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a
“Buy-In"), then the Company shall, within three (3) Business Days after the Holder’s request and in
the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price"), at which point the Company’s obligation to deliver such certificate
(and to issue such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate
or certificates representing such Warrant Shares and pay cash to the Holder in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the date of exercise.

 

2

 

(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
a registration statement covering the Warrant Shares that are the subject of the Exercise Notice
(the “Unavailable Warrant Shares”) or an exemption from registration is not available for the
resale of such Unavailable Warrant Shares, then in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise, the Holder can elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined according to the following
formula (a “Cashless Exercise”):

	 	 	 	 	 
	 

	 	Net Number =
	(A x B) — (A x C)	 
	 

	 	 	D	 

For purposes of the foregoing formula:

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

	 	B=	 	 the arithmetic average of the Closing Sale Prices
of the shares of Common Stock for the five (5) consecutive Trading
Days ending on the date immediately preceding the date of the
Exercise Notice.

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

	 	D= 	 	the Closing Sale Price on the date of the Exercise
Notice.

(e) Rule 144. For purposes of Rule 144(d) promulgated under the Securities Act, as in
effect on the date hereof, it is intended that the Warrant Shares issued in a Cashless Exercise
shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares
shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.

(f) Disputes. In the case of a dispute as to the determination of the Exercise Price
or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder
the number of Warrant Shares that are not disputed.

 

3

 

(g) Beneficial Ownership Limitation. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that
after giving effect to such exercise, such Person (together with such Person’s affiliates) would
beneficially own in excess of 4.99% (the “Maximum Percentage”) of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by such Person and
its affiliates (including, without limitation, any convertible notes or convertible preferred stock
or warrants) subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on
Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be,
(2) a more recent public announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at
any time, upon the written or oral request of the Holder, the Company shall within one (1) Business
Day 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 the
Warrants, by the Holder and its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. By written notice to the Company, the Holder may from time to
time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% or
less than 4.99% specified in such notice; provided that (i) any such increase will not be effective
until the sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other holder of the
Warrants. For the avoidance of doubt, to the extent the limitation set forth in this Section 1(g)
applies, the determination (i) of whether the exercise of this Warrant may be effected (vis-a-vis
other Options or Convertible Securities owned by the Holder or any of its Affiliates) and (ii) of
which such Options or Convertible Securities shall be convertible, exercisable or exchangeable (as
the case may be, as among all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the Company for
conversion, exercise or exchange (as the case may be). The provisions of this paragraph shall be
construed and implemented in a manner other than in strict conformity with the terms of this
Section 1(g) 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.

 

4

 

(h) Insufficient Authorized Shares.  If at any time from and after the ninetieth
(90th) day following the Issuance Date and while any of the Warrants remain outstanding
the Company does not have a sufficient number of authorized and unreserved shares of Common Stock
to satisfy its obligation to reserve for issuance upon exercise of the Warrants at least 125% of
the maximum number of shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of the Warrants then outstanding (without regard to any limitations on exercise)
(the “Required Reserve Amount”) (an “Authorized Share Failure”), then the Company shall immediately
deliver a notice to the Holder specifying the number of shares unavailable to satisfy its
obligations under this Warrant and shall take all action necessary to increase the Company’s
authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Warrants then outstanding.
Without limiting the generality of the foregoing sentence, as soon as practicable after the
date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days
after the occurrence of such Authorized Share Failure (the “Authorized Share Failure Deadline”),
and assuming such Authorized Share Failure still exists, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares of Common Stock.
In connection with such meeting, the Company shall provide each stockholder with a proxy statement
and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the stockholders that
they approve such proposal. In the event that upon any exercise of this Warrant at any time from
and after the Authorized Share Failure Deadline, the Company does not have sufficient authorized
shares to deliver in satisfaction of such exercise, then unless the Holder elects to void such
exercise, the Company shall pay to the Holder within three (3) Trading Days of the applicable
exercise, cash in an amount equal to the product of (i) the number of Warrant Shares that the
Company is unable to deliver pursuant hereto and (ii) the Black Scholes Value.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and
the number of Warrant Shares shall be adjusted from time to time as follows:

