Document:

Exhibit 4.2

 

EXHIBIT C

 

NEITHER THIS SECURITY NOR
THE SECURITIES INTO 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 AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
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.

 

COMMON STOCK PURCHASE WARRANT

 

To Purchase               
Shares of Common Stock of

 

Power 3 Medical Products, Inc.

 

THIS COMMON STOCK
PURCHASE WARRANT (the “Warrant”) certifies that, for value received,                        (the
“Holder”), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the
date hereof (the “Initial Exercise Date”) and on or prior to the close
of business on the fifth anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Power 3
Medical Products, Inc., a New York corporation (the “Company”), up
to             shares
(the “Warrant Shares”) of Common Stock, par value $0.001 per share, of
the Company (the “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 October      , 2004, among the Company and the purchasers
signatory thereto.

 

Section 2.                                            Exercise.

 

a)                                      Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made at any time or times on or after
the Initial Exercise 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 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 such Holder appearing on the
books of the Company); provided, however,

 

 

within 5 Trading Days of
the date said Notice of Exercise is delivered to the Company, the Holder shall
have surrendered this Warrant to the Company and 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.

 

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

 

c)                                      Cashless
Exercise.  If at any time after one
year from the date of issuance of this Warrant there is no effective Registration
Statement registering the resale of the Warrant Shares by the Holder, then this
Warrant may also be exercised at such time 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 Closing Price 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.

 

d)                                     Exercise
Limitations; Holder’s Restrictions. 
The Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2(c) or otherwise, to the extent that
after giving effect to such issuance after exercise, the Holder (together with
the Holder’s affiliates), as set forth on the applicable Notice of Exercise,
would beneficially own in excess of 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to such issuance.  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 the determination of such sentence 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 Debentures or Warrants) 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, it being acknowledged by Holder that the Company is not
representing to Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and Holder is solely responsible for any schedules required to
be filed

 

(1)          120% of the
Market Price.

 

 

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) and of which portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 2(d), 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 (x)
the Company’s most recent Form 10-QSB or Form 10-KSB, 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 the Holder, the Company shall within two 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.

 

e)                                      Mechanics
of Exercise.

 

i.                                          Authorization
of Warrant Shares.  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, and in accordance with the terms of, this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).  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, and in accordance with the terms of,
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.

 

ii.                                       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 through its Deposit Withdrawal Agent Commission (“DWAC”)
system if the Company is a participant in such system, 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 Form, surrender of this Warrant 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 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 and all taxes required to be paid by the Holder,
if any, pursuant to Section 2(e)(vii) prior
to the issuance of such shares, have been paid.

 

iii.                                    Delivery
of New Warrants Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of 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.

 

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

 

v.                                      Buy-In
Compensation.  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 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) 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,
together with applicable confirmations and other evidence reasonably requested
by the Company.  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 certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.

 

vi.                                   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 Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

 

vii.                                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.

 

viii.                             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 make 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 pursuant to this Warrant, the Debentures or
the Additional Investment Rights), (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 before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted.  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 offer, sell, grant any option
to purchase or offer, sell or grant any right to reprice its securities, 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 lower price, the “Base
Share Price” and such issuances collectively, a “Dilutive Issuance”),
as adjusted hereunder (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 is 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),
then, the Exercise Price shall be reduced to equal the Base Share Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the
Holder in writing, no later than the business day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms.

 

c)                                      Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets 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 Closing Price determined as of the record date
mentioned above, and of which the numerator shall be such Closing Price 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 Holders 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.

 

d)                                     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 outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any)
outstanding.

 

e)                                      Notice
to Holders.

 

i.                                          Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this
Section 3, the Company shall promptly mail to each 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 issues a
variable rate security, 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 in the case of a Variable Rate
Transaction (as defined in the Purchase Agreement), or the lowest possible
adjustment price in the case of an MFN Transaction (as defined in the Purchase
Agreement.

 

ii.                                       Notice
to Allow Exercise by Holder. If (A) the Company shall declare a
dividend (or any other distribution) 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 addresses 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 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.

 

f)                                        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 (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise absent 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 Alternate Consideration
receivable upon or as a result of such reorganization, reclassification,
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 (the “Alternate Consideration”).  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 paragraph (f) and insuring that this

 

 

Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 

g)                                     Exempt
Issuance. Notwithstanding the foregoing, no adjustments, Alternate
Consideration nor notices shall be made, paid or issued under this Section 3
in respect of an Exempt Issuance.

