Document:

EX-10.17

 Exhibit 10.17 

AMENDED AND RESTATED DIRECTOR FEE CONTINUATION AGREEMENT 

THIS AGREEMENT, made and entered into this 11th day of December, 2008 and between
Federal Savings Bank, a bank organized and existing under the laws of the United States of America (hereinafter referred to as the “Bank”), and James H. Schulte, a Director of the Bank (hereinafter referred to as the “Director”).

 WHEREAS, the Bank and the Director are parties to a Director Supplemental Retirement Program Director Agreement dated the 6th day of August, 1998, which wa amended and restated as a Director Fee Continuation Agreement on September 23, 2006, that provides for the payment of certain benefits (as so amended, the
“Existing Agreement”); and 
 WHEREAS, this Amended and Restated Director Fee Continuation Agreement (this
“Agreement”) shall amend and restate the Existing Agreement and the benefits provided thereby, and is being entered into for purposes of bringing the Existing Agreement into compliance with Internal Revenue Code Section 409A and its
implementing regulations; and 
 WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the
“Board”) that the Director’s services on the Board of the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of
operating efficiency and present position in its field of activity; and 
 WHEREAS, it is the desire of the Bank and the Director to
enter into this Agreement under which the Bank will agree to make certain payments to the Director at retirement or the Director’ s Beneficiary in the event of the Director’s death pursuant to this Agreement; and 

WHEREAS, it is intended that the Agreement be “unfunded” for purposes of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”) and not be construed to provide income to the participant or beneficiary under the Internal Revenue Code of 1986, as amended (the “Code”), particularly §409A of the Code and guidance or regulations
issued thereunder, prior to actual receipt of benefits. 
 NOW THEREFORE, it is agreed as follows: 

 

	I.	 EFFECTIVE DATE 

The Effective Date of this Agreement shall be December 1, 2008. 

	II.	 FRINGE BENEFITS 

The Fee continuation benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Director and are not part of any
Fee reduction plan or an arrangement deferring a bonus or a fee increase. The Director has no option to take any current payment or bonus in lieu of these fee continuation benefits except as set forth hereinafter. 

 

	III.	 DEFINITIONS 

  

	 	A.	 Retirement Date: 

“Retirement Date” shall mean the later of the date on which the Director attains Normal Retirement Age or experiences a Separation
from Service. 
  

	 	B.	 Normal Retirement Age: 

“Normal Retirement Age” shall mean the date on which the Director attains age seventy-two
(72). 
  

	 	C.	 Early Retirement Age: 

“Early Retirement Age” shall mean the date on which the Director attains age sixty-five (65). 

 

	 	D.	 Plan Year: 

Any reference to “Plan Year” shall mean a calendar year from January 1st
December 31st. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31st of the year of the effective date. 

 

	 	E.	 Accrued Liability Reserve Account: 

“Accrued Liability Reserve Account” shall have the meaning set forth in Article VII of this Agreement. 

 

	 	F.	 Separation from Service: 

“Separation from Service” shall mean the Director has experienced a termination of employment with the Bank. For purposes of this
Agreement, whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Bank and Director reasonably anticipated that no further services would be performed after a certain date or
that the level of bona fide services the Director would perform after such date (whether as a Director or as an 

  
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independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as a Director or an independent contractor)
over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Director has been providing services to the Bank less than 36 months). Facts and
circumstances to be considered in making this determination include, but are not limited to, whether the Director continues to be treated as a Director for other purposes (such as continuation of salary and participation in Director benefit
programs), whether similarly situated service providers have been treated consistently, and whether the Director is permitted, and realistically available, to perform services for other service recipients in the same line of business. The Director
will be presumed not to have separated from service where the level of bona fide services performed continues at a level that is fifty percent (50%) or more of the average level of service performed by the Director during the immediately preceding thirty-six (36) month period. 
  

	 	G.	 Termination for Cause: 

The term “for Cause” shall mean any of the following that result in an adverse effect on the Bank: (i) gross negligence or gross
neglect; (ii) the commission of a felony or gross misdemeanor involving fraud or dishonesty; (iii) the willful violation of any law, rule, or regulation (other than a traffic violation or similar offense); (iv) an intentional failure to
perform stated duties; or (v) a breach of fiduciary duty involving personal profit. 
  