(a) Stock Dividends and Splits. Without limiting any provision of Section 4,
if the Company, at any time on or after the Subscription Date, (i) pays a stock dividend on one or
more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on
any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding
shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse
stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a
smaller number of shares (a “Stock Combination Event”), then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
Simultaneously with any adjustment to the Exercise Price pursuant to this paragraph, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for
the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment (without regard to any limitations on exercise contained
herein).

 

5

 

(b) Other Events. In the event that the Company (or any Subsidiary) shall take any
action to which the provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type contemplated by
the provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant
Shares (if applicable) so as to protect the rights of the Holder, provided that no such adjustment
pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of
Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if
the Holder does not accept such adjustments as appropriately protecting its interests hereunder
against such dilution, then the Company’s board of directors and the Holder shall agree, in good
faith, upon an independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and whose fees and expenses
shall be borne by the Company.

(c) Calculations. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to
Section 2 above, if the Company shall declare or make any dividend or other distribution of
its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return
of capital or otherwise (including, without limitation, any distribution of cash, stock or
securities (other than stock or securities in which an adjustment is being made pursuant to
Section 2(a)), property or options by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at
any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled
to participate in such Distribution to the same extent that the Holder would have participated
therein if the Holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Maximum Percentage) immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the participation in such Distribution (provided, however, to
the extent that the Holder’s right to participate in any such Distributions would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in
such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as
a result of such Distribution to such extent) and such Distribution to such extent shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not
result in the Holder exceeding the Maximum Percentage).

 

6

 

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the record holders of
any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on
exercise hereof, including without limitation, the Maximum Percentage) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent
that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result
of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in
abeyance for the Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of
the Company under this Warrant in accordance with the provisions of this Section 4(b),
including either agreements to deliver to the Holder in exchange for this Warrant a security of the
Successor Entity evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, which is exercisable for a corresponding number of
shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior
to such Fundamental Transaction, and with an exercise price which applies the exercise price
hereunder to such shares of capital stock (but taking into account the relative value of the shares
of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such adjustments to the number of shares of capital stock and such exercise price being for
the purpose of protecting the economic value of this Warrant immediately prior to the consummation
of such Fundamental Transaction). Upon the consummation of each Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and after the date of the
applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of the Company under
this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
Upon consummation of each Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property (except such items still issuable under
Sections 3 and 4(a) above, which shall continue to be receivable thereafter))
issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such
shares of publicly traded common stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately prior to the
applicable Fundamental Transaction (without regard to any limitations on the exercise of this
Warrant), as adjusted in accordance with the provisions of this Warrant. Notwithstanding the
foregoing, and without limiting Section 1(g) hereof, the Holder may elect, at its sole
option, by delivery of written notice to the Company to waive this Section 4(b) to permit
the Fundamental Transaction without the assumption of this Warrant. In addition to and not in
substitution for

 

7

 

any
other rights hereunder, prior to the consummation of each Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate
provision to insure that the Holder will thereafter have the right to receive upon an exercise of
this Warrant at any time after the consummation of the applicable Fundamental Transaction but prior
to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property (except such items still issuable under Sections 3 and
4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise
of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening of the applicable
Fundamental Transaction had this Warrant been exercised immediately prior to the applicable
Fundamental Transaction (without regard to any limitations on the exercise of this Warrant).
Provision made pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Holder. Notwithstanding the foregoing, in the event of a Fundamental
Transaction, at the request of the Holder (which may be required by the Company if the Successor
Entity is not publicly traded) delivered before the 90th day after such Fundamental Transaction,
the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the
Holder, within five Business Days after such request (or, if later, on the effective date of the
Fundamental Transaction), cash in an amount equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such Fundamental Transaction.

