Document:

exh10_2.htm

     

    
      

      

    

    Exhibit
10.2

     

    Execution Version

    
 

     

    REGISTRATION
RIGHTS AGREEMENT

     

    THIS
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of September 21, 2009, among Prospect Capital Corporation, a Maryland
corporation (the "Corporation"), and
the persons identified on the signature page hereof (referred to collectively
herein as the "Purchasers" and each
individually as a "Purchaser").

     

    R E C I T A L S:

     

    WHEREAS,
this Agreement is made pursuant to the Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated as of September 21, 2009, by and among the Corporation
and certain Purchasers of Shares; and

     

    WHEREAS,
in connection with the consummation of the transactions contemplated by the
Stock Purchase Agreement, the parties desire to enter into this Agreement in
order to grant certain registration rights to the Purchasers as set forth
below.

     

    NOW,
THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     

    SECTION
1.

    GENERAL

     

    1.1 Definitions.  As
used in this Agreement, the following terms shall have the following respective
meanings:

     

    "Affiliate" of any
particular Person means any other Person controlling, controlled by or under
common control with such particular Person or entity.

     

    "Closing Date" means
the date on which the closing of the transactions contemplated by the Stock
Purchase Agreement occurs.

     

    "Common Stock" means
shares of common stock, $0.001 par value per share, of the
Corporation.

     

    "Exchange Act" means
the Securities Exchange Act of 1934, as amended, or similar federal statute, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.

     

    "Form N-2" means such
form under the Securities Act as in effect on the date hereof or any successor
or similar registration form under the Securities Act subsequently adopted by
the SEC to be used by all closed-end management investment companies, except
small business investment companies licensed as such by the United States Small
Business Administration, for filing: (1) an initial registration statement under
Section 8(b) of the Investment Company Act of 1940 and any amendment to it; (2)
a registration statement under the Securities Act and any amendment to it; or
(3) any combination of these filings.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    "Holder" means any
Purchaser who holds Registrable Securities and any holder of Registrable
Securities to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 2.8
hereof.

     

    "Mandatory Registration
Statement" shall have the meaning ascribed to it in Section 2.1
hereof.

     

    "Person" means any
individual, corporation, partnership, joint venture, limited liability company,
business trust, joint stock company, trust or unincorporated organization or any
government or any agency or political subdivision thereof.

     

    "Register," "registered," and
"registration"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of effectiveness of such
registration statement.

     

    "Registrable
Securities" means (a) the Shares; and (b) any Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right,
preferred stock or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the Shares
held by the Holders; provided, however, that
Registrable Securities shall not include any shares of Common Stock (i) which
have been sold to the public by a Holder either pursuant to a registration
statement or Rule 144 under the Securities Act; (ii) which have been sold in a
private transaction in which the transferor's rights under this Agreement are
not assigned in compliance with the terms of this Agreement; or (iii) which may
be sold by the Holder in question pursuant to Rule 144 without volume
restrictions or public information requirements.

     

    "Registrable Securities then
outstanding" shall be the number of shares determined by calculating the
total number of shares of Common Stock that are Registrable Securities issued
and outstanding.

     

    "Registration
Expenses" shall mean all expenses incurred by the Corporation in
effecting any registration pursuant to this Agreement (including any Mandatory
Registration Statement or Shelf Registration), including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Corporation, blue sky fees and expenses, and expenses of the
Corporation's independent accountants in connection with any regular or special
reviews or audits incident to or required by any such registration, and any
other Persons retained by the Corporation and the compensation of regular
employees of the Corporation, which shall be paid in any event by the
Corporation, but shall not include Selling Expenses.

     

    "SEC" or "Commission" means the
Securities and Exchange Commission and any successor agency.

     

     

    
      
        
        

      

      
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    "Securities Act" shall
mean the Securities Act of 1933, as amended, or similar federal statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.

     

    "Selling Expenses"
shall mean all underwriting discounts, selling commissions, fees of
underwriters, selling brokers, dealer managers and similar securities industry
professionals and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder.

     

    "Shares" mean shares
of Common Stock issued by the Corporation to the Purchasers pursuant to the
Stock Purchase Agreement.

     

    "Shelf Registration"
shall have the meaning ascribed to it in Section 2.1
hereof.

     

    "Shelf Termination
Date" shall have the meaning ascribed to it in Section 2.1
hereof.

     

    "Trading Day" means a
day on which the principal securities exchange or automated quotation system,
upon which the Registrable Securities are then listed for public trading, shall
be open for business.

     

    "Violation" shall have
the meaning ascribed to it in Section 2.7(a)
hereof.

     

    SECTION
2.

    REGISTRATION

     

    2.1 Shelf
Registration.

     

    2.1.1 In
accordance with the requirements of Section 2.3 below,
the Corporation shall use its reasonable best efforts to file with the SEC
within twenty-five (25) days after the date hereof, and to cause to be declared
effective by the SEC within eighty-five (85) days after the date hereof, a
post-effective amendment to the registration statement on Form N-2 No.
333-143819, currently on file with the Commission as of the date hereof, and/or
a successor registration statement on Form N-2 in accordance with and pursuant
to Rule 415 promulgated under the Securities Act (or any successor rule then in
effect) (a "Shelf
Registration") with respect to the resale from time to time, whether
underwritten or otherwise, of the Registrable Securities by the Holders
thereof.  The Corporation shall also use its reasonable best efforts,
once such post-effective amendment or successor registration statement becomes
effective, to maintain the effectiveness of the registration effected pursuant
to this Section
2.1 and keep such registration statement free of any material
misstatements or omissions at all times, subject only to the limitations on
effectiveness set forth below.  The registration statement
contemplated by this Section 2.1 is
referred to herein as the "Mandatory Registration
Statement."  The Corporation shall use its reasonable best
efforts to cause the Mandatory Registration Statement to remain effective until
such date (the "Shelf
Termination Date") as is the earlier of (i) the date on which all
Registrable Securities included in the registration statement shall have been
sold or shall have otherwise ceased to be Registrable Securities and
(ii) the date on which all remaining Registrable Securities may be sold
pursuant to Rule 144 without volume restrictions or public information
requirements.  The Corporation's efforts to maintain the effectiveness
of the Mandatory Registration Statement shall include filing periodic prospectus
supplements or post-effective amendments until the Shelf Termination Date to
update the financial statements contained in such registration statement in
accordance with Regulation S-X promulgated under the Securities Act and to
update the names and other information regarding the Holders contained in such
registration statement in accordance with the Securities Act.  For the
avoidance of doubt, the Mandatory Registration Statement covering such
Registrable Securities also shall include, by means of the same prospectus
supplement, such securities of the Corporation as described in that certain
registration rights agreement, by and between the Corporation and certain
purchasers, dated August 17, 2009, and filed with the SEC on August 21, 2009,
and defined therein as "Registrable Securities".  In no event shall a
Holder be required to be named as an "underwriter" in a registration statement
without such Holder's prior written consent.

     

     

    
      
        
        

      

      
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    2.1.2 If: (i)
the Mandatory Registration Statement is not filed on or prior to twenty-five
(25) days after the date hereof, or (ii) the Corporation fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five Trading Days of the date that the
Corporation is notified (orally or in writing, whichever is earlier) by the
Commission that the Mandatory Registration Statement will not be "reviewed," or
not subject to further review, or (iii) the Mandatory Registration Statement
filed or required to be filed hereunder is not declared effective by the
Commission within eighty-five (85) days after the date hereof (the "85-Day Deadline"), or
(iv) in the event that, after the 85-Day Deadline, the Registrable Securities
have not been listed on the Trading Markets (as defined below), or (v) after the
85-Day Deadline, the Mandatory Registration Statement ceases for any reason to
remain continuously effective as to all Registrable Securities for which it is
required to be effective, or the Holders are otherwise not permitted to utilize
the prospectus therein to resell such Registrable Securities for more than 14
consecutive calendar days or more than an aggregate of 20 calendar days during
any 12-month period (which need not be consecutive calendar days) (any such
failure or breach being referred to as an "Event", and for
purposes of clause (i), (iii) or (iv) the date on which such Event occurs, or
for purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (v) the date on which such 14 or 20 calendar
day period, as applicable, is exceeded being referred to as "Event Date"), then in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured or such Holder no longer owns Registrable Securities,
the Corporation shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to 1% of the aggregate purchase
price paid by such Holder for any Registrable Securities then held by such
Holder.  The parties agree that (1) in no event will the Corporation
be liable in any 30-day period for liquidated damages under this Agreement in
excess of 1% of the aggregate purchase price paid by the Holders and (2) the
maximum aggregate liquidated damages payable to a Holder under this Agreement
shall be eighteen percent (18%) of the aggregate purchase price paid or
aggregate number of Shares purchased (or combination thereof) by such Holder. If
the Corporation fails to pay any partial liquidated damages pursuant to this
Section in full within seven days after the date payable, the Corporation will
pay interest thereon at a rate of 18% per annum (or such lesser maximum amount
that is permitted to be paid by applicable law) to the Holder, accruing daily
from the date such partial liquidated damages are due until such amounts, plus
all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event.

     

     

     

    
      
        
        

      

      
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    2.2 Expenses of
Registration.  All reasonable Registration Expenses incurred in
connection with any registration hereunder shall be borne by the
Corporation.  All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the Holders of the Registrable
Securities so registered pro rata on the basis of the number of shares so
registered.

     

    2.3 Additional Obligations of
the Corporation.  The Corporation shall:

     

    (a) At least
three (3) Trading Days before filing the Mandatory Registration Statement,
furnish to the counsel selected by the Holders of a majority of the Registrable
Securities covered by such registration statement copies of all such documents
proposed to be filed, and the Corporation shall in good faith consider any
reasonable comments of such counsel received prior to filing.

     

    (b) Promptly
notify the Holders when the Mandatory Registration Statement is declared
effective by the Commission.  The Corporation shall respond as
promptly as reasonably practicable to any comments received from the Commission
with respect to the registration statement or any amendments thereto and shall
furnish to the Holders, upon request, any comments of the Commission staff
regarding the Holders.  The Corporation shall promptly file with the
Commission a request for acceleration of effectiveness in accordance with Rule
461 promulgated under the Securities Act after the Corporation concludes that
the staff of the Commission has no further comments on the filing.

     

    (c) Furnish
to the Purchasers and Holders such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.

     

    (d) Use its
reasonable best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such U.S.
jurisdictions as shall be reasonably requested by the Holders unless an
exemption from registration and qualification exists; provided that the
Corporation shall not be required in connection therewith or as a condition
thereto to qualify to do business, file a general consent to service of process
or subject itself to general taxation in any such states or
jurisdictions.

     

    (e) In the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering, so long as each Purchaser and/or
Holder participating in such underwriting also enters into and performs its
obligations under such an agreement.

     

    (f) Promptly
notify each Purchaser who holds, and each Holder of Registrable Securities
covered by the registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing (provided that in no event shall such notice contain any material,
non-public information regarding the Corporation) and, when such state of facts
no longer exists whether due to passage of time or filing of supplemental
disclosure by the Corporation, the Corporation shall promptly furnish to each
such Holder a reasonable number of copies of any supplement or amendment to such
prospectus filed by the Corporation.

     

     

    
      
        
        

      

      
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    (g) Use its
reasonable best efforts to (i) prevent the issuance of any stop order or
other suspension of effectiveness of such registration statement, or the
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction in the United States, and (ii) in the event of the
issuance of any stop order suspending the effectiveness of such registration
statement, or any order suspending or preventing the use of any related
prospectus or suspending the qualification of any equity securities included in
such registration statement for sale in any jurisdiction, the Corporation shall
use its reasonable best efforts promptly to obtain the withdrawal of such
order.