	 	H.	 Change in Control: 

“Change in Control” shall mean a change in ownership or control of the Bank as defined in Treasury Regulation §1.409A-3(i)(5) or any subsequently applicable Treasury Regulation; provided, however, that under no circumstances shall (i) the conversion of the Bank to a stock bank and issuance of a
controlling interest in the Bank’s stock to a mutual holding company parent owned by the Bank’s depositors (a “Mutual Holding Company”), or to a middle-tier stock holding company in which
such Mutual Holding Company has a controlling interest (a “ Middle Tier Holding Company”), or (ii) any transfer of Bank stock from any such Mutual Holding Company or Middle Tier Holding Company to any third party which does not result
in the transfer of a controlling interest in the stock of the Bank, or (iii) any transfer by such Mutual Holding Company of Middle Tier Holding Company stock to any third party which does not result in the transfer of a controlling interest in
the stock of the Middle Tier Holding Company, constitute a Change in Control for purposes of this Agreement. 

  
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	 	I.	 Beneficiary: 

“Beneficiary” has the meaning set forth in Section XII of this Agreement. 

 

	 	J.	 Final Base Fee: 

“Final Base Fee” shall mean the total Board fees, committee fees and retainer earned by the Director during the Plan Year ending
immediately prior to the Plan year in which the Director experiences a Separation from Service, if such Separation from Service occurs prior to the conclusion of the last regularly scheduled Board meeting for such Plan Year; and shall mean the total
Board fees, committee fees and retainer earned by the Director during the Plan Year in which the Director experiences a Separation from Service, if such Separation from Service occurs at or after the conclusion of the last regularly scheduled Board
meeting for such Plan Year. 
  

	IV.	 RESTRICTION ON TIMING OF DISTRIBUTIONS IF DIRECTOR IS SPECIFIED EMPLOYEE 

Notwithstanding any provision of this Agreement to the contrary, if the Director is considered a “specified employee” of the Bank
under Code Section 409A(a)(2)(B)(i), distributions to the Director may not commence earlier than six (6) months after the date of a Separation from Service, or if earlier, the date of death of the Director. In the event a distribution is
delayed pursuant to this paragraph, the originally scheduled payment shall be delayed for six (6) months, and shall commence instead on the first day of the seventh month following the Separation from Service. If payments are scheduled to be
made in installments, the first six (6) months of installment payments shall be delayed, aggregated, and paid instead on the first day of the seventh month, after which all installment payments shall be made on their regular schedule. If
payment is scheduled to be made in a lump sum, the lump payment shall be delayed for six (6) months and instead be made on the first day of the seventh month following the Separation from Service. If the Director dies before the delayed payment
date provided for in this paragraph has been reached, then notwithstanding any other provision of this paragraph to the contrary, this paragraph shall not operate to delay the commencement of payments beyond the date of the Director’s death.

  

	V.	 RETIREMENT BENEFIT AND EARLY RETIREMENT BENEFIT 

 

	 	A.	 Retirement Benefit: 

Upon attainment of the Retirement Date, the Director shall be entitled to receive a benefit from the Bank that is equal to seventy percent
(70%) of the Final Base Fee. Said benefit shall be paid in ten (10) equal 

  
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annual installments. The initial installment payment shall be made on the first day of the second month following the Retirement Date; and each subsequent annual installment payment shall be made
on the same date of each succeeding Plan Year until all of the annual payments have been made. 
  

	 	B.	 Early Retirement Benefit: 

If the Director experiences a Separation from Service for any reason other than death or termination for Cause after attaining Early Retirement
Age but before attaining Normal Retirement Age, the Director shall be entitled to receive a benefit equal to the portion of the Accrued Liability Reserve Account that has become vested in accordance with Paragraph VIII of this Agreement. Said
benefit shall be paid in ten (10) equal annual installments. The initial installment payment shall be made on the first day of the second month following the Director’s Separation from Service; and each subsequent annual installment
payment shall be made on the same date of each succeeding Plan Year until all of the annual payments have been made. 
  