 

h)                                     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.

 

Section 4.                                            Transfer of Warrant.

 

a)                                      Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company, 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.

 

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.

 

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, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the

 

 

case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without registration
under the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or
a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act.

 

Section 5.                                            Miscellaneous.

 

a)                                      Title
to Warrant.  Prior to the Termination
Date and subject to compliance with applicable laws and Section 4 of this Warrant,
this Warrant and all rights hereunder are transferable, in whole or in part, at
the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

 

b)                                     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.  Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed to
be issued to such Holder as the record owner of such shares as of the close of
business on the later of the date of such surrender or payment.

 

c)                                      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.

 

d)                                     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 be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.

 

e)                                      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, and in accordance with the terms of, 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.

 

Except and to the extent
as waived or consented to by the Holder, the Company shall not by any action,
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (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.

 

f)                                        Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Warrant (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. 
Each party 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 improper or inconvenient venue for such
proceeding.  Each party hereby
irrevocably waives personal service of process and

 

 

consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  The
parties hereby waive, to the fullest extent permitted by applicable law, all
rights to a trial by jury.  If either
party shall commence an action or proceeding to enforce any provisions of this
Warrant, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

 

g)                                     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.

 

h)                                     Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice 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 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 Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.

 

i)                                         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.

 

j)                                         Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of 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.

 

k)                                      Remedies.  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 the defense
in any action for specific performance that a remedy at law would be adequate.

 

l)                                         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 any such Holder or holder of Warrant
Shares.

 

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

 

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

 

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

 

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

 

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized.

 

Dated:  October     , 2004

 

 

	
   

  	
  POWER 3 MEDICAL
  PRODUCTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

NOTICE OF EXERCISE

 

TO: POWER 3 MEDICAL
PRODUCTS, INC.

 

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

 

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

 

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:

 

 

 

 

 

 

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

 

	
   

  	
  [PURCHASER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Dated:

  	
   

  	
   

  
								

 

15

 

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, 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.

 

16

 
SCHEDULE TO
 
FORM OF COMMON STOCK PURCHASE WARRANT
 
The Company has issued Common Stock Purchase Warrants to the following listed holders. The terms of the Common Stock Purchase Warrants are identical except for the name of the holder and the number of shares of the Company’s Common Stock issuable upon exercise of the warrant.
 

	
  HOLDER

  	
   

  	
  NUMBER OF WARRANT SHARES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bach Farms LLC

  	
   

  	
  4,167

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cityplatz Limited

  	
   

  	
  125,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Crescent International Ltd.

  	
   

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Crestview Capital Master, LLC

  	
   

  	
  375,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  DKR SoundShore Oasis Holding Fund Ltd.

  	
   

  	
  125,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gryphon Master Fund L.P.

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  GSSF Master Fund, LP

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Mohawk Funding

  	
   

  	
  25,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Omicron Master Trust

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Otape Investments LLC

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Platinum Partners Value Arbitrage Fund L.P.

  	
   

  	
  208,333

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Richard Molinsky

  	
   

  	
  75,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Sage Capital Investments Limited

  	
   

  	
  62,500

  	
   

  

 
17Exhibit
4.3

 

EXHIBIT E

 

NEITHER THIS SECURITY NOR
THE SECURITIES INTO 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 AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
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.

 

ADDITIONAL
INVESTMENT RIGHT

 

To Purchase $         
principal amount of Convertible Debentures of

 

Power 3 Medical
Products, Inc.

 

THIS ADDITIONAL
INVESTMENT RIGHT (the “AIR”) certifies that, for value received,                  
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or
prior to the close of business on the earlier of (a) 9 month anniversary
of the Effective Date and (b) the 18 month anniversary of the Initial
Exercise Date (the “Termination Date”) but not thereafter, to subscribe
for and purchase from Power 3 Medical Products, Inc., a New York
corporation (the “Company”), up to $                
principal amount of convertible debentures (the “AIR Debenture”).  The AIR Debenture shall be in the form of the
Debentures issued pursuant to the Purchase Agreement, mutatis mutandis, except that the
conversion price thereof shall be equal to $         (1),
subject to adjustment thereunder and hereunder (“AIR Conversion Price”).