     

    (h) Use its
reasonable best efforts to cause all Shares to be listed on each securities
exchange (including, if applicable, the NASDAQ Global Select Stock Market) on
which similar securities issued by the Corporation are then listed
(collectively, the "Trading Markets"),
including, without limitation, the filing of any required additional listing
applications.

     

    (i) Use its
reasonable best efforts to cooperate with the Holders who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities sold pursuant to the Mandatory
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the Holders may reasonably request and,
registered in such names as the Holders may request.

     

    (j) Provide
and cause to be maintained a registrar and transfer agent for all Registrable
Securities covered by any registration statement from and after a date not later
than the effective date of such registration statement.

     

    (k) Not, nor
shall any subsidiary or affiliate thereof, identify any Purchaser as an
underwriter in any public disclosure or filing with the SEC or the NASDAQ Stock
Market or any other securities exchange or market without the consent of such
Purchaser except as required by law.

     

    2.4 Suspension of
Sales.  Upon receipt of written notice from the Corporation
that the Mandatory Registration Statement or a prospectus relating thereto
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (a "Misstatement"), each
Holder of Registrable Securities shall forthwith discontinue disposition of
Registrable Securities until such Purchaser and/or Holder has received copies of
the supplemented or amended prospectus that corrects such Misstatement, or until
such is advised in writing by the Corporation that the use of the prospectus may
be resumed, and, if so directed by the Corporation, such Holder shall deliver to
the Corporation all copies, other than permanent file copies then in such
Purchaser's or Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.  The total
number of days that any such suspension may be in effect in any three
hundred-sixty-five (365) day period shall not exceed 90 days.

     

     

    
      
        
        

      

      
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    2.5 Termination of Registration
Rights.  A Holder's registration rights, including any right to
payment under Section
2.1.2, shall expire if all Registrable Securities held by such Holder may
be sold pursuant to Rule 144 without volume restrictions or public information
requirements.  Termination of such registration rights shall be
conditioned upon the Corporation's removal of the restrictive legends from any
Registrable Securities held by such Holder.

     

    2.6 Furnishing
Information.  It shall be a condition precedent to the
obligations of the Corporation to take any action pursuant to this Agreement
that the selling Holders shall furnish to the Corporation such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.

     

    2.7 Indemnification.  In
the event any Registrable Securities are included in a registration statement
under this Section
2:

     

    (a) To the
extent permitted by law, the Corporation will indemnify and hold harmless each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become subject under the
Securities Act, the Investment Company Act or the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"):  (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any related preliminary prospectus or
final prospectus or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Corporation of the
Securities Act, the Exchange Act, the Investment Company Act, any other federal
or state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any other federal or state securities law in
connection with the registration of the Registrable Securities; and the
Corporation will pay to each such Holder, underwriter or controlling person, as
incurred any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the
indemnity agreement contained in this Section 2.7(a) shall
not apply to any Holder or underwriter (or any related controlling person) with
respect to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Corporation (which consent shall not be unreasonably withheld), nor shall the
Corporation be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs solely in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
statement by any such Holder, underwriter or controlling person or any failure
of such person to deliver or cause to be delivered a prospectus made available
by the Corporation in a timely manner.

     

     

    
      
        
        

      

      
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    (b) To the
extent permitted by law and provided that such Holder is not entitled to
indemnification pursuant to Section 2.7(a) above
with respect to such matter, each selling Holder (severally and not jointly)
will indemnify and hold harmless the Corporation, each of its directors,
officers, persons, if any, who control the Corporation within the meaning of the
Securities Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities to which any
of the foregoing persons may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any (i) untrue statement or alleged untrue statement of a
material fact regarding such Holder and provided in writing by such Holder
expressly for use in connection with a registration statement which is contained
in such registration statement, including any related preliminary prospectus or
final prospectus or any amendments or supplements thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, in
each case to the extent (and only to the extent) that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration statement;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any Person intended to be indemnified pursuant to this
Section 2.7(b),
in connection with investigating or defending any such loss, claim, damage,
liability, or action as a result of such Holder's untrue statement or omission;
provided, however, that the
indemnity agreement contained in this Section 2.7(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld); provided, that, (x)
the indemnification obligations in this Section 2.7(b) shall
be individual and ratable not joint and several for each Holder and (y) in no
event shall the aggregate of all indemnification payments by any Holder under
this Section
2.7(b) exceed the net proceeds from the offering received by such
Holder.

     

    (c) Promptly
after receipt by an indemnified party under this Section 2.7 of notice
of the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.7, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the reasonable fees and expenses of such counsel to be
paid by the indemnifying party, if (i) the indemnifying party shall have
failed to assume the defense of such claim within seven (7) days after receipt
of notice of the claim and to employ counsel reasonably satisfactory to such
indemnified party, as the case may be; or (ii) in the reasonable opinion of
counsel retained by the indemnifying party, representation of such indemnified
party by such counsel would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.  The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party reasonably apprised of the status of the
defense or any settlement negotiations with respect thereto.  No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.7,
except to the extent such failure to give notice has a material adverse effect
on the ability of the indemnifying party to defend such action.

     

     

    
      
        
        

      

      
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    (d) If the
indemnification provided for in this Section 2.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations.  The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the amount any Holder will
be obligated to contribute pursuant to this Section 2.7(d) will
be limited to an amount equal to the per share public offering price (less any
underwriting discount and commissions) multiplied by the number of shares of
Registrable Securities sold by such Holder pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which such Holder has otherwise been required to pay in
respect of such loss, liability, claim, damage, or expense or any substantially
similar loss, liability, claim, damage, or expense arising from the sale of such
Registrable Securities).  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution hereunder from any person who was not guilty of
such fraudulent misrepresentation.

     

     

     

     

    
      
        
        

      

      
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    (e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution with respect to an underwriter contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control; provided that the
indemnification provisions of the Holders in any underwriting agreement may not
conflict with the provisions of this Section 2.7 without
the consent of the affected Holders.

     

    (f) The
obligations of the Corporation and Holders under this Section 2.7 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and
otherwise.

     

    2.8 Assignment of Registration
Rights.  The rights to cause the Corporation to register
Registrable Securities pursuant to this Agreement may be assigned by a Purchaser
or Holder to a transferee or assignee of Registrable Securities if (a) such
transferee is an investment advisory client, Affiliate, subsidiary or parent
company, family member or family trust for the benefit of a party hereto,
(b) such transferee shares a common discretionary investment advisor with
such Purchaser or Holder, (c) such transferee acquires at least 25% of the
Registrable Securities then owned by such Purchaser or Holder, or (d) such
transferee or transferees are partners or members of a Purchaser or Holder;
provided that, in the case of subsection (d), all such direct and indirect
transferees or assignees of a particular Holder agree to act through a single
representative; and provided further, however, (i) the
transferor shall furnish to the Corporation written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (ii) such transferee shall agree
to be subject to all restrictions set forth in this Agreement.

     

    2.9 Rule 144
Reporting.  With a view to making available to the Purchasers
and Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Corporation agrees to use its reasonable best efforts
to:

     

    (a) make and
keep public information available, as those terms are understood and defined in
Securities Act Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times after the effective date of this
Agreement;

     

    (b) file with
the SEC, in a timely manner, all reports and other documents required of the
Corporation under the Exchange Act; and

     

    (c) so long
as a Holder owns any Registrable Securities, furnish to such Holder forthwith
upon request a written statement by the Corporation as to its compliance with
the reporting requirements of Rule 144 under the Securities Act, and of the
Exchange Act; a copy of the most recent annual or quarterly report of the
Corporation; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.

     

    2.10 Obligations of the
Holders

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    (a) Each
Holder shall furnish in writing to the Corporation such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Corporation
may reasonably request in connection therewith, upon the execution of this
Agreement, each Holder shall complete, execute and deliver to the Corporation a
selling securityholder notice and questionnaire in form reasonably satisfactory
to the Corporation.  At least five (5) business days prior to the
first anticipated filing date of any registration statement, the Corporation
shall notify each Holder of any additional information the Corporation requires
from such Holder if such Holder elects to have any of the Registrable Securities
included in such registration statement.  A Holder shall provide such
information to the Corporation at least two (2) business days prior to the first
anticipated filing date of such Registration Statement if such Holder elects to
have any of the Registrable Securities included in the Registration
Statement.

     

    (b) Each
Holder, by its acceptance of the Registrable Securities agrees to cooperate with
the Corporation as reasonably requested by the Corporation in connection with
the preparation and filing of a Registration Statement hereunder, unless such
Holder has notified the Corporation in writing of its election to exclude all of
its Registrable Securities from such Registration Statement.

     

    (c) Each
Holder covenants and agrees that it shall comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to any Registration Statement.

     

    SECTION
3.

    MISCELLANEOUS

     

    3.1 Successors and
Assigns.  Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including, subject to
Section 2.8,
permitted transferees of Registrable Securities).  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

     

    3.2 Governing Law; Waiver of
Jury Trial; Arbitration.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New 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.   EACH PARTY HERETO EXPRESSLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION RELATING HERETO OR THERETO.  EACH PARTY HERETO CONSENTS
AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF
NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN OR AMONG ANY OF THE PARTIES HERETO PERTAINING TO THIS
AGREEMENT OR THE TRANSACTION UNDER CONSIDERATION, PROVIDED, THAT ANY SUCH
DISPUTE, INCLUDING BUT NOT LIMITED TO ANY ISSUE REGARDING ARBITRABILITY, MUST
FIRST BE SUBMITTED TO BINDING ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH
THE COMMERCIAL ARBITRATION RULES AND THE EXPEDITED PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA") THEN IN EFFECT ("THE RULES"), EXCEPT
AS MODIFIED HEREIN.  JUDGMENT UPON THE AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

    3.3 Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument

     

    3.4 Titles and
Subtitles.  The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement

     

    3.5 Notices.  Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and sent by recognized overnight courier or registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.  Notices under this Section 3.5 shall
deemed given only when actually received.

     

    3.6 Expenses.  If
any action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.

     

    3.7 Amendments and
Waivers.  Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Corporation and the holders of two-thirds of the
Registrable Securities then outstanding.  Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
any Registrable Securities then outstanding, each future Holder of all such
Registrable Securities, and the Corporation.  No such amendment shall
be effective to the extent that it applies to less than all of the Holders of
the Registrable Securities.  No consideration shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision
of this Agreement unless the same consideration also is offered to all of the
parties to this Agreement.

     

    3.8 Severability.  Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

    3.9 Aggregation of
Stock.  All shares of Registrable Securities held or acquired
by any Purchasers which are Affiliates shall be aggregated together for the
purpose of determining the availability of any rights under this
Agreement.

     

    3.10 Entire
Agreement.  This Agreement supersedes all other prior oral or
written agreements between the Purchasers, the Corporation, their Affiliates and
Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Corporation nor any Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters.

     

    [SIGNATURE
PAGE FOLLOWS]

     

    

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
set forth herein.

    
 

     

    
    

     

    
      	 	 PROSPECT CAPITAL
      CORPORATION
	 	 
	 	 By:                                                              
        
	 	 Name:                                                         
       
	 	 Title:                                                          
         
	 	 
	 	 Address:  10
      East 40th Street, 44th Floor
	 	                   
      New York, New York 10016

    

     

     

    
 

     

    [SIGNATURE
PAGE FOLLOWS]

     

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    
 

     

    
      	 	                                                                               
      
	 	 Purchaser
	 	 
	 	 
	 	 By:                                                                         
	 	 Name:                              
                                           
      
	 	 Title:   
                                                                        
      
	 	 
	 	 Address:  
                                                                
      
	 	             
                                                                      
      
	 	                 
                                                                  
      
	 	 

    

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      855259-New
York Server 1A - MSWEXHIBIT
4.1

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OR REDEMPTION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF OR EXERCISED UNLESS (I) A REGISTRATION STATEMENT REGISTERING
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE, OR (II) THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS, OR (III) SUCH SECURITIES ARE SOLD PURSUANT TO RULE
144 OR RULE 144A.