	VI.	 DEATH BENEFIT 

 

	 	A.	 Pre-Retirement Death Benefit: 

If the Director should experience a Separation from Service as a result of death, then the Bank will pay a benefit equal to the balance of the
Accrued Liability Reserve Account as. of the date of the Director’s death, as calculated in accordance with this Agreement, to the Director’s Beneficiary. Said benefit shall be in lieu of any other benefit under this Agreement, and shall
be paid to the Director’s Beneficiary by the Bank in a single lump sum on the first day of the second month following the month of the Director’ s death. 
  

	 	B.	 Post-Retirement Death Benefit: 

If the Director dies after becoming entitled to a benefit under this Agreement but before the entire benefit has been paid to the Director,
then the Bank will pay a benefit equal to the balance of the Accrued Liability Reserve Account as of the date of the Director’s death, as calculated in accordance with this Agreement, to the Director’ s Beneficiary. Said benefit shall be
in lieu of any other benefit under this Agreement, and shall be paid to the Director’ s Beneficiary by the Bank in a single lump sum on the first day of the second month following the month of the Director’s death. 

  
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	VII.	 BENEFIT ACCOUNTING/ 

ACCRUED LIABILITY RETIREMENT ACCOUNT 

The Bank shall account for the benefits provided to the Director under this Agreement in accordance with Generally Accepted Accounting
Principles applied in the manner required by the Bank’s primary Federal regulator. The Bank shall establish on its books a reserve account (the “Accrued Liability Reserve Account”) into which it shall accrue no less frequently than
quarterly appropriate reserves for the obligations of the Bank under this Agreement, and from which it shall timely deduct payments by the Bank of benefits under this Agreement. The Bank shall not otherwise add to, subtract from, or adjust the
balance of the Accrued Liability Reserve Account except as necessary to conform with Generally Accepted Accounting Principles as applied in the manner required by the Bank’s primary Federal Regulator. Notwithstanding the Bank’s agreement
to create the Accrued Liability Reserve Account and its accrual of reserved funds within said account, neither the Director, nor the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of
them, or any other person, shall have any interest therein. All amounts so reserved shall continue for all purposes to be a part of the general assets of the Bank; and all legal and beneficial ownership of all amounts so reserved shall remain at all
times in the Bank. To the extent that the Director, the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of them, or any other person acquires any right to receive payments from the
Bank under this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Bank; and such persons shall have no property interests in any specific assets of the Bank, including without limitation, said
reserves. 
  

	VIII.	 VESTING 

The Director shall be vested in the Accrued Liability Reserve Account in accordance with the following schedule, from the date the Director
first commences service with the Bank as a Director (it being understood and agreed that only continuous years of service as a Director of the Bank shall count for purposes of this vesting provision, and that no service with the Bank in any other
capacity shall count for purposes of this vesting provision), to a maximum of one hundred percent (100%). 
  

			
	 Total Years of Continuous Service

as Director of the Bank
	  	 Audley

(to a maximum of 100%)

	 0-6
	  	0%
	 7
	  	25%
	 8
	  	50%
	 9
	  	75%
	 10
	  	100%

  
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	IX.	 TERMINATION OF SERVICE 

 

	 	A.	 Termination without Cause: 

If the Director experiences a Separation from Service for any reason other than death or termination for Cause before attaining Early
Retirement Age, the Director shall be entitled to receive a benefit equal to the portion of the Accrued Liability Reserve Account that has become vested in accordance with Paragraph VIII of this Agreement. Said benefit shall be paid in ten
(10) equal annual installments. The initial installment payment shall be made on the first day of the second month following the Director’s Separation from Service; and each subsequent annual installment payment shall be made on the same
date of each succeeding Plan Year until all of the annual payments have been made. 
 If the Director’s death should occur after such
Separation from Service but prior to the payment provided for in this Section IX. A., then said benefit shall be paid to the Director’s Beneficiary by the Bank in a single lump sum on the first day of the second month following the month of the
Director’s death, and shall be in lieu of any other benefit under this Agreement. 
  