 

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 October    ,
2004, among the Company and the purchasers signatory thereto.

 

(1)  90% of the Market Price.

 

 

Section 2.               Exercise.

 

a)             Exercise
of AIR.  Exercise of the purchase
rights represented by this AIR may be made at any time or times on or after the
Initial Exercise 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 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 such Holder
appearing on the books of the Company) and the payment of the aggregate
principal amount of the AIR Debentures thereby purchased by wire transfer or
cashier’s check drawn on a United States bank. 
Upon exercise of the AIR, the Company shall issue an AIR Debenture with
a principal amount equal to the amount paid by the Holder.

 

b)            Mechanics
of Exercise.

 

i.              Authorization
of AIR Debenture.  The Company
covenants that during the period this AIR is outstanding, it will reserve from
its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of all of the shares of Common Stock underlying the
AIR Debenture (the “AIR Debenture Shares”).  The Company further covenants that its
issuance of this AIR shall constitute full authority to its officers who are
charged with the duty of executing certificates to execute and issue the
necessary certificates for the AIR Debenture upon the exercise of the purchase
rights under, and in accordance with the terms of, this AIR and Common Stock
certificates upon conversion of the AIR Debentures. The Company covenants that
the AIR Debenture which may be issued upon the exercise of the purchase rights
represented by this AIR and the AIR Debenture Shares issuable thereunder will,
upon exercise of the purchase rights represented by this AIR, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).  The Company will take all such reasonable
action as may be necessary to assure that the AIR Debenture and AIR Debenture
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.

 

ii.             Delivery
of Certificates Upon Exercise. 
Certificates for the AIR Debenture purchased hereunder shall be
delivered to the Holder within 3 Trading Days from the delivery to the Company
of the Notice of Exercise Form, surrender of this AIR and payment of the
principal amount as set forth above (“AIR Debenture Delivery Date”).  This AIR shall be deemed to have been
exercised on the date the payment of the principal amount is received by the
Company.  The AIR Debenture shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such

 

2

 

security for all purposes, as of the date the AIR has been exercised by
payment to the Company of the principal amount and all taxes required to be
paid by the Holder, if any, pursuant to Section 2(b)(v) prior to the
issuance of such security, have been paid.

 

iii.            Delivery
of New AIRs Upon Exercise.  If this
AIR shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing the AIR Debenture,
deliver to Holder a new AIR evidencing the rights of Holder to purchase the
remaining principal amount of the AIR Debenture called for by this AIR, which
new AIR shall in all other respects be identical with this AIR.

 

iv.            Rescission
Rights.  If the Company fails to
deliver to the Holder a certificate or certificates representing the AIR
Debenture pursuant to this Section 2(b)(iv) by the AIR Debenture
Delivery Date, then the Holder will have the right to rescind such exercise.

 

v.             Charges,
Taxes and Expenses.  Issuance of
certificates for AIR Debentures 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 AIR Debentures are to be issued in a name
other than the name of the Holder, this AIR 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.

 

vi.            Closing
of Books.  The Company will not close
its records in any manner which prevents the timely exercise of this AIR,
pursuant to the terms hereof or the conversion of the AIR Debentures pursuant
to the terms thereof.

 

Section 3.               Certain
Adjustments.

 

a)             Stock
Dividends and Splits. If the Company, at any time while this AIR is
outstanding: (A) pays a stock dividend or otherwise make 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
pursuant to the AIR Debentures, the Debentures or the Warrants), (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

 

3

 

case the AIR Conversion 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 before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such event.  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 AIR is outstanding, shall offer, sell, grant any option to
purchase or offer, sell or grant any right to reprice its securities, 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 AIR Conversion Price (such lower price, the “Base
Share Price” and such issuances collectively, a “Dilutive Issuance”),
as adjusted hereunder (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 is 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 AIR Conversion Price,
such issuance shall be deemed to have occurred for less than the AIR Conversion
Price), then, the AIR Conversion Price shall be reduced to equal the Base Share
Price.  Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in
writing, no later than the business day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms.

 

c)             Pro
Rata Distributions. If the Company, at any time while this AIR is
outstanding, distributes to all holders of Common Stock (and not to Holders)
evidences of its indebtedness or assets 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 AIR Conversion Price shall be
determined by multiplying such AIR Conversion 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 Closing
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Price on such record date less the then 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

 

4

 

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.