 

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH
DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED.

 

	
  Warrant to Purchase

  	
   

  	
   

  	 

	 
	
  Shares

  	
   

  	
  Warrant
  Number   

  
							

 

Warrant
to Purchase Common Stock

of

ARRAY
BIOPHARMA INC.

 

THIS CERTIFIES that
                                    
or any subsequent holder hereof (“Holder”) has the right to purchase
from ARRAY BIOPHARMA INC., a Delaware corporation, (the “Company”),
                              
(              )
fully paid and nonassessable shares, of the Company’s common stock, $0.001 par
value per share (“Common Stock”), subject to adjustment as provided
herein, at a price equal to the Exercise Price (as defined in Section 3
below), at any time during the Term (as defined below).

 

Holder agrees with the Company that this Warrant to
Purchase Common Stock of the Company (this “Warrant” or this “Agreement”)
is issued and all rights hereunder shall be held subject to all of the
conditions, limitations and provisions set forth herein.

 

1. Date of Issuance and Term.

 

This Warrant shall be deemed to be issued on
[        ], 2009 (“Date of Issuance”).
The term of this Warrant begins on the Date of Issuance and ends at
5:00 p.m., New York City time on April 29, 2014 (the “Term”). This
Warrant was issued in conjunction with that certain Facility Agreement (the “Facility
Agreement”) by and between the Company and Deerfield Private Design Fund,
L.P., a Delaware limited partnership, and Deerfield Private Design
International, L.P., a limited partnership organized under the laws of the
British Virgin Islands (individually, a “Lender” and together, the “Lenders”),
that certain Registration Rights Agreement (“Registration Rights Agreement”)
by and between the Company and the Lenders, each dated May 15, 2009,
entered into in conjunction herewith.

 

Notwithstanding anything herein to the contrary, the
Company shall not issue to the Holder, and the Holder may not acquire, a number
of shares of Common Stock upon exercise of this Warrant to the extent that,
upon such exercise, the number of shares of Common Stock then beneficially
owned by the Holder and its Affiliates and any other persons or entities whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) (including shares held by any “group” of which the
Holder is a member, but excluding shares beneficially owned by virtue of the
ownership of securities or rights to acquire securities that have limitations
on the right to convert, exercise or purchase similar 

 

 

to the limitation set forth herein) would exceed 9.98%
of the total number of shares of Common Stock then issued and outstanding (the
“9.98% Cap”), provided, however, that the 9.98% Cap shall not apply with
respect to the issuance of shares of Common Stock pursuant to a Redemption Upon
Major Transaction (as defined below) in connection with a Major Transaction (as
defined below) covered by the provisions of Section 5(c)(i)(A)(1) below
in which the Company is not the surviving entity (a “Qualified Change of
Control Transaction”) to the extent that the number of shares beneficially
owned by the Holder and its affiliates in the successor entity immediately
following consummation of such Qualified Change of Control Transaction does not
exceed 9.98% of the outstanding common stock of such successor entity and
provided, further, that the 9.98% Cap shall only apply to the extent that the
Common Stock is deemed to constitute an “equity security” pursuant to
Rule 13d-1(i) promulgated under the Exchange Act.  For purposes hereof, “group” has the meaning
set forth in Section 13(d) of the Exchange Act and applicable
regulations of the Securities and Exchange Commission (the “SEC”), and
the percentage held by the Holder shall be determined in a manner consistent
with the provisions of Section 13(d) of the Exchange Act. Upon the
written request of the Holder, the Company shall, within two (2) Trading
Days confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding.

 

“Affiliate” means any person or entity that,
directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act of 1933,
as amended (the “Securities Act”). With respect to a Holder of Warrants,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Holder will be deemed to be an Affiliate
of such Holder.

 

“Business Day” means a day on which banks are
open for business in The City of New York.

 

“Holder” means Deerfield Private Design
International, L.P. and any transferee or assignee pursuant to the terms of
this Warrant.

 

“Trading Day” means any day on which the Common
Sock is traded for at least two hours on NASDAQ, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.

 

2. Exercise.

 

(a)  Manner of Exercise. During the period beginning on the
earlier of (x) the six-month anniversary of the date a “Disbursement” is
made pursuant to Section 2.2 of the Facility Agreement and
(y) September 9, 2009 if a “Disbursement Request” shall not have been
received pursuant to the terms of the Facility Agreement between the date
hereof and the close of business on September 9, 2009, and ending at
5:00 p.m., New York City time on April 29, 2014, this Warrant may be
Exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the “Warrant Shares” or the “Shares”) upon surrender of
this Warrant, with the Exercise Form attached hereto as Exhibit A
(the “Exercise Form”) duly completed and executed, together with the
full Exercise Price (as defined below, which may be satisfied by a Cash
Exercise or a Cashless Exercise, as each is defined below) for each share of
Common Stock as to which this Warrant is Exercised, at the office of the
Company, Array BioPharma Inc., 3200 Walnut Street, Boulder, CO 80301;
Attention: Chief Financial Officer Phone: (303) 381-6663, Fax: (303) 381-6697,
or at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the
Company and its transfer agent (“Transfer Agent”) by facsimile (such
surrender and payment of the Exercise Price hereinafter called the “Exercise”
of this Warrant).

 

(b) Date of Exercise. The “Date of Exercise” of the
Warrant shall be defined as the date that the Exercise Form attached
hereto as Exhibit A, completed and executed, and the original
Warrant are received by the Company and the Exercise Price is satisfied
pursuant to Section 3 below.  Upon
receipt of the properly completed and executed Exercise Form, the original
Warrant and the Exercise Price by the Company, 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 Depository Trust
Company (“DTC”) account or the date of delivery of the certificates
evidencing such Warrant Shares as the case may be.

 

(c) Delivery of Common Stock
Upon Exercise.
Within three (3) Business Days after any Date of Exercise (the “Delivery
Period”), the Company shall issue and deliver (or cause its Transfer Agent
so to issue and deliver) in accordance with the terms hereof to or upon the
order of the Holder that number of shares of Common Stock 

 

2

 

(“Exercise Shares”) for the portion of this
Warrant Exercised as shall be determined in accordance herewith. Upon the
Exercise of this Warrant or any part thereof, the Company shall, at its own cost
and expense, take all reasonable steps, including obtaining and delivering an
opinion of counsel, to assure that the Transfer Agent shall issue stock
certificates in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations to be specified at Exercise
representing the number of shares of Common Stock issuable upon such Exercise.
The Company warrants that no instructions contrary to these instructions have
been or will be given to the Transfer Agent and that, unless waived by the
Holder, the Exercise Shares will be free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Exercise Shares if the Unrestricted Conditions (as defined in paragraph 2(e)(ii) below)
are met.

 

(d) Delivery Failure. In addition to any other remedies which
may be available to the Holder, in the event that the Company fails for any
reason to effect delivery of the Exercise Shares by the end of the Delivery
Period (a “Delivery Failure”), the Holder will be entitled to revoke all
or part of the relevant Exercise Form by delivery of a notice to such
effect to the Company whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to the delivery of
such notice, except that the liquidated damages described herein shall be
payable through the date notice of revocation or rescission is given to the
Company.

 

(e) Legends.

 

(i) Restrictive Legend. The Holder
understands that until such time as this Warrant, the Exercise Shares and the
Redemption Shares have been registered under the Securities Act as contemplated
by the Registration Rights Agreement or otherwise may be sold pursuant to
Rule 144 under the Securities Act or an exemption from registration under
the Securities Act without any restriction as to the number of securities as of
a particular date that can then be immediately sold, this Warrant, the Exercise
Shares and the Redemption Shares, as applicable, shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such securities):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
EXERCISED UNLESS (I) A REGISTRATION STATEMENT REGISTERING SUCH SECURITIES
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE, OR (II) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR (III) SUCH SECURITIES ARE SOLD PURSUANT TO RULE 144 OR
RULE 144A.”

 

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 15, 2009, AS AMENDED
FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING
SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE COMPANY.”

 

(ii) Removal of Restrictive Legends. This
Warrant, the certificates evidencing the Exercise Shares and any Redemption
Shares, as applicable, shall not contain any legend restricting the transfer
thereof (including the legend set forth above in subsection 2(e)(i)):
(A) while a registration statement (including a Registration Statement, as
defined in the Registration Rights Agreement, or any Shelf Registration
Statement with respect to Redemption Shares, as defined in Section 4(c) below)
covering the resale of such security is effective under the Securities Act, or
(B) following any sale of such Warrant, Exercise Shares and/or Redemption
Shares pursuant to Rule 144, or (C) if such Warrant, Exercise Shares
and/or Redemption Shares are eligible for sale under Rule 144(b)(1)(i), or
(D) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the SEC) and the Company shall have received an opinion of counsel
of Holder to such effect (collectively, the “Unrestricted Conditions”).  The Company shall cause its counsel to issue
a legal opinion to the Transfer Agent promptly after the Effective Date (as
defined below) if required by the Company’s transfer agent to effect the
issuance of the Exercise Shares or any Redemption Shares without a 

 

3

 

restrictive legend or removal of the legend hereunder.
If the Unrestricted Conditions are met at the time of issuance of this Warrant,
Exercise Shares and/or Redemption Shares, then such Warrant, Exercise Shares
and/or Redemption Shares shall be issued free of all legends.  The Company agrees that following the Effective
Date or at such time as the Unrestricted Conditions are met or such legend is
otherwise no longer required under this Section 2(e), it will, no later
than three (3) Trading Days following the delivery (the “Unlegended
Shares Delivery Deadline”) by the Holder to the Company or the Transfer Agent
of this Warrant and a certificate representing Exercise Shares or Redemption
Shares, as applicable, issued with a restrictive legend (such third Trading
Day, the “Legend Removal Date”), deliver or cause to be delivered to
such Holder this Warrant and/or a certificate (or electronic transfer)
representing such shares that is free from all restrictive and other legends.
For purposes hereof, “Effective Date” shall mean the date that the
Registration Statement that the Company is required to file pursuant to the
Registration Rights Agreement or any Shelf Registration Statement pursuant to
Section 4(c) below has been declared effective by the SEC.

 

(iii) Sale of Unlegended Shares. Holder
agrees that the removal of the restrictive legend from this Warrant and any
certificates representing securities as set forth in this
Section 2(e)(ii) above is predicated upon the Company’s reliance that
the Holder will sell this Warrant, Exercise Shares and/or Redemption Shares
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if such securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein.

 

(f) Cancellation of Warrant. This Warrant shall be canceled upon the
full Exercise of this Warrant or upon full redemption of this Warrant. As soon
as practical after the Date of Exercise, Holder shall be entitled to receive
Common Stock for the number of shares purchased upon Exercise of this Warrant,
and if this Warrant is not Exercised in full, Holder shall be entitled to
receive a new Warrant (containing terms identical to this Warrant) representing
any unexercised portion of this Warrant in addition to such Common Stock.

 

(g) Holder of Record. Each person in whose name any Warrant for
shares of Common Stock is issued shall, for all purposes, be deemed to be the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Common Stock purchased upon the
Exercise of this Warrant. Nothing in this Warrant shall be construed as
conferring upon Holder any rights as a stockholder of the Company.