	 	B.	 Discharge for Cause; or Prior to Vesting: 

Notwithstanding any provision of this Agreement to the contrary, if the Director shall be discharged for Cause at any time, or experience a
Separation from Service prior to completion of seven (7) continuous years of service as a director of the Bank, this Agreement shall terminate and all benefits provided herein shall be forfeited. If a dispute arises as to discharge “for
Cause,” such dispute shall be resolved by arbitration as set forth in Section XV. of this Agreement. In the alternative, if the Director is permitted to resign as an alternative to being discharged for Cause, the Board of Directors may, by
majority vote, terminate all benefits under this Agreement. 
  

	X.	 CHANGE IN CONTROL 

Upon the occurrence of a Change in Control, the Director shall be entitled to a benefit in the amount of the Retirement Benefit payable to the
Director pursuant to Paragraph V. A., which benefit shall be calculated as if the Director had been continuously employed by the Bank until the date on which the Director had attained the Retirement Date. For purposes of calculating the
Director’s Final Base Fee as of the Retirement Date, it shall be assumed that the Director’s fees would have increased by 4% per year from the Change in Control until the Director attained the Retirement Date. Said benefit shall be payable
in a single lump sum upon the date of the Change in Control. In addition, no Change in 

  
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 Control of the Bank shall take place unless the new or surviving entity expressly
acknowledges the obligations under this Agreement and agrees to abide by its terms. 
  

	XI.	 RESTRICTIONS ON FUNDING 

Neither the adoption and maintenance of this Agreement, nor any action taken pursuant to this Agreement shall create or be deemed to create a
trust or fiduciary relationship of any kind. At no time shall the Director, the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of them, or any other person, be deemed to have any
lien, right, title or interest in any specific investment or asset of the Bank; all such assets shall continue for all purposes to be a part of the general assets of the Bank; and all legal and beneficial ownership of such assets shall remain at all
times in the Bank. To the extent that the Director, the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of them, or any other person acquires any right to receive payments from the
Bank under this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Bank; and such persons shall have no property interests in any specific assets of the Bank. 

Except as otherwise expressly set forth in Section VII of this Agreement, the Bank reserves the absolute right, in its sole discretion, to
earmark and set aside assets to satisfy the obligations undertaken by the Bank under this Agreement and to determine the extent, nature and method of such provision, or to refrain from so doing. Should the Bank elect to provide for its obligations
under this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such policies and such provision,
earmarking and set-aside at any time, in whole or in part. 
 If the Bank elects to invest in a life
insurance, disability or annuity policy on the life of the Director, then the Director shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. 

 

	XII.	 BENEFICIARY 

The Director shall have the right to name a Beneficiary of the Death Benefit. The Director shall have the right to name such Beneficiary at any
time prior to the Director’s death and submit it to the Plan Administrator (or Plan Administrator’s representative) on the form provided. Once received and acknowledged by the Plan Administrator, the form shall be effective. The Director
may change a Beneficiary designation at any time by submitting a new form to the Plan Administrator. Any such change shall follow the same rules as for the original 

  
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 Beneficiary designation and shall automatically supersede the existing Beneficiary form on
file with the Plan Administrator. 
 If the Director dies without a valid Beneficiary designation on file with the Plan Administrator, death
benefits shall be paid to the Director’s estate. 
 If the Plan Administrator determines in its discretion that a benefit is to be paid
to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having
the care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a
benefit shall be a distribution for the account of the Director and the Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such distribution amount. 

 

	XIII.	 MISCELLANEOUS 

 

	 	A.	 Alienability and Assignment Prohibition: 

Neither the Director, the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of
them, or any other person shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or the Director’s spouse, any legal representative or Beneficiary of the Director, any successor in interest of any of them, or any other
person, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. 
  

	 	B.	 Binding Obligation of the Bank and any Successor in Interest: 

The Bank shall not merge or consolidate into or with another bank, firm or person, or sell substantially all of its assets to another bank,
firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors,
beneficiaries, heirs and personal representatives. 
  