(c) Application. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this
Warrant (and any such subsequent warrants) were fully exercisable and without regard to any
limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled
to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock
registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such
other warrant)).

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, 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, and will at all times in good faith carry out all the provisions
of this Warrant and take all action as may be required to protect the rights of the Holder.
Without limiting the generality of the foregoing, the Company (i) shall not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price
then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon
the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all
action necessary to reserve and keep available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of
shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to
any limitations on exercise).

 

8

 

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company.

7. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the
Holder may request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being transferred.

(b)  Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c)  Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to
purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will
represent the right to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for fractional shares of Common
Stock shall be given.

(d)  Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with
this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by
the Holder which, when added to the number of shares of Common Stock underlying the other new
Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new
Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions
as this Warrant.

 

9

 

8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 5 of Annex I to
the Subscription Agreement. The Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Warrant, including in reasonable detail a description of such action
and the reason therefor. Without limiting the generality of the foregoing, the Company will give
written notice to the Holder (i) immediately upon each adjustment of the Exercise Price and the
number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of
such adjustment(s) and (ii) at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property to holders of shares
of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the Holder and (iii) at least
ten (10) Trading Days prior to the consummation of any Fundamental Transaction. To the extent that
any notice provided hereunder constitutes, or contains, material, non-public information regarding
the Company or any of its Subsidiaries, the Company shall simultaneously file such notice with the
SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K. It
is expressly understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Holder.

10. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that
would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of
such provision shall not affect the validity of the remaining provisions of this Warrant so long as
this Warrant as so modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical realization of the benefits
that would otherwise be conferred upon the parties. The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

10

 

11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of York, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder.
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS
WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any Person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the
Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in
writing by the Holder.

13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price, the Closing Bid Price or fair market value or the
arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as
the case may be) shall submit the disputed determinations or arithmetic calculations (as the case
may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice
giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice
gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to
such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance
or sale was an issuance or sale or deemed issuance or sale of Excluded Securities). If the Holder
and the Company are unable to agree upon such determination or calculation (as the case may be) of
the Exercise Price, the Closing Sale Price, the Closing Bid Price or fair market value or the
number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed
determination or arithmetic calculation being submitted to the Company or the Holder (as the case
may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price, the Closing Sale Price, the Closing Bid Price or fair market
value (as the case may be) to an independent, reputable investment bank selected by the Holder or
(b) the disputed arithmetic calculation of the Warrant Shares to the
Company’s independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant (as the case may be) to perform the determinations or
calculations (as the case may be) and notify the Company and the Holder of the results no later
than ten (10) Business Days from the time it receives such disputed determinations or calculations
(as the case may be). Such investment bank’s or accountant’s determination or calculation (as the
case may be) shall be binding upon all parties absent demonstrable error.

 

11

 

14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all other remedies
available under this Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to comply with the
terms of this Warrant. The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, exercises and the like (and the computation thereof) shall be
the amounts to be received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the Holder that is
requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with Section 2
hereof). The issuance of shares and certificates for shares as contemplated hereby upon the
exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance
tax or other costs in respect thereof, provided that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder or its agent on its behalf.

15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company.

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:

(a) “Adjustment Right” means any right granted with respect to any securities issued in
connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance
with Section 2) of shares of Common Stock (other than rights of the type described in
Sections 3 and 4 hereof) that could result in a decrease in the net consideration
received by the Company in connection with, or with respect to, such securities (including, without
limitation, any cash settlement rights, cash adjustment or other similar rights).