 

(h) Delivery of Electronic
Shares. In lieu
of delivering physical certificates representing the Common Stock issuable upon
Exercise or legend removal or representing Redemption Shares, provided the
Company’s Transfer Agent is participating in the DTC Fast Automated Securities
Transfer (“FAST”) program, upon written request of the Holder, the
Company shall use commercially reasonable efforts to cause its Transfer Agent
to electronically transmit the Common Stock issuable to the Holder by crediting
the account of the Holder’s prime broker with DTC through its Deposit
Withdrawal Agent Commission (DWAC) system. The time periods for delivery and
penalties described herein shall apply to the electronic transmittals described
herein.  Any delivery not effected by
electronic transmission shall be effected by delivery of physical certificates.

 

(i) Buy-In. 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 Exercise
Shares pursuant to an Exercise on or before the Delivery Period (other than a
failure caused by any incorrect or incomplete information provided by Holder to
the Company hereunder or the negligence or any act or failure to act of the
Transfer Agent), and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Exercise 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 Exercise Shares that the Company was
required to deliver to the Holder in connection with the Exercise at issue
times and (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 Exercise Shares
for which such Exercise was not honored or deliver to the Holder
certificate(s) representing 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 to cover the sale of Common Stock with an aggregate
sale price giving rise to such purchase obligation of $10,000, under subsection
(1) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide 

 

4

 

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.

 

3. Payment of Warrant Exercise Price.

 

(a) Exercise Price. The Exercise Price (“Exercise Price”)
shall initially equal $[      ] per share subject
to adjustment pursuant to the terms hereof, including but not limited to
Section 5 below.

 

Payment of the Exercise Price may be made by either of
the following, or a combination thereof, at the election of Holder:

 

(i) Cash Exercise: The Holder may exercise
this Warrant in cash, bank or cashier’s check or wire transfer (a “Cash
Exercise”); or

 

(ii) Cashless Exercise:  The Holder, at its option, may exercise
this Warrant in a cashless exercise transaction. In order to effect a Cashless
Exercise, the Holder shall surrender this Warrant at the principal office of
the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using
the following formula (a “Cashless Exercise”):

 

X = Y (A-B)/A

 

where:    X = the
number of shares of Common Stock to be issued to Holder.

 

Y = the number of
shares of Common Stock for which this Warrant is being Exercised.

 

A = the Market
Price of one (1) share of Common Stock (for purposes of this
Section 3(a)(ii), where “Market Price,” as of any date, means the
average Volume Weighted Average Price (as defined below) of the Company’s
Common Stock over the five (5) consecutive Trading Day period immediately
preceding the date in question.

 

B = the Exercise
Price.

 

As used herein, the “Volume Weighted Average Price”
for any security as of any date means the volume weighted average sale price on
The NASDAQ Global Market (“NASDAQ”) as reported by, or based upon data
reported by, Bloomberg Financial Markets or an equivalent, reliable reporting
service mutually acceptable to and hereafter designated by holders of a
majority in interest of the Warrants and the Company (“Bloomberg”) or,
if NASDAQ is not the principal trading market for such security, the volume
weighted average sale price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or, if no volume weighted average sale price is reported for such
security, then the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
that are listed in the over the counter market by the Financial Industry
Regulatory Authority, Inc. or in the “pink sheets” by the National
Quotation Bureau, Inc. If the Volume Weighted Average Price cannot be
calculated for such security on such date in the manner provided above, the
volume weighted average price shall be the fair market value as mutually
determined by the Company and the Holders of a majority in interest of the
Warrants being Exercised for which the calculation of the volume weighted
average price is required in order to determine the Exercise Price of such
Warrants.

 

For purposes of Rule 144 and sub-section
(d)(3)(ii) thereof, it is intended, understood and acknowledged that the
Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise
shall be deemed to have been acquired at the time this Warrant was issued.
Moreover, it is intended, understood and acknowledged that the holding period
for the Common Stock issuable upon Exercise of this Warrant in a Cashless
Exercise shall be deemed to have commenced on the date this Warrant was issued.

 

(b) Dispute Resolution. In the case of a dispute as to the
determination of the closing price or the Volume Weighted Average Price of the
Company’s Common Stock or the arithmetic calculation of the Exercise Price,
Market Price or any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via 

 

5

 

facsimile within two (2) Business Days of
receipt, or deemed receipt, of the Exercise Notice or Redemption Notice, or
other event giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or
calculation within two (2) Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two (2) Business Days submit via facsimile (i) the disputed
determination of the closing price or the Volume Weighted Average Price of the
Company’s Common Stock to an independent, reputable investment bank selected by
the Company and approved by the Holder, which approval shall not be
unreasonably withheld or (ii) the disputed arithmetic calculation of the
Exercise Price, Market Price or any Major Transaction Warrant Redemption Price
to the Company’s independent, outside accountant.  The Company shall use commercially reasonable
efforts to cause the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time
it receives the disputed determinations or calculations. Such investment bank’s
or accountant’s determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error, and the Company and the
Holder shall each pay one-half of the fees and costs of such investment bank or
accountant.

 

4. Transfer and Registration.

 

(a) Transfer Rights. Subject to the provisions of
Section 8 of this Warrant, this Warrant may be transferred on the books of
the Company, in whole or in part, in person or by attorney, upon surrender of
this Warrant properly completed and endorsed. This Warrant shall be canceled
upon such surrender and, as soon as practicable thereafter, the person to whom
such transfer is made shall be entitled to receive a new Warrant or Warrants as
to the portion of this Warrant transferred, and Holder shall be entitled to
receive a new Warrant as to the portion hereof retained.

 

(b) Registrable Securities. The Common Stock issuable upon the
Exercise of this Warrant has registration rights pursuant to the Registration
Rights Agreement.

 

(c) Registration of Redemption
Shares.  The Company agrees to prepare and file with
the SEC one or more “shelf” registration statement(s) on Form S-3
(the “Shelf Registration Statement”) for an offering to be made on a
continuous basis pursuant to Rule 415 of the Securities Act promptly
following issuance of this Warrant, and to use its commercially reasonable
efforts to cause any such Shelf Registration Statement to become effective as
soon as possible after such filing, covering the issuance of a sufficient
number of shares of Common Stock that may be deliverable by it upon a
redemption of this Warrant under Sections 5(c)(iii) or 11 or in
satisfaction of any Failure Payments (as defined in Section 10 below)
under Section 10. For so long as all or any portion of this Warrant is
outstanding, the Company agrees to use its commercially reasonable efforts to
ensure that any Shelf Registration Statement shall continuously be effective
and contain a sufficient number of shares of Common Stock available to be
issued pursuant to any such Shelf Registration Statement to cover shares
estimated by the Company in good faith that may be issuable by it upon a
redemption of this Warrant under Sections 5(c)(iii) or 11 or in
satisfaction of any Failure Payments under Section 10, including by
preparing and filing such amendments (including post-effective amendments) and
supplements to any such Shelf Registration Statement and preparing and filing a
subsequent Shelf Registration Statement if a previously filed and effective
Shelf Registration Statement will no longer deemed current and effective or
such Shelf Registration Statement does not cover a sufficient number of shares
that may be issuable by the Company upon a redemption of this Warrant under
Sections 5(c)(iii) or 11 or in satisfaction of any Failure Payments under
Section 10 ; provided, however, in no event shall the Shelf Registration
Statement(s) be required to register in the aggregate more than 7,000,000
shares of Common Stock.  To the extent
the Shelf Registration Statement provided for under this paragraph is
effective, at any time that shares of Common Stock are issuable to the Holder
upon a redemption of the Warrant under Sections 5(c)(iii) or 11 or in
satisfaction of any Failure Payments under Section 10, such shares
delivered to the Holder shall be registered pursuant to such Shelf Registration
Statement. Notwithstanding anything to the contrary herein (i) the Company
may delay or suspend the effectiveness of a Shelf Registration Statement or the
use of any prospectus forming a part of a Shelf Registration Statement due to
the non-disclosure of material, non-public information concerning Company the
disclosure of which at the time is not in its best interest, in the good faith
opinion of the Company; provided that no such periods shall individually exceed
90 days or in the aggregate exceed 90 days during any 12-month period and
(ii) a delay in the effectiveness of a Shelf Registration Statement caused
solely by the filing of a request for confidential treatment shall not be
deemed an Event of Failure or an Event of Default herein.

 

6

 

5.  Adjustments
Upon Certain Events.

 

(a) Participation.
The Holder, as the holder of this Warrant, shall be entitled to receive such
dividends paid and distributions of any kind made to the holders of Common
Stock of the Company to the same extent as if the Holder had Exercised this
Warrant into Common Stock (without regard to any limitations on exercise herein
or elsewhere and without regard to whether or not a sufficient number of shares
are authorized and reserved to effect any such exercise and issuance) and had
held such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.

 

(b) Recapitalization
or Reclassification. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in
the case of an increase in the number of shares, proportionally decreased and,
in the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common
Stock of any transaction described in this Section 5(b).

 

(c) Rights
Upon Major Transaction. Certain capitalized terms used in this
Section and not defined elsewhere have the meanings given to them below.

 

(i) Major
Transaction.  To the extent
that any Major Transaction (as defined below) will not be treated as an
Assumption pursuant to the next following paragraph, then the Holder shall have
the right to require the Company to redeem all or a portion of the Holder’s
outstanding Warrants (or such applicable portion in a Mixed Qualified Major
Transaction) in accordance with Section 5(c)(iii) below.  In addition, in the event of a Qualified
Change of Control Transaction, to the extent the Holder shall not have
exercised its right to require the Company to redeem the Holder’s Warrants
within the applicable time periods set forth herein, then the Major Transaction
shall be treated as an Assumption (as defined below) in accordance with
Section 5(c)(ii).  Notwithstanding
anything herein to the contrary, the Holder shall have the right to waive its
rights under this Section 5(c) with respect to all or any portion of
any Major Transaction in which event none of the provisions of this
Section 5(c)(i) shall apply.

 

In the event of a Qualified Major Transaction, the
Company shall have the right (subject to the last sentence of the immediately
preceding paragraph) to cause such Major Transaction (or such applicable
portion of a Mixed Qualified Major Transaction) to be treated as an Assumption
in accordance with Section 5(c)(ii) below with respect to the
percentage of this Warrant then owned by the Holder equal to the percentage of
the consideration to be paid in the Major Transaction represented by the
securities of a Successor Entity. The percentage of consideration represented
by securities of such Successor Entity shall be equal to the percentage that
the value of the aggregate anticipated number of shares of the Successor Entity
to be issued to holders of Common Stock of the Company represents of the
aggregate value of all consideration, including cash consideration, in such
Major Transaction, as such values are reported in the public announcement by
the Company of the Mixed Qualified Transaction or, if no such value is
determinable from such public announcement, based on the closing market price
for shares of the Publicly Traded Successor Entity on its principal securities
exchange on the Trading Day preceding the first public announcement of the
Mixed Qualified Major Transaction.