	 	C.	 Amendment or Revocation: 

Subject to Sections IX. B. and XVI., it is agreed by and between the parties hereto that, during the lifetime of the Director, this Agreement
may 

  
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 be amended or revoked at any time or times, in whole or in part, by the mutual written
consent of the Director and the Bank. Any such amendment shall not be effective to decrease or restrict any Director’s accrued benefit under this Agreement, determined as of the date of amendment, unless agreed to in writing by the Director,
and provided further, no amendment shall be made, or if made, shall be effective, if such amendment would cause all or any part of the benefits provided hereunder to be included in the gross income of the Director under Code
Section 409A(c)(l)(A), or cause the Agreement to violate Code Section 409A. In the event this Agreement is terminated, such termination shall not cause a distribution of benefits, except under limited circumstances as permitted under Code
Section 409A (i.e., 30 days before or 12 months after a Change in Control event, upon termination of all arrangements of the same type, or upon corporate dissolution or bankruptcy). 

 

	 	D.	 Gender: 

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply. 
  

	 	E.	 Headings: 

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

  

	 	F.	 Applicable Law: 

The laws of the State of New Hampshire shall govern the validity and interpretation of this Agreement. 

 

	 	G.	 Partial Invalidity: 

If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid,
void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity. 

 

	 	H.	 Not a Contract of Employment: 

This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict
the right of the Bank to discharge the Director, or restrict the right of the Director to terminate employment. 

  
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	 	I.	 Tax Withholding: 

The Bank shall withhold any taxes that are required to be withheld, under Section 409A of the Code and regulations thereunder, from the
benefits provided under this Agreement. The Director acknowledges that the Bank’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authority(ies). 

 

	 	J.	 Opportunity to Consult with Independent Advisors: 

The Director acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without
limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the: (i) terms and conditions which may affect the Director’s right to these benefits; and
(ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, Section 409A of the Code and guidance or regulations thereunder, and any other taxes,
costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Director acknowledges and agrees shall be the sole responsibility of the Director notwithstanding any other term or provision of this
Agreement. The Director further acknowledges and agrees that the Bank shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Director and further specifically
waives any right for himself or herself, and his or her heirs, beneficiaries, legal representative, agents, successor and assign to claim or assert liability on the part of the Bank related to the matters described above in is paragraph. The
Director further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. 

 

	 	K.	 Amended and Restated Entire Agreement: 

This Agreement shall amend the Director Supplemental Retirement Program Director Agreement dated the 6th day of August, 1998, as previously amended and restated as a Director Fee Continuation Agreement on September 23, 2006; and shall restate the entire agreement of the parties pertaining to this
particular Agreement. 
  

	 	L.	 Permissible Acceleration Provision: 

Under Treasury Regulation Section 1.409A-3(j)(4), a payment of deferred compensation may not be
accelerated except as provided in regulations by the Internal Revenue Code. This Agreement allows all permissible payment accelerations under 1.409A-3(j)(4) that include but are not 

  
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 limited to payments necessary to comply with a domestic relations order, payments necessary
to comply with certain conflict of interest rules, payments intended to pay employment taxes, and other permissible payments are allowed as permitted by statute or regulation. 
  

	 	M.	 Subsequent Changes to Time and Form of Payment: 

The Bank may permit subsequent changes to the time and form of payment. Any such change shall be considered made only when it becomes
irrevocable under the terms of the Agreement. Any subsequent time and form of payment changes will be considered irrevocable not later than thirty (30) days following acceptance of the change by the Plan Administrator, subject to the following
rules: 
  

	 	1.	 the subsequent change may not take effect until at least twelve (12) months after the date on which the
change is made; 

  

	 	2.	 the payment (except in the case of death, Disability, or unforeseeable emergency, as that term is defined in
Treasury Regulation 1.409A- 3(a)(6)) upon which the change is made is deferred for a period of not less than five (5) years from the date such payment would otherwise have been paid; and 

 

	 	3.	 in the case of a payment made at a specified time, the change must be made not less than twelve
(12) months before the date the payment is scheduled to be paid. 