 

12

 

(b) “Black Scholes Value” means the value of the unexercised portion of this Warrant remaining
on the date of the Holder’s request, which value is calculated using the Black Scholes Option
Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per
share equal to, in the event of an Authorized Share Failure, the VWAP on the exercise date, or, in
the event of a Fundamental Transaction, the greater of (1) the highest Closing Sale Price of the
Common Stock during the period beginning on the Trading Day immediately preceding the public
disclosure of the applicable Fundamental Transaction and ending on the Trading Day immediately
preceding the consummation of the applicable Fundamental Transaction and (2) the sum of the price
per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value
of the non-cash consideration being offered in the applicable Fundamental Transaction (if any),
(ii) a strike price equal to the Exercise Price in effect on the of date of the Holder’s request,
(iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the
greater of (1) the remaining term of this Warrant as of the date of the Holder’s request and (2)
the remaining term of this Warrant as of the date of consummation of the applicable Fundamental
Transaction or as of the date of the Holder’s request pursuant to Section 4(c) if such
request is prior to the date of the consummation of the applicable Fundamental Transaction and (iv)
an expected volatility equal to the greater of 100% and the 30-day volatility obtained from the HVT
function on Bloomberg (determined utilizing a 365-day annualization factor) as of the Trading Day
immediately following the earlier to occur of the public disclosure or consummation of the
applicable Fundamental Transaction.

(c) “Bloomberg” means Bloomberg, L.P.

(d) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

(e) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such security, the last closing bid price
or last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. All such determinations
to be appropriately adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

 

13

 

(f) “Common Stock” means (i) the Company’s shares of common stock, par value $0.001 per share,
and (ii) any capital stock into which such common stock shall have been changed or any share
capital resulting from a reclassification of such common stock.

(g) “Convertible Securities” means any stock or other security (other than Options) that is at
any time and under any circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common
Stock.

(h) “Eligible Market” means The New York Stock Exchange, the NYSE Arca, the Nasdaq Global
Market, the Nasdaq Capital Market or the Principal Market.

(i) “Excluded Securities” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company in their capacity as such pursuant to any stock or
option plan or employment agreement duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the exercise or exchange
of or conversion of the securities issued hereunder or pursuant to the Subscription Agreement
and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only be to a Person
(or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the business of the Company and
shall provide to the Company additional benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in securities.

(j) “Expiration Date” means the date that is the fifth (5th) anniversary of the
Exercisability Date, if such date falls on a day other than a Business Day or on which trading does
not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

14

 

(k) “Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall,
directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company or any of its Subsidiaries is the surviving corporation) any other
Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or
substantially all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme
of arrangement) with any other Person whereby such other Person acquires more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the other Person or other Persons making or party to, or associated or affiliated
with the other Persons making or party to, such stock or share purchase agreement or other business
combination), or (5) reorganize, recapitalize or reclassify the Common Stock, or (6) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and
the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Voting Stock of the Company.

(l) “Options” means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

(m) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

(n) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity or a government or any
department or agency thereof.

(o) “Principal Market” means the Nasdaq Capital Market.

(p) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered
into.

(q) “Trading Day” means any day on which the Common Stock is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded,
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Holder.

 

15

 

(r) “Voting Stock” of a Person means capital stock of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect,
or the general power to appoint, at least a majority of the board of directors, managers or
trustees of such Person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the happening of any
contingency).

[signature page follows]

 

16

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly
executed as of the Issuance Date set out above.

	 	 	 	 	 
	 	CEREPLAST, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

17

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

CEREPLAST, INC.

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

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be
made as:

	 	 	 	
 _____ 
a “Cash Exercise” with respect to
 _____ 
Warrant Shares; and/or

	 
	 	 	 	
 _____ 
a “Cashless Exercise” with respect to
 _____ 
Warrant Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the
Aggregate Exercise Price in the sum of $
 _____ 
to the Company in accordance with the
terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
 _____ 
Warrant
Shares in accordance with the terms of the Warrant.

Date: _______________ __, ______

	 	 	 	 	 
	 	 	 
	Name of Registered Holder	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

 

 

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Investor
Services LLC to issue the above indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated
 _____ 
, 2011 from the Company and acknowledged and agreed to by
Computershare Investor Services LLC.

	 	 	 	 	 
	 	CEREPLAST, INC

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:

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