 

Each of the following events shall constitute a “Major
Transaction”:

 

(A) a consolidation, merger, exchange of shares,
recapitalization, reorganization, business combination or other similar event,
(1) following which the holders of Common Stock immediately preceding such
consolidation, merger, exchange, recapitalization, reorganization, combination
or event either (a) no longer hold a majority of the shares of Common
Stock or (b) no longer have the ability to elect a majority of the board
of directors of the Company or (2) as a result of which shares of Common
Stock shall be changed into (or the shares of Common Stock become entitled to
receive) the same or a different number of shares of the same or another class
or classes of stock or securities of the Company or another entity
(collectively, a “Change of Control Transaction”);

 

7

 

(B) the sale or transfer in one transaction or in
a series of related transactions (i) of all or substantially all of the
assets of the Company, (ii) of assets for a purchase price equal
to more than the greater of one-third of the Market Capitalization (as
defined below) of the Company or $75,000,000, or (iii) of assets
that represent 50% or more of the assets then reflected on the Company’s
balance sheet; provided, however, that except as provided in clause
(i) above, a collaborative arrangement, licensing agreement, joint venture
or partnership or similar business arrangement providing for the development or
commercial exploitation of, or right to develop or commercially exploit, the
technology, intellectual property or products of the Company (including
arrangements that involve the assignment or licensing of any existing or
newly developed intellectual property under such arrangements) whereby income
or profits are to be shared (including by lump sum royalty or running
royalty) with any other entity shall not constitute a Major Transaction. For
purposes of this clause (B), “Market Capitalization” shall mean the
product of (x) the number of issued and outstanding shares of Common Stock
on the date the Company delivers the Major Transaction Notice (defined below)
multiplied by (y) the per share closing price of the Common Stock on such
date the Company;

 

(C) a purchase, tender or exchange offer made to
the holders of outstanding shares of Common Stock, such that following such
purchase, tender or exchange offer a Change of Control Transaction shall have
occurred and is consummated;

 

(D) the liquidation, bankruptcy, insolvency,
dissolution or winding-up (or the occurrence of any analogous proceeding) of
the Company; or

 

(E) the shares of Common Stock cease to be
listed, traded or publicly quoted on NASDAQ and are not promptly re-listed or
requoted on either the New York Stock Exchange, the NYSE Afternext U.S., or the
NASDAQ Global Select Market; or the NASDAQ Capital Market; or

 

(F) the Common Stock ceases to be registered
under Section 12 of the Exchange Act.

 

For purposes hereof, the following terms have the
definitions set forth below:

 

A “Cash-Out Major Transaction” means a Major
Transaction in which the consideration payable to holders of Common Stock in
connection with the Major Transaction consists solely of cash.

 

An “Eligible Market” means the over the counter
Bulletin Board, the New York Stock Exchange, Inc., the NYSE Arca, the
NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select
Market or the American Stock Exchange.

 

A “Mixed Major Transaction” means a Major
Transaction in which the consideration payable to the shareholders of the
Company consists partially of cash and partially of securities of a Successor
Entity.  If the Successor Entity is a
Publicly Traded Successor Entity, the percentage of consideration represented
by securities of such Successor Entity shall be equal to the percentage that
the value of the aggregate anticipated number of shares of the Publicly Traded
Successor Entity to be issued to holders of Common Stock of the Company
represents in comparison to the aggregate value of all consideration, including
cash consideration, in such Mixed Major Transaction, as such values are set
forth in any definitive agreement for the Mixed Major Transaction that has been
executed at the time of the first public announcement of the Major Transaction
or, if no such value is determinable from such definitive agreement, based on
the closing market price for shares of the Publicly Traded Successor Entity on
its principal securities exchange on the Trading Day preceding the first public
announcement of the Mixed Major Transaction. If the Successor Entity is a
Private Successor Entity, the percentage of consideration represented by
securities of such Successor Entity shall be determined in good-faith by the
Company’s Board of Directors

 

A “Mixed Qualified Major Transaction” means a
Qualified Major Transaction where the consideration payable to shareholders of
the Company consists partially of cash and partially of securities of a
Successor Entity.

 

A “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 a Major Transaction.

 

A “Person” means a limited liability company, a
partnership, a joint venture, a corporation or a trust.

 

8

 

A “Publicly
Traded Successor Entity” means a Successor Entity that is a publicly traded
corporation whose common stock is quoted on or listed for trading on an
Eligible Market (as defined below).

 

A “Qualified
Major Transaction” means a Major Transaction that is a Qualified Change of
Control Transaction where the consideration payable to holders of Common Stock
in connection with the Major Transaction consists in whole or in part of
securities of a Publicly Traded Successor Entity whose average common stock
price volatility is more than 45% measured over the 100 Trading Days
immediately preceding the first public announcement of the Qualified Major
Transaction and as determined using the Bloomberg HVG function.

 

“Redemption
Shares” means shares of Common Stock of the Company that may be issuable
from time to time pursuant to Section 5(c)(iii), 10 and/or 11 hereof and
that are registered for resale under the Securities Act pursuant to an
effective registration statement filed by the Company as contemplated by Section 4(c) or,
if such a registration statement is not then effective, shares of Common Stock
of the Company that are not so registered.

 

A “Successor
Entity” shall be a Person as defined in Section 5(c)(ii) below.

 

(ii) Assumption.  The Company shall not enter into or be party
to a Major Transaction that is to be treated as an Assumption pursuant to Section 5(c)(i) above
unless any Person purchasing the Company’s assets or Common Stock, or any
successor entity resulting from such Major Transaction, or if the Warrant is to
be exercisable for shares of its Parent Entity (as defined above), its Parent
Entity (in each case, a “Successor Entity”), shall have assumed in
writing all of the obligations of the Company under this Warrant and the
Registration Rights Agreement in accordance with the provisions of this
subsection (ii) pursuant to written agreements in form and substance
reasonably satisfactory to the Holder and approved by the Holder prior to such
Major Transaction (not to be unreasonably withheld or delayed), including
agreements to deliver to each holder of Warrants in exchange for such Warrants
a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to the Warrants, including, without
limitation, an instrument representing the appropriate number of shares of the
Successor Entity, having similar exercise rights as the Warrants (including but
not limited to a similar Exercise Price and similar Exercise Price adjustment
provisions based on the price per share or conversion ratio to be received by
the holders of Common Stock in the Major Transaction), and similar registration
rights as provided herein and under the Registration Rights Agreement. Upon the
occurrence of any Major Transaction treated as an Assumption hereunder, any
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Major Transaction, the provisions of this Warrant and
the Registration Rights Agreement (or substantially similar instruments, if
applicable) 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 the Major Transaction, the Successor Entity shall deliver to
the Holder confirmation that there shall be issued upon exercise or redemption
of this Warrant at any time after the consummation of the Major Transaction, in
lieu of the shares of Common Stock (or other securities, cash, assets or other
property) issuable upon the exercise of the Warrants prior to such Major
Transaction, such shares of common stock (or their equivalent) of the Successor
Entity (or such shares of publicly traded common stock (or their equivalent) if
the Successor Entity is a Publicly Traded Successor Entity), as adjusted in
accordance with the provisions of this Warrant. The provisions of this Section shall
apply similarly and equally to successive Major Transactions and shall be
applied without regard to any limitations on the exercise of this Warrant other
than any applicable beneficial ownership limitations.  Any assumption of Company obligations under
this paragraph shall be referred to herein as an “Assumption”.

 

(iii) Notice; Major
Transaction Redemption Right. At least thirty (30) days prior to the
consummation of any Major Transaction, but, in any event, no later than two (2) Business
Days following the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holder (a “Major Transaction Notice”) and, with respect to a Qualified
Major Transaction, shall specify whether the Company wishes to elect that the
Major Transaction be treated as an Assumption to the extent permitted under Section 5(c)(i).

 

Other than in respect of
all or a portion of the Warrant that the Company has elected to treat as an
Assumption in respect of a Qualified Major Transaction in accordance with Section 5(c)(i),
at any time during the period beginning after the Holder’s receipt of a Major
Transaction Notice and ending five (5) Trading Days prior to the scheduled
consummation of such Major Transaction, the Holder may require the Company to
redeem (a “Redemption Upon Major Transaction”) all or any portion of
this Warrant by delivering written notice thereof (“Major Transaction 

 

9

 

Redemption Notice”) to the Company, which Major
Transaction Redemption Notice shall indicate the portion of the principal
amount (the “Redemption Principal Amount”) of the Warrant that the
Holder is electing to have redeemed. The outstanding portion of this Warrant to
the extent subject to redemption pursuant to this Section 5(c)(iii) (the
“Redeemable Shares”) shall be redeemed by the Company at a price (the “Major
Transaction Warrant Redemption Price”) payable:

 

(x) in the
case of a Cash-Out Major Transaction, or in the case of a Mixed Major
Transaction to the extent of the percentage of the cash consideration in the
Mixed Major Transaction (determined in accordance with the definition of Mixed
Major Transaction below), in cash equal to the “Black Scholes value” of the
Redeemable Shares, and

 

(y) in the
case of a Major Transaction not described in the foregoing proviso (x) and,
in the case of a Mixed Major Transaction to the extent of the percentage of the
consideration to be paid in the Major Transaction represented by the securities
of a Successor Entity, in a number of shares of Redemption Shares equal to the
“Black Scholes value” of the Redeemable Shares divided by 97.5% of the closing
price of the Common Stock on the principal securities exchange or other
securities market on which the Common Stock is then being traded on the Trading
Day immediately preceding the date on which the Major Transaction is
consummated; provided, however, that, other than in the instances described in
the provisos contained in the second paragraph of Section 1 hereof, the
Holder shall only receive up to such amount of shares of Common Stock such that
Holder and its Affiliates and any other persons or entities whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of
Section 13(d) of the Exchange Act (including shares held by any
“group” of which the Holder is a member, but excluding shares beneficially
owned by virtue of the ownership of securities or rights to acquire securities
that have limitations on the right to convert, exercise or purchase similar to
the limitation set forth herein) shall not collectively beneficially own
greater than 9.98% of the total number of shares of Common Stock of the Company
then issued and outstanding; and, provided further, that the foregoing proviso
shall not be construed to require any cash payment by the Company of the
remaining amount of the Major Transaction Warrant Redemption Price.

 

The “Black Scholes value”
of the Redeemable Shares shall be determined by use of the Black Scholes Option
Pricing Model using the criteria set forth on Schedule I hereto.

 

If, following a Major
Transaction that constitutes a Qualified Change of Control Transaction, any
portion of this Warrant then remaining outstanding is neither redeemed pursuant
to Section 5(c)(iii) or assumed pursuant to Section 5(c)(ii),
then, the portion of this Warrant that remains outstanding shall (A) automatically
and immediately convert into shares of Common Stock, and shall be deemed to
have been exercised pursuant to a Cashless Exercise, immediately prior to the
consummation of such Major Transaction if the aggregate consideration to be
received for the Common Stock in such Major Transaction is greater than the
aggregate Exercise Price for such shares, or (B) be cancelled and
terminated without further action by the Holder or the Company upon
consummation of such Major Transaction if the aggregate consideration to be
received for the Common Stock in the Major Transaction is less than the
aggregate Exercise Price for such shares; provided, however, that any such
exercise pursuant to clause (A) of this paragraph shall be subject to the
ownership limitation contained in the second paragraph of Section 1 hereto
and this Warrant shall be canceled and terminated to the extent any such
automatic exercise would violate such clause.

 

(iv) Escrow; Payment of Major Transaction Warrant
Redemption Price. Following the receipt of a Major Transaction
Redemption Notice from the Holder, the Company shall not effect a Major
Transaction that is being treated as a redemption in accordance with subsection
(iii) above, unless either it obtains the written agreement of the
Successor Entity that payment of the Major Transaction Warrant Redemption Price
shall be made to the Holder upon consummation of such Major Transaction or it
shall first place into an escrow account with an independent escrow agent, at
least three (3) Business Days prior to the closing date of the Major
Transaction (the “Major Transaction Escrow Deadline”), an amount in cash
or shares of Common Stock, as applicable, equal to the Major Transaction
Warrant Redemption Price. Concurrently upon closing of such Major Transaction,
the Company shall pay or shall instruct the escrow agent to pay the Major
Transaction Warrant Redemption Price to the Holder.  For purposes of determining the amount
required to be placed in escrow pursuant to the provisions of this subsection (iv) and
without affecting the amount of the actual Major Transaction Warrant Redemption
Price, the calculation of the price referred to in clause (1) of the first
column of Schedule 1 hereto with respect to Stock Price shall be

 

10

 

determined based on the
Closing Market Price (as defined herein) of the Common Stock on the Trading Day
immediately preceding the date that the funds are deposited with the escrow
agent.