  

	XIV.	 ADMINISTRATIVE AND CLAIMS PROVISION 

 

	 	A.	 Plan Administration: 

 

	 	1.	 Plan Administrator. This Agreement shall be administered by a Plan Administrator which shall consist of
the Board of Directors of the Bank (the “Board”), unless the Board appoints a committee of one or more persons to discharge some or all of the administrative duties of the Bank under this Agreement. If the Board elects to create any such
committee, the Board shall retain, at all times, the discretion to determine the composition and authority of such committee, including without limitation, by appointing the members of such committee, removing and replacing all such members, filling
any vacancies on such committee, and by amending or terminating the authority delegated to such committee and returning such authority to the Board. 

  

	 	2.	 Duties of Plan Administrator. The Plan Administrator shall administer this Agreement in accordance with
its express terms and shall also have the discretion and authority to do each of the following: (i) adopt 

  
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	 	rules and regulations for the administration of this Agreement; (ii) interpret, alter, amend or revoke any rules and regulations so adopted; (iii) decide or resolve any and all questions as may arise in connection
with the administration of this Agreement, including interpretations of this Agreement; (iv) require the presentation of satisfactory proof of the occurrence of any event that is a condition precedent to the commencement of any payment or
discharge of any obligation under this Agreement; and (v) perform any and all administrative duties under this Agreement. The foregoing notwithstanding, the Plan Administrator shall have no authority or discretion to take or permit the taking
of any action which results in the Agreement being non-ompliant (in form or operation) with Section 409A of the Code or its implementing regulations. 

  

	 	3.	 Recusal. A person shall not be precluded from receiving benefits under this Agreement as a result of
serving as Plan Administrator or on any committee serving as Plan Administrator, but such person shall not be permitted to participate in the making of any decisions by or on behalf of the Plan Administrator that pe1tain to such person’s
interest in the Agreement. 

  

	 	4.	 Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate
to them such administrative duties as it sees fit (including acting through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Bank. 

 

	 	5.	 Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any
question arising out of or in connection with the administration, interpretation and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in
the Agreement. 

  

	 	6.	 Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the Plan Administrator and
its agents against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator. 

 

	 	7.	 Bank Information. To enable the Plan Administrator to perform its functions, the Bank shall supply full
and timely information to the Plan Administrator on all matters relating to the date and circumstances of any event triggering a benefit under this Agreement, and such other pertinent information as the Plan Administrator may reasonably require.

  
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	 	B.	 Claims Procedure. Any Participant or Beneficiary (“claimant”) who has not received benefits
under the Agreement that he or she believes should be distributed shall make a claim for such benefits as follows: 

  

	 	1.	 Initiation - Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a
written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within one
hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant. If the claim relates to disability benefits, then the Plan
Administrator shall designate a sub-committee to conduct the initial review of the claim (and applicable references below to the Plan Administrator shall mean such
sub-committee). 

  

	 	2.	 Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within
ninety (90) days after receiving the claim if the claim is not a claim for disability benefits. If the claim is for disability benefits, the Plan Administrator shall respond to such claimant within forty-five (45) days after receiving the
claim. If the Plan Administrator determines that special circumstances require additional time for processing a claim, and the claim is not for disability benefits, the Plan Administrator can extend the response period by an additional ninety
(90) days by notifying the claimant in writing, prior to the end of the initial ninety (90) day period that an additional period is required. If the claim is for disability benefits, and the Plan Administrator determines that special
circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional thirty (30) days by notifying the claimant in writing, prior to the end of the initial forty-five
(45) day period that an additional period is required. In addition, if the Plan Administrator determines that special circumstances require additional time for processing any such claim for disability benefits, the Plan Administrator can extend
the response period by a second thirty (30) day extension period by notifying the claimant in writing, prior to the end of the initial thirty (30) day extension period that an additional extension period is required. Each notice of
extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision. 

  

	 	3.	 Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision. The
Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. 

  
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 If the Plan Administrator denies part or all of the claim, the notification shall set
forth: 
  

	 	(a)	 The specific reasons for the denial; 

 

	 	(b)	 A reference to the specific provisions of the Agreement on which the denial is based; 

 

	 	(c)	 A description of any additional information or material necessary for the claimant to perfect the claim and an
explanation of why it is needed; 

  

	 	(d)	 An explanation of the Agreement’s review procedures and the time limits applicable to such procedures;

  

	 	(e)	 In the case of a notification pertaining to a claim for disability benefits, such additional information as is
required in order to comply with the requirements of DOL Reg. 2560.503-1(g)(l)(v), or any successor thereto; 

  

	 	(f)	 Any additional information required to be provided under ERISA or its implementing regulations; and

  

	 	(g)	 A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an
adverse benefit determination on review. 