 

d)            Calculations.
All calculations and adjustments to the AIR Conversion Price 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 outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if
any) outstanding.

 

e)             Notice
to Holders.

 

i.              Adjustment
to AIR Conversion Price. Whenever the AIR Conversion Price is adjusted
pursuant to this Section 3, the Company shall promptly mail to each Holder
a notice setting forth the AIR Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.

 

ii.             Notice
to Allow Exercise by Holder. If (A) the Company shall declare a
dividend (or any other distribution) 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 addresses as it shall appear
upon the AIR 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

 

5

 

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 AIR
during the 20-day period commencing the date of such notice to the effective
date of the event triggering such notice.

 

f)             Fundamental
Transaction. If, at any time while this AIR 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 (in any such case, a “Fundamental
Transaction”), then, upon any
subsequent exercise of this AIR the Holder shall
have the right to receive upon conversion of the AIR Debenture, for each
AIR Debenture Share that would have been issuable upon such exercise and then
subsequent conversion absent such Fundamental Transaction shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and
Alternate Consideration receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which the underlying AIR Debentures
are convertible immediately prior to such event (the “Alternate
Consideration”).  For purposes of any
such deemed conversion, the determination of the AIR Conversion 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 AIR
Conversion 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 conversion of the
AIR Debenture underlying this AIR 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 additional investment
right consistent with the foregoing provisions and evidencing the Holder’s
right to exercise such additional investment right ultimately 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 paragraph (f) and
insuring that this AIR (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

6

 

g)            Exempt
Issuance. Notwithstanding the foregoing, no adjustments, Alternate
Consideration nor notices shall be made, paid or issued under this Section 3
in respect of an Exempt Issuance.

 

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

 

Section 4.               Transfer
of AIR.

 

a)             Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this AIR
and all rights hereunder are transferable, in whole or in part, upon surrender
of this AIR at the principal office of the Company, together with a written
assignment of this AIR 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 AIR or AIRs 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 AIR evidencing the portion of
this AIR not so assigned, and this AIR shall promptly be cancelled.  An AIR, if properly assigned, may be
exercised by a new holder for the purchase of AIR Debentures without having a
new AIR issued.

 

b)            New
AIRs. This AIR may be divided or combined with other AIRs upon presentation
hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new AIRs 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 AIR or AIRs in exchange for the AIR or AIRs to be divided or
combined in accordance with such notice.

 

c)             AIR
Register. The Company shall register this AIR, upon records to be
maintained by the Company for that purpose (the “AIR Register”), in the
name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this AIR 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 AIR in connection with any transfer of this AIR, the transfer of this
AIR shall not be registered pursuant to an effective registration statement under the Securities Act
and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such transfer (i) that the Holder or transferee of this

 

7

 

AIR, as the case may be,
furnish to the Company a written opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without
registration under the
Securities Act and under applicable state securities or blue sky laws, (ii) that
the holder or transferee execute and deliver to the Company an investment
letter in form and substance acceptable to the Company and (iii) that the
transferee be an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or
a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act.

 

Section 5.               Miscellaneous.

 

a)             Title
to the Additional Investment Right. 
Prior to the Termination Date and subject to compliance with applicable
laws and Section 4 of this AIR, this AIR and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the Holder in person or by duly authorized attorney, upon surrender of this AIR
together with the Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

 

b)            No
Rights as Creditor/Debentureholder or Shareholder Until Exercise.  This AIR does not entitle the Holder to any
rights as a creditor of the Company pursuant to the AIR Debenture prior to the
exercise hereof nor does this AIR entitle the Holder to any voting rights or
other rights as a shareholder of the Company prior to any conversion of the AIR
Debenture.  Upon the surrender of this
AIR and the payment of the aggregate principal amount, the AIR Debentures so
purchased shall be and be deemed to be issued to such Holder as the record
owner of such AIR Debentures as of the close of business on the later of the
date of such surrender or payment.

 

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

 

d)            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 be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.

 

8

 

e)             Authorized
Shares.