 

(v) Injunction. Following the receipt of a
Major Transaction Redemption Notice from the Holder, in the event that the
Company attempts to consummate a Major Transaction without either placing the
Major Transaction Warrant Redemption Price in escrow in accordance with
subsection (iv) above or obtaining the written agreement of the Successor
Entity that payment of the Major Transaction Warrant Redemption Price will be
made to the Holder upon consummation of such Major Transaction, the Holder
shall have the right to apply for an injunction in any state or federal courts
sitting in the City of New York, borough of Manhattan to prevent the closing of
such Major Transaction until the Major Transaction Warrant Redemption Price is
paid to the Holder, in full.

 

Redemptions required by
this Section 5(c) shall be made in accordance with the provisions of Section 12
and shall have priority to payments to holders of Common Stock in connection
with a Major Transaction. To the extent redemptions required by this Section 5(c)(iii) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Warrant by the Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 5, until the
Major Transaction Warrant Redemption Price is paid in full, this Warrant may be
exercised, in whole or in part, by the Holder into shares of Common Stock, or
in the event the Exercise Date is after the consummation of the Major
Transaction, shares of publicly traded common stock (or their equivalent) of
the Successor Entity pursuant to Section 5(c). The parties hereto agree
that in the event of the Company’s redemption of any portion of the Warrant
under this Section 5(c), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any redemption premium due
under this Section 5(c) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

 

(d) Exercise Price
Adjusted. As used
in this Warrant, the term “Exercise Price” shall mean the purchase price
per share specified in Section 3 of this Warrant, until the occurrence of
an event stated in this Section 5 or otherwise set forth in this Warrant,
and thereafter shall mean said price as adjusted from time to time in
accordance with the provisions of said subsection.  No adjustment made pursuant to any provision
of this Section 5 shall have the net effect of increasing or decreasing
the Exercise Price in relation to the split adjusted and distribution adjusted
price of the Common Stock.

 

(e) Adjustments: Additional
Shares, Securities or Assets. In the event that at any time, as a result of an
adjustment made pursuant to this Section 5 or otherwise, Holder shall,
upon Exercise of this Warrant, become entitled to receive shares and/or other
securities or assets (other than Common Stock) then, wherever appropriate, all
references herein to shares of Common Stock shall be deemed to refer to and
include such shares and/or other securities or assets; and thereafter the
number of such shares and/or other securities or assets shall be subject to
adjustment from time to time in a manner and upon terms as nearly equivalent as
practicable to the provisions of this Section 5.

 

(f) Notice of Adjustments. Whenever the Exercise Price is adjusted
pursuant to the terms of this Warrant, the Company shall promptly mail to the
Holder a notice (an “Exercise Price Adjustment Notice”) setting forth
the Exercise Price after such adjustment and setting forth a statement of the
facts requiring such adjustment. The Company shall, upon the written request at
any time of the Holder, furnish to such Holder a like Warrant setting forth (i) such
adjustment or readjustment, (ii) the Exercise Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon Exercise
of the Warrant. For purposes of clarification, whether or not the Company
provides an Exercise Price Adjustment Notice pursuant to this Section 5(f),
upon the occurrence of any event that leads to an adjustment of the Exercise
Price, the Holder would be entitled to receive a number of Exercise Shares
based upon the new Exercise Price, as adjusted, for exercises occurring on or
after the date of such adjustment, regardless of whether a Holder accurately
refers to the adjusted Exercise Price in the Exercise Form.

 

11

 

6. Fractional Interests.

 

No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon Exercise shall be the next higher whole number of shares.

 

7. Reservation
of Shares.

 

From and after the date
hereof, the Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of shares sufficient for the Exercise of this Warrant (a “Share
Authorization Failure”) (based on the Exercise Price in effect from time to
time), the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company’s obligations under this Section 7, in the case
of an insufficient number of authorized shares, and using commercially
reasonable efforts to obtain stockholder approval of an increase in such
authorized number of shares. The Company covenants and agrees that upon the
Exercise of this Warrant, all shares of Common Stock issuable upon such
Exercise shall be duly and validly issued, fully paid and nonassessable and not
subject to preemptive rights, rights of first refusal or similar rights of any
person or entity.

 

8. Restrictions on
Transfer.

 

(a) Registration or
Exemption Required. This
Warrant has been issued in a transaction exempt from the registration
requirements of the Securities Act by virtue of Regulation D and exempt from
state registration under applicable state laws. The Warrant, the Common Stock
issuable upon the Exercise of this Warrant and any Redemption Shares issued
pursuant hereto may not be pledged, transferred, sold or assigned except
pursuant to an effective registration statement, pursuant to Rule 144 or
after receipt by the Company of an opinion of counsel for the Holder that any
such pledge, transfer, sale or assignment shall be exempt from the registration
requirements of the Securities Act and applicable state laws including, without
limitation, a so-called “4(1) and a half” transaction.  The Holder agrees to comply with any
reporting obligations applicable to it under Section 16 of the Exchange
Act with respect to this Warrant, the Warrant Shares, the Redemption Shares and
any other shares of Common Stock beneficially owned by it, and to furnish the
Company with copies of all reports filed by it with the SEC pursuant to Section 16.

 

(b) Assignment. Subject to compliance with the second
sentence of Section 8(a), the Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of warrants to be assigned
to each assignee. The Company shall effect the assignment within three (3) Business
Days of its receipt of a properly completed and executed form of Assignment
and, if required by this Warrant, receipt by the Company of an opinion of
counsel (the “Transfer Delivery Period”), and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of like tenor and
terms for the appropriate number of shares. 
This Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors and assigns of the 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.  For avoidance of doubt, in the event Holder
notifies the Company that such sale or transfer is a so called “4(1) and
half” transaction, the parties hereto agree that a legal opinion from outside
counsel for the Holder delivered to counsel for the Company substantially in
the form attached hereto as Exhibit C, shall be the only requirement to
satisfy an exemption from registration under the Securities Act to effectuate
such “4(1) and half” transaction.

 

9. 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 reasonably 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, and (ii) shall

 

12

 

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.

 

10. Events
of Failure; Definition of Black Scholes Value.

 

(a) Definitions.

 

The occurrence of each of
the following shall be considered to be an “Event of Failure.”

 

(i) A
Delivery Failure occurs, where a “Delivery Failure” shall be deemed to
have occurred if the Company fails to use reasonable best efforts to deliver
Exercise Shares to the Holder within any applicable Delivery Period (other than
due to the limitation contained in the proviso in the second paragraph of Section 1);

 

(ii) A Legend
Removal Failure occurs, where a “Legend Removal Failure” shall be deemed
to have occurred if the Company fails to use reasonable best efforts to issue
this Warrant and/or Exercise Shares without a restrictive legend, or fails to
use reasonable best efforts to remove a restrictive legend, when and as
required under Section 2(e) hereof;

 

(iii) a
Transfer Delivery Failure occurs, where a “Transfer Delivery Failure”
shall be deemed to have occurred if the Company fails to use reasonable best
efforts to deliver a Warrant within any applicable Transfer Delivery Period;
and

 

(iv) a
Registration Failure (as defined below) (subject to any Grace Periods).

 

For purpose hereof, “Registration
Failure” means that (A) the Company fails to file with the SEC on or
before the Filing Deadline (as defined in the Registration Rights Agreement)
any Registration Statement required to be filed pursuant to Section 2(a) of
the Registration Rights Agreement, or (B) the Company fails to use
reasonable best efforts to obtain effectiveness with the SEC, prior to the
Registration Deadline (as defined in the Registration Rights Agreement), and if
such Registration Statement is not so filed prior to the Registration Deadline,
as soon as possible thereafter, of any Registration Statement (as defined in
the Registration Rights Agreement) that are required to be filed pursuant to Section 2(a) of
the Registration Rights Agreement, or fails to use reasonable best efforts to
keep such Registration Statement current and effective as required in Section 3
of the Registration Rights Agreement, (C) the Company fails to file any
amendment to the Registration Statement, or any additional Registration
Statement required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement within thirty (30) days of the applicable
Registration Trigger Date (as defined in the Registration Rights Agreement), or
fails to use reasonable best efforts to cause such amendment and/or new Registration
Statement to become effective within sixty (60) days of the applicable
Registration Trigger Date, and, if such effectiveness does not occur within
such period, as soon as possible thereafter, or (iv) any Registration
Statement required to be filed under the Registration Rights Agreement, after
its initial effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement) cannot
otherwise be made thereunder (whether by reason of the Company’s failure to
amend or supplement the prospectus included therein in accordance with the
Registration Rights Agreement, the Company’s failure to file and use reasonable
best efforts to obtain effectiveness with the SEC of an additional Registration
Statement or amended Registration Statement required pursuant to Section 3
of the Registration Rights Agreement or otherwise, but subject to Section 3(q) of
the Registration Rights Agreement), (D) the Company fails to provide a
commercially reasonable written response to any comments to any Registration
Statement submitted by the SEC within thirty (30) days of the date that
such SEC comments are received by the Company, in each case other than as a
result of the failure of any Buyer (as defined in the Registration Rights
Agreement) to provide such information or otherwise comply with its obligations
under the Registration Rights Agreement or (E) the Company fails to file
with the SEC the Shelf Registration Statement(s) as required under Section 4(c) hereof
and to use commercially reasonable efforts to cause any such Registration
Statement(s) to become effective as soon as possible after such filing and
to use commercially reasonable efforts to ensure that any such Shelf
Registration Statement shall continuously be effective, in each case, in
accordance with Section 4(c) hereof.

 

(b) Failure
Payments; Black-Scholes Determination. The Company understands that any Event of Failure (as
defined above) could result in economic loss to the Holder. In the event that
any Event of Failure occurs (other than an Event of Failure caused by the
submission of any incomplete or inaccurate information required to be furnished
by the Holder or the negligence or failure to act or action of the Company’s
transfer agent), as compensation to the Holder for such loss, the Company
agrees to pay (as liquidated damages and not as a penalty) to the Holder an
amount payable in Redemption Shares that are valued for these purposes at 95%
of the Volume Weighted Average

 

13

 

Price on the date of such
calculation (“Failure Payments”) equal to 18% per annum (or the
maximum rate permitted by applicable law, whichever is less) of the
Black-Scholes value (as determined below) of the remaining unexercised portion
of this Warrant on the date of such Event of Failure (as recalculated on the
first Business Day of each month thereafter for as long as Failure Payments
shall continue to accrue), which shall accrue daily from the date of such Event
of Failure until the Event of Failure is cured, accruing daily and compounded
monthly, provided, however, other than in the instance described in the second
proviso contained in the second paragraph of Section 1 hereof, the Holder
shall only receive up to such amount of Redemption Shares such that Holder and
any other persons or entities whose beneficial ownership of Common Stock would
be aggregated with the Holder’s for purposes of Section 13(d) of the
Exchange Act (including shares held by any “group” of which the Holder is a
member, but excluding shares beneficially owned by virtue of the ownership of
securities or rights to acquire securities that have limitations on the right
to convert, exercise or purchase similar to the limitation set forth herein)
shall not collectively beneficially own greater than 9.98% of the total number
of shares of Common Stock of the Company then issued and outstanding; and,
provided further, that the foregoing proviso shall not be construed to require
any cash payment by the Company of the remaining amount of the Failure
Payment.  For purposes of clarification,
it is agreed and understood that Failure Payments shall continue to accrue
following any Event of Default until the applicable Default Amount is paid in
full.