  

	 	C.	 Review Procedure. If the Plan Administrator denies part or all of the claim, the claimant shall have the
opportunity for a full and fair review by the Plan Administrator of the denial, as follows: 

  

	 	1.	 Initiation - Written Request. To initiate the review, the claimant, within one hundred eighty
(180) days after receiving the Plan Administrator’ s notice of denial of a claim that constitutes a claim for disability benefits, and within sixty (60) days after receiving the Plan Administrator’s notice of denial of any other
sort of claim, must file with the Plan Administrator a written request for review. 

  

	 	2.	 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit
written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits. 

  
 15 

	 	3.	 Nature of Review - Considerations on Review. The Plan Administrator may, in its sole discretion, hold a
hearing to review the claim. In considering the claim on review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. Additional considerations shall be required in the case of a claim for disability benefits. If the claim under review pertains to disability benefits, the review shall be made by members of the Plan
Administrator other than the original decision maker(s) and such person(s) shall not be subordinate(s) of the original decision maker(s). In addition, the claim will be reviewed without deference to the initial adverse benefits determination and, if
the initial adverse benefit determination was based in whole or in part on a medical judgment, the Plan Administrator will consult with a health care professional with appropriate training and experience in the field of medicine involving the
medical judgment. The health care professional who is consulted on appeal will not be the same individual who was consulted during the initial determination or the subordinate of such individual. If the Plan Administrator obtained the advice of
medical or vocational experts in making the initial adverse benefits determination (regardless of whether the advice was relied upon), the Plan Administrator will identify such experts. 

 

	 	4.	 Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to the claimant
within sixty (60) days after receiving the request for review, if the request for review does not pertain to a claim for disability benefits. If the request for review pertains to a claim for disability benefits, the Plan Administrator shall
respond in writing to the claimant within forty-five (45) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the request for review, and the
request for review does not pertain to a claim for disability benefits, the Plan Administrator can extend the response period by an additional sixty (60) days by notifying the claimant in writing , prior to the end of the initial sixty
(60) day period, that an additional period is required. If the request for review pertains to a claim for disability benefits, and the Plan Administrator determines that special circumstances require additional time for processing the request
for review, the Plan Administrator can extend the response period by an additional forty-five (45) days by notifying the claimant in writing, prior to the end of the initial forty-five (45) day period that an additional period is required.
The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision. 

  
 16 

	 	5.	 Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on
review. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. If the Plan Administrator denies part or all of the claim, the notification shall set forth: 

 

	 	(a)	 The specific reasons for the denial; 

 

	 	(b)	 A reference to the specific provisions of the Agreement on which the denial is based; 

 

	 	(c)	 A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to,
and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; 

  

	 	(d)	 In the case of a notification pertaining to a claim for disability benefits, such additional information as is
required in order to comply with the requirements of DOL Reg. 2560.503-1(j)(5), or any successor thereto; 

  

	 	(e)	 Any additional information required to be provided under ERISA or its implementing regulations; and

  

	 	(f)	 A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

  

	 	6.	 Arbitration. If a claimant continues to dispute an adverse benefit determination after the Plan
Administrator has issued its notice of decision on review, then the claimant shall submit the dispute to arbitration in accordance with the provisions of Section XV of this Agreement. Notwithstanding any provisions of this Agreement to the contrary:
(i) any such arbitration shall be conducted in a manner that complies with all applicable requirements of ERISA and its implementing regulations, including, in the case of a dispute pertaining to the denial of a claim for disability benefits,
the requirements of DOL Reg. 2560.503-l(c)(4) or any successor thereto; and (ii) the claimant shall not be precluded, as a result of submitting the claim to arbitration, from exercising any rights granted
to the claimant under ERISA Section 502(a) or other applicable law. 

  

	 	7.	 Exhaustion of Remedies. A claimant must follow the claims review procedures under this Agreement and
exhaust his or her administrative remedies before taking any further action with respect to a claim for benefits. 

  
 17 

	XV.	 ARBITRATION OF DISPUTES 

Except as otherwise expressly set forth in Section XIV. C. 6. of this Agreement: 

 

	 	A.	 If a dispute arises out of or relates to this Agreement, or the breach hereof, and if such dispute is not
settled within a commercially reasonable time (not to exceed sixty (60) days, through negotiations), the parties shall attempt in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to litigation. No resolution or attempted resolution of any dispute or disagreement pursuant to this Section XV shall be deemed a waiver of any term or provision of this Agreement or consent to any breach or default,
unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented. 

  

	 	B.	 Any dispute or controversy not settled in accordance with the foregoing provisions of this Section XV shall be
settled exclusively by binding arbitration to be conducted before three (3) arbitrators in Concord, New Hampshire in accordance with the rules of the American Arbitration Association then in effect. Each party shall select one (1) such
arbitrator and two (2) arbitrators so selected shall choose a third. 

  

	 	C.	 The parties covenant and agree that they will participate in such mediation and/or arbitration in good faith
and that the Bank will bear the fees and expenses of such proceeding charged by the American Arbitration Association (including the fees of the arbitrators.) In arbitration, the arbitrator shall not have the power to award damages in excess of
actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages, and each party hereby irrevocably waives any claim to such damages. 

 

	 	D.	 The patties hereto agree that they and their heirs, personal representatives, successors and assigns shall be
bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination. 

  

	XVI.	 TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

 The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations
will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly. Any such termination
or modification shall not be effective to decrease or restrict any Director’s Accrued Liability Retirement Account under this Agreement, determined as of the date of amendment, unless agreed to in writing by the Director, and provided further,
no amendment shall be 

  
 18 

 made, or if made, shall be effective, if such termination or modification would cause all or
any part of the benefits provided hereunder to be included in the gross income of the Director under Code Section 409A(c)(l )(A), or cause the Agreement to violate Internal Revenue Code Section 409A. In the event this Agreement is
terminated, such termination shall not cause a distribution of benefits, except under limited circumstances as permitted under Section 409A (i.e., 30 days before or 12 months after a Change in Control event, upon termination of all arrangements
of the same type, or upon corporate dissolution or bankruptcy). Upon a Change in Control, this paragraph shall become null and void effective immediately upon said Change in Control. 

IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the
first day set forth hereinabove, and that, upon execution, each has received a conforming copy. 
  

					
		 		  	FEDERAL SAVINGS BANK
		 		  	Dover, New Hampshire
			
	 /s/ Judy A. Lovely
	 		  	 /s/ Donald Hatt

		 		  	 Title: President and CEO

			
	 /s/ Tiffany Melanson
	 		  	 /s/ James H. Schulte

	 Witness
	 		  	 James H. Schulte 

  
 19 

 FIRST AMENDMENT 

TO THE 
 FEDERAL SAVINGS
BANK 
 DIRECTOR FEE CONTINUATION AGREEMENT 

THIS FIRST AMENDMENT to the Federal Savings Bank Amended and Restated Director Fee Continuation Agreement (the “Agreement”)
is made by and between Federal Savings Bank (the “Bank”), a bank duly organized and existing under the laws of the State of New Hampshire, and James H. Schulte (the “Director”), effective this 1st day of April, 2013. 
 WHEREAS, the Agreement was adopted on December 11,
2008; and 
 WHEREAS, pursuant to Section XIII(C) of the Agreement, the Agreement may be amended at any time by mutual written
consent of the Bank and the Director; and 
 WHEREAS, the Bank and the Director desire to amend the Agreement to clarify certain
provisions; 
 NOW THEREFORE, the Agreement is hereby amended as follows: 

Section III. Definitions shall be amended as follows: 

 

	 	B.	 Normal Retirement Age: 

“Normal Retirement Age” shall mean the date on which the Director attains age seventy (70). 

Except as otherwise amended by this Amendment, all provisions of the Agreement shall remain in full force and effect and the Agreement and