 

The Company covenants
that during the period the AIR is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the shares of Common Stock issuable upon conversion of the
AIR Debenture.  The Company further
covenants that its issuance of this AIR shall constitute full authority to its
officers who are charged with the duty of executing certificates to execute and
issue the necessary certificates for the AIR Debentures upon the exercise of
the purchase rights under, and in accordance with the terms of, this AIR.  The Company will take all such reasonable
action as may be necessary to assure that such AIR Debentures and AIR Debenture
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.

 

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 AIR
or the AIR Debentures, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
AIR and the AIR Debenture against impairment. 
Without limiting the generality of the foregoing, the Company will (a) take
all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable AIR Debentures upon
the exercise of this AIR and AIR Debenture Shares upon conversion of the AIR
Debentures, and (b) 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 AIR and the AIR Debentures.

 

Before taking any action
which would result in an adjustment in the AIR Debentures for which this AIR is
exercisable or in the AIR Conversion 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.

 

f)             Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of this AIR shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. 
Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this AIR (whether brought against a

 

9

 

party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York.  Each party 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
improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this AIR and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  The parties hereby waive, to the
fullest extent permitted by applicable law, all rights to a trial by jury.  If either party shall commence an action or
proceeding to enforce any provisions of this AIR, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

 

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

 

h)            Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice 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
AIR, which results in any material damages to the Holder, the Company shall pay
to 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 Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.

 

i)              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.

 

j)              Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this AIR or
purchase AIR Debentures, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any AIR Debenture or any AIR

 

10

 

Debenture Shares or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.

 

k)             Remedies.  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 AIR.  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 AIR and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.

 

l)              Successors
and Assigns.  Subject to applicable
securities laws, this AIR 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 AIR are intended to be for the benefit of all
Holders from time to time of this AIR and shall be enforceable by any such
Holder or holder of AIR Debentures.

 

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

 

n)            Severability.  Wherever possible, each provision of this AIR
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this AIR 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 AIR.

 

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

 

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

 

11

 

IN WITNESS WHEREOF, the
Company has caused this AIR to be executed by its officer thereunto duly
authorized.

 

Dated:  October    , 2004

 

	
   

  	
  POWER 3 MEDICAL PRODUCTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

12

 

NOTICE OF
EXERCISE

 

TO:         POWER
3 MEDICAL PRODUCTS, INC.

 

(1)           The
undersigned hereby elects to purchase $         
principal amount of AIR Debentures of Power 3 Medical Products, Inc.
pursuant to the terms of the attached AIR and tenders herewith payment of the
principal in full, together with all applicable transfer taxes, if any.

 

(2)           Payment
shall take the form of (check applicable box) in lawful money of the United
States; or

 

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

 

 

 

The AIR Debentures shall
be delivered to the following:

 

 

 

 

(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
  Investing Entity:

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

13

 

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, the
foregoing AIR 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 AIR, 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 AIR.

 

14

 

SCHEDULE TO FORM OF ADDITIONAL INVESTMENT RIGHT
 
The Company has issued Additional Investment Rights to the following listed holders. The terms of the Additional Investment Rights issued by the Company to each of the following holders are identical except for the name of the holder and the principal amount of convertible debentures to be purchased upon exercise of the Additional Investment Rights.
 

	
   

  	
   

  	
  PRINCIPAL AMOUNT OF

  	
   

  
	
  HOLDER

  	
   

  	
  CONVERTIBLE DEBENTURES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cityplatz
  Limited

  	
   

  	
  $

  	
  125,000

  	
   

  
	
  Crescent
  International Ltd.

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  Crestview
  Capital Master, LLC

  	
   

  	
  $

  	
  375,000

  	
   

  
	
  DKR
  SoundShore Oasis Holding Fund Ltd.

  	
   

  	
  $

  	
  125,000

  	
   

  
	
  Gryphon
  Master Fund L.P.

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  GSSF Master
  Fund, LP

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  Mohawk
  Funding

  	
   

  	
  $

  	
  25,000

  	
   

  
	
  Omicron
  Master Trust

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  Otape
  Investments LLC

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  Platinum
  Partners Value Arbitrage Fund L.P.

  	
   

  	
  $

  	
  208,333

  	
   

  
	
  Richard
  Molinsky

  	
   

  	
  $

  	
  75,000

  	
   

  
	
  Sage Capital
  Investments Limited

  	
   

  	
  $

  	
  62,500

  	
   

  
	
  Bach Farms
  LLC

  	
   

  	
  $

  	
  4,167

  	
   

  

 

15

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