 

Notwithstanding the
above, in the event that the Company (i) has, by the Filing Deadline (as
defined the Registration Rights Agreement) filed a Registration Statement (as
defined in the Registration Rights Agreement) covering the number of shares
required by the Registration Rights Agreement, and (ii) has responded in
writing to any comments to the Registration Statement that the Company has
received from the SEC, within seven (7) Business Days of such receipt, and
nevertheless the SEC has not declared effective a Registration Statement
covering the full number of Warrant Shares issuable upon exercise of the
Warrants by the Registration Deadline (as defined in the Registration Rights
Agreement) then, the Failure Payments attributable to such late Registration
Effectiveness shall be reduced from 18% to 15% (calculated as set forth above).
The Company shall satisfy any Failure Payments incurred under this Section pursuant
to Section 10(c) below.

 

For purposes hereof, the
“Black-Scholes” value of a Warrant shall be determined by use of the
Black Scholes Option Pricing Model and using the criteria set forth on Schedule
1 hereto.

 

(c) Payment
of Accrued Failure Payments.  The shares
representing accrued Failure Payments for each Event of Failure shall be issued
and delivered on or before the fifth (5th) Trading Day of each month following
a month in which Failure Payments accrued. Nothing herein shall limit the
Holder’s right to pursue actual damages (to the extent in excess of the Failure
Payments) for the Company’s Event of Failure, and the Holder shall have the
right to pursue all remedies available at law or in equity (including a decree
of specific performance and/or injunctive relief). Notwithstanding the above,
if a particular Event of Failure results in an Event of Default pursuant to Section 11
hereof, then the Failure Payment, for that Event of Failure only, shall be
considered to have been satisfied upon payment to the Holder of an amount equal
to the greater of (i) the Failure Payment, or (ii) the Default
Amount, payable in accordance with Section 11.

 

(d) Maximum
Interest Rate.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum permitted by such law,
any payments in excess of such maximum shall be credited against amounts owed
by the Company to the Holder and thus refunded to the Company.

 

11. Default and
Redemption.

 

(a) Events Of Default. Each of the following events, after
expiration of any applicable cure periods, shall be considered to be an “Event
of Default,” unless waived by the Holder:

 

(i) Failure To Effect Registration. 
With respect to all Registration Failures other than as provided in
clause (E) of the definition of “Registration Failure,” a Registration
Failure occurs and remains uncured for a period of more than forty-five
(45) days (or sixty (60) days in the case where the Company (i) has,
by the Filing Deadline (as defined the Registration Rights Agreement) filed a
Registration Statement (as defined in the Registration Rights Agreement)
covering this Warrant and the number of shares required by the Registration
Rights Agreement, and (ii) has responded in writing to any comments to the
Registration Statement that the Company has received from the SEC, within seven
(7) Business Days of such receipt, and nevertheless the SEC has not
declared effective a 

 

14

 

Registration Statement
covering the this Warrant and the Shares by the Registration Deadline (as
defined in the Registration Rights Agreement)), and such Registration
Failure relates solely to the Company’s failure to have the Registration
Statement declared effective by the Registration Deadline (as defined in the
Registration Rights Agreement) and with respect to the Registration Failure
provided in clause (E) of the definition of “Registration Failure,” such
Registration Failure occurs and remains uncured for a period of more than
forty-five (45) days;

 

(ii) Failure To Deliver Common Stock. A Delivery Failure (as defined above)
occurs and remains uncured for a period of more than thirty (30) days; or
at any time, the Company announces or states in writing that it will not honor
its obligations to issue shares of Common Stock to the Holder upon Exercise by
the Holder of the Exercise rights of the Holder in accordance with the terms of
this Warrant.

 

(iii) Legend Removal Failure.  A Legend Removal Failure (as defined above) occurs and
remains uncured for a period of thirty (30) days; and

 

(iv) Major Transaction. The Company has effected a Major Transaction without
paying the Major Transaction Warrant Redemption Price, if applicable, to the
Holder pursuant to Section 5(c)(iii) (other than due to the
limitation contained in the proviso in Section 5(c)(iii)(y)) or, with
respect to a Major Transaction that is to be treated as an Assumption under the
terms hereof, the Company has failed to meet the Assumption requirements of Section 5(c)(iii) prior
to effecting the Major Transaction.

 

(b) Mandatory Redemption.

 

(i) Mandatory Redemption Amount. If any Events of Default shall occur then, unless
waived by the Holder, upon the occurrence and during the continuation of any
Event of Default after expiration of any applicable cure periods, at the option
of the Holder, such option exercisable through the delivery of written notice
to the Company by such Holder (the “Default Notice”), the outstanding
amount of this Warrant shall be immediately redeemed by the Company and the
Company shall pay to the Holder (a “Mandatory Redemption”), in full
satisfaction of its obligations hereunder, an amount in Redemption Shares (the
“Mandatory Redemption Amount” or the “Default Amount”) equal to
the greater of (1) the Black-Scholes value (as determined in accordance
with Section 10(b)) of the remaining unexercised portion of this Warrant
on the date of such Default Notice and (2) the Black-Scholes value (also
as determined in accordance with Section 10(b)) of the remaining
unexercised portion of this Warrant on the Trading Day immediately preceding
the date that the Mandatory Redemption Amount is paid to the Holder, provided,
however, other than in the instance described in the second proviso contained
in the second paragraph of Section 1 hereof, Holder shall receive up to
such amount of Redemption Shares such that Holder and its Affiliates and any
other persons or entities whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the
Exchange Act (including shares held by any “group” of which the Holder is a
member, but excluding shares beneficially owned by virtue of the ownership of
securities or rights to acquire securities that have limitations on the right
to convert, exercise or purchase similar to the limitation set forth herein)
shall not collectively beneficially own greater than 9.98% of the total number
of shares of Common Stock of the Company then issued and outstanding; and,
provided further, that the foregoing proviso shall not be construed to require
any cash payment by the Company of the remaining amount of the Mandatory
Redemption Amount.

 

The Mandatory
Redemption Amount shall be payable in Redemption Shares that are valued for
these purposes at 95% of the Volume Weighted Average Price for the five (5) Business
Days prior to the Date of the applicable Default Notice.

 

(ii) Liquidated Damages. The parties hereto acknowledge and agree that the
sums payable as Failure Payments or pursuant to a Mandatory Redemption shall
give rise to liquidated damages and not penalties. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred
by the Holder is incapable or is difficult to precisely estimate, (ii) the
amounts specified bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Holder, and (iii) the
parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm’s length.

 

The Default
Amount, together with all other amounts payable hereunder, shall immediately
become due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in equity.

 

15

 

(c) Posting Of Bond.  In
the event that any Event of Default occurs hereunder, the Company may not raise
as a legal defense (in any Lawsuit, as defined below, or otherwise) or
justification to such Event of Default any claim that such Holder or any one
associated or affiliated with such Holder has been engaged in any violation of
law, unless the Company has posted a surety bond (a “Surety Bond”) for
the benefit of such Holder in the amount of 130% of the aggregate Surety Bond
Value (as defined below) of all of the Holder’s Warrants (the “Bond Amount”),
which Surety Bond shall remain in effect until the completion of litigation of
the dispute and the proceeds of which shall be payable to such Holder to the
extent Holder obtains judgment.

 

For purposes hereof, a “Lawsuit”
shall mean any lawsuit, arbitration or other dispute resolution filed by either
party herein pertaining to any of this Warrant, the Facility Agreement and the
Registration Rights Agreement.

 

“Surety Bond Value,”
for the Warrants shall mean 130% of the of the Black-Scholes value of the remaining
unexercised portion of this Warrant on the Trading Day immediately preceding
the date that such bond goes into effect).

 

(d) Injunction
And Posting Of Bond.
In the event that the Event of Default referred to in subsection (c) above
pertains to the Company’s failure to deliver unlegended shares of Common Stock
to the Holder pursuant to a Warrant Exercise, legend removal request, or
otherwise, the Company may not refuse such unlegended share delivery based on
any claim that such Holder or any one associated or affiliated with such Holder
has been engaged in any violation of law, unless an injunction from a court, on
prior notice to Holder, restraining and or enjoining Exercise of all or part of
said Warrant shall have been sought and obtained by the Company and the Company
has posted a Surety Bond for the benefit of such Holder in the amount of the
Bond Amount, which Surety Bond shall remain in effect until the completion of
litigation of the dispute and the proceeds of which shall be payable to such Holder
to the extent Holder obtains judgment.

 

(e) Remedies, 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,
the Facility Agreement and the Registration Rights Agreement, 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 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.

 

12.  Mechanics of Holder’s Redemptions.

 

In the event that the
Holder has sent a Default Notice or a Major Transaction Redemption Notice to
the Company pursuant to Section 5(c) or a Default Notice pursuant to Section 11(b)(i),
respectively (each, a “Redemption Notice”), the Holder shall promptly
submit this Warrant to the Company. If the Holder has submitted a Redemption
Notice, the Company shall deliver the applicable Major Transaction Warrant
Redemption Price or Default Amount, as applicable, to the Holder within the
time period set forth herein.  In the
event that the Company does not pay the applicable Major Transaction Warrant
Redemption Price or Default Amount, as applicable, to the Holder within the
time period required pursuant to the terms hereof, at any time thereafter and
until the Company pays such unpaid Major Transaction Warrant Redemption Price
or Default Amount, as applicable, in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Warrant that was submitted for redemption and for which
the applicable Major Transaction Warrant Redemption Price or Default Amount, as
applicable (together with any late charges thereon) has not been paid. Upon the
Company’s receipt of such notice, (x) the applicable Redemption Notice
shall be null and void with respect to such Redemption Principal Amount, (y) the
Company shall immediately return this Warrant, or issue a new Warrant to the
Holder representing the portion of this Warrant that was submitted for
redemption and (z) the Exercise Price of this Warrant or such new Warrant
shall be adjusted to the lesser of (A) the Exercise Price as in effect on
the date on which the applicable Redemption Notice is voided and (B) the
lowest closing price for the Common Stock on NASDAQ, or, if NASDAQ is not the
principal trading market for the Common Stock, the principal securities
exchange or other securities market on which the Common Stock is then being traded,
during the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the
date on which the applicable Redemption Notice is voided. The Holder’s delivery
of a notice 

 

16

 

voiding a Redemption
Notice and exercise of its rights following such notice shall not affect the
Company’s obligations to make any payments of Failure Payments which have
accrued prior to the date of such notice with respect to the Warrant subject to
such notice.

 

13. Benefits of this
Warrant.

 

Nothing in this Warrant
shall be construed to confer upon any person other than the Company and Holder
any legal or equitable right, remedy or claim under this Warrant and this
Warrant shall be for the sole and exclusive benefit of the Company and Holder.

 

14. Governing Law.

 

All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
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 Agreement (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 is an
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 Agreement 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 other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

 

15. Loss of Warrant.

 

Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.

 

16. Notice
or Demands.

 

Notices or demands
pursuant to this Warrant to be given or made by Holder to or on the Company
shall be sufficiently given or made if sent by overnight delivery with a
nationally recognized overnight courier service or by certified or registered
mail, return receipt requested, postage prepaid, and addressed, until another
address is designated in writing by the Company, to the address set forth in Section 2(a) above.
Notices or demands pursuant to this Warrant to be given or made by the Company
to or on Holder shall be sufficiently given or made if sent by overnight
delivery with a nationally recognized overnight courier service or by certified
or registered mail, return receipt requested, postage prepaid, and addressed,
to the address of Holder set forth in the Company’s records, until another
address is designated in writing by Holder.

 

[Remainder of page intentionally left blank.]

 

17

 

IN WITNESS WHEREOF, the
undersigned has executed this Warrant as of the [    ] day
of [          ] 2009.

 

	
   

  	
  ARRAY
  BIOPHARMA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. Michael Carruthers

  
	
   

  	
   

  	
  Print Name: R. Michael Carruthers

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

18

 

EXHIBIT A

 

EXERCISE FORM FOR WARRANT

 

TO: ARRAY BIOPHARMA INC.

 

The undersigned hereby
irrevocably Exercises the right to purchase                     
of the shares of Common Stock (the “Common Stock”) of ARRAY BIOPHARMA INC., a Delaware
corporation (the “Company”), evidenced by the attached warrant (the “Warrant”),
and herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.

 

1. The undersigned agrees
not to offer, sell, transfer or otherwise dispose of any of the Common Stock
obtained on Exercise of the Warrant, except in accordance with the provisions
of Section 8(a) of the Warrant.

 

2. The number of shares
of Common Stock beneficially owned by the Holder and its Affiliates (as defined
in the Warrant) and any other persons or entities whose beneficial ownership of
Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of
the Securities Exchange Act of 1934 (the “Exchange Act”) (including shares held
by any “group” of which the Holder is a member, but excluding shares
beneficially owned by virtue of the ownership of securities or rights to
acquire securities that have limitations on the right to convert, exercise or
purchase similar to the limitation set forth herein) is
                .  For purposes hereof, “group” has the meaning
set forth in Section 13(d) of the Exchange Act and applicable
regulations of the Securities and Exchange Commission, and the number of shares
beneficially owned has been determined in a manner consistent with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder.

 

3. The undersigned
requests that any stock certificates for such shares be issued free of any
restrictive legend, if appropriate, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below.

 

4.  The undersigned is exercising the attached
Warrant pursuant to:

 

	
  o Cash Exercise

  	
   

  	
  o Cashless Exercise

  

 

The undersigned hereby irrevocably directs that the said Exercised
shares be issued and delivered as follows:

 

	
  Name(s) in
  Full

  	
   

  	
  Address(es)
  (include Postal/Zip Code)

  	
   

  	
  Numbers(s) of
  Shares

  of Common Stock

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(Please print in full the name in which certificates are to be
issued.  If any of the securities are to
be issued to a person or persons other than the undersigned, then the Transfer
of Warrants form must be completed and the transferee and the undersigned must
pay to the Company all eligible transfer taxes or other government charges.)

 

	
  DATED

  	
   

  	
   

  	
   

  	
   

  

 

	
   

  	
   

  	
   

  
	
  Witness or Signature Guarantee*

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  

 

*  If the underlying securities are to be issued
to a person other than the Warrant holder then the signature must be guaranteed by
a guarantee under the North American STAMP, SEMP or MSP Medallion Programs.

 

 

EXHIBIT B

 

ASSIGNMENT

 

(To be executed by the registered holder

desiring to transfer the Warrant)

 

FOR VALUE RECEIVED, the
undersigned holder of the attached warrant (the “Warrant”) hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase                     
shares of the Common Stock of ARRAY BIOPHARMA
INC., a Delaware corporation, evidenced by the attached Warrant and
does hereby irrevocably constitute and appoint                     
attorney to transfer the said Warrant on the books of the Company, with full
power of substitution in the premises.

 

The
undersigned hereby certifies that the Warrant is being sold, assigned or
transferred in accordance with all applicable securities laws.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  

 

 

Fill in for new
registration of Warrant:

 

	
   

  	
   

  
	
   

  	
   

  
	
  Name

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Please print name and
  address of assignee

  	
   

  
	
  (including zip code
  number)

  	
   

  

 

NOTICE

 

The signature to the
foregoing Assignment must correspond to the name as written upon the face of
the attached Warrant in every particular, without alteration or enlargement or
any change whatsoever.

 

 

EXHIBIT C

 

FORM OF OPINION

 

             ,
20   

 

 

Re:                               Array BioPharma Inc. (the “Company”)

 

Dear
Sir:

 

[                      ]
(“[                    ]”)
intends to transfer
              
Warrants (the “Warrants”) of the Company to
                    
(“                ”)
without registration under the Securities Act of 1933, as amended (the
“Securities Act”).  In connection
therewith, we have examined and relied upon the truth of representations
contained in an Investor Representation Letter attached hereto and have
examined such other documents and issues of law as we have deemed relevant.

 

Based on and subject to
the foregoing, we are of the opinion that the transfer of the Warrants by
              
to              may
be effected without registration under the Securities Act, provided, however,
that the Warrants to be transferred to
              
contain a legend restricting its transferability pursuant to the Securities Act
and that transfer of the Warrants is subject to a stop order.

 

The foregoing opinion is
furnished only to
                        
and may not be used, circulated, quoted or otherwise referred to or relied upon
by you for any purposes other than the purpose for which furnished or by any
other person for any purpose, without our prior written consent.

 

Very truly yours,

 

 

 

[FORM OF INVESTOR
REPRESENTATION LETTER]

 

           ,
20   

 

[                                  ]

 

Gentlemen:

 

                  (“      ”)
has agreed to purchase
                  
Warrants (the “Warrants”) of Array BioPharma Inc. (the “Company”) from
[                      ]
(“[                  ]”).  We understand that the Warrants are
“restricted securities.” We represent and warrant that
             is a
sophisticated institutional investor that qualifies as an “Accredited Investor”
as defined in Rule 501 of Regulation D under the Securities Act of 1933,
as amended (the “Securities Act”).

 

                 represents
and warrants as of the date hereof as follows:

 

1.  That it is acquiring the Warrants and the
shares of common stock, $0.001 par value per share underlying such Warrants
(the “Exercise Shares”) solely for its account for investment and not with a
view to or for sale or distribution of said Warrants or Exercise Shares or any
part thereof.
                
also represents that the entire legal and beneficial interests of the Warrants
and Exercise Shares                   
is acquiring is being acquired for, and will be held for, its account only;

 

2.  That the Warrants and the Exercise Shares
have not been registered under the Securities Act on the basis that no
distribution or public offering of the stock of the Company is to be effected.
              
realizes that the basis for the exemption may not be present if, notwithstanding
its representations,
              
has a present intention of acquiring the securities for a fixed or determinable
period in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities.
              
has no such present intention;

 

3.  That the Warrants and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
                
recognizes that the Company has no obligation to register the Warrants, or to
comply with any exemption from such registration;

 

4.  That neither the Warrants nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Securities Act
unless certain conditions are met, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about Company, the resale following the required holding period
under Rule 144 and the number of shares being sold during any three month
period not exceeding specified limitations;

 

5.  That it will not make any disposition of all
or any part of the Warrants or Exercise Shares in any event unless and until:

 

(i)            The Company shall have received a
letter secured by
                  
from the Securities and Exchange Commission stating that no action will be
recommended to the Securities and Exchange Commission with respect to the
proposed disposition, in the case  of a sale or
transfer, including a so-called “4(1) and a half” transaction;

 

(ii)           There is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement; or

 

 

(iii)          shall have notified the Company of the
proposed disposition and shall have furnished counsel to the Company with an
opinion of counsel, reasonably satisfactory to counsel to the Company, that no
registration under the Securities Act or qualification under any state
securities laws is required for the proposed disposition.

 

We acknowledge that the Company will place stop orders
with respect to the Warrants and the Exercise Shares, and if a registration
statement is not effective, the Exercise Shares shall bear substantially the
following restrictive legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A
REGISTRATION STATEMENT REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE, OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH
TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR (III) SUCH
SECURITIES ARE SOLD PURSUANT TO RULE 144 OR RULE 144A.

 

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
                ,
2009, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF
ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY.”

 

At any time and from time to time after the date
hereof,
                  
shall, without further consideration, execute and deliver to
[                ]
or the Company such other instruments or documents and shall take such other
actions as they may reasonably request to carry out the transactions
contemplated hereby.

 

Very truly yours,

 

 

 

Schedule
1

 

Black-Scholes
Value

 

	
   

  	
   

  	
  Calculation Under
  Section 5(c)(iii)

  	
   

  	
  Calculation Under
  Section 10(b) or 11(b)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Remaining
  Term

  	
   

  	
  Number of calendar days
  from date of public announcement of the Major Transaction until the last date
  on which the Warrant may be exercised.

  	
   

  	
  Number of calendar days
  from date of the Event of Failure until the last date on which the Warrant
  may be exercised.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest
  Rate

  	
   

  	
  A risk-free interest
  rate corresponding to the US$ LIBOR/Swap rate for a period equal to the
  Remaining Term.

  	
   

  	
  A risk-free interest
  rate corresponding to the US$ LIBOR/Swap rate for a period equal to the
  Remaining Term.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Volatility

  	
   

  	
  50%

  	
   

  	
  50%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock
  Price

  	
   

  	
  The greater of
  (1) closing price of the Common Stock on NASDAQ, or, if that is not the
  principal trading market for the Common Stock, such principal market on which
  the Common Stock is traded or listed (the “Closing Market Price”) on the
  trading day immediately preceding the date on which a Major Transaction is
  consummated, (2) the first Closing Market Price following the first
  public announcement of a Major Transaction, or (3) the Volume Weighted
  Average Price as of the date immediately preceding the first public
  announcement of the Major Transaction.

  	
   

  	
  The Volume Weighted
  Average Price on the date of such calculation.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividends

  	
   

  	
  Zero.

  	
   

  	
  Zero.

  

 

 

Schedule 1 to Exhibit 4.2

 

Array BioPharma Inc. (the “Registrant”) issued warrants to the following
holders on July 31, 2009 and on May 15, 2009. The terms of each
Warrant do not differ from the Warrant filed as Exhibit 4.2 except for the
Date of Issuance specified in Section 1 of each Warrant and the Exercise
Price specified in Section 3(a) of each Warrant, as set forth
opposite each holder’s name below:

 

	
  Holder

  	
   

  	
  Number
  of Warrant

  Shares

  	
   

  	
  Date
  of

  Issuance

  	
   

  	
  Exercise

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Partners, L.P.

  	
   

  	
  383,000

  	
   

  	
  May 15, 2009

  	
   

  	
  $

  	
  3.65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield International Limited

  	
   

  	
  617,000

  	
   

  	
  May 15, 2009

  	
   

  	
  $

  	
  3.65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Private Design Fund, L.P.

  	
   

  	
  1,915,000

  	
   

  	
  May 15, 2009

  	
   

  	
  $

  	
  3.65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Private Design International,
  L.P.

  	
   

  	
  3,085,000

  	
   

  	
  May 15, 2009

  	
   

  	
  $

  	
  3.65

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Partners, L.P.

  	
   

  	
  383,000

  	
   

  	
  July 31, 2009

  	
   

  	
  $

  	
  4.19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield International Limited

  	
   

  	
  617,000

  	
   

  	
  July 31, 2009

  	
   

  	
  $

  	
  4.19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Private Design Fund, L.P.

  	
   

  	
  1,915,000

  	
   

  	
  July 31, 2009

  	
   

  	
  $

  	
  4.19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deerfield Private Design International,
  L.P.

  	
   

  	
  3,085,000

  	
   

  	
  July 31, 2009

  	
   

  	
  $

  	
  4.19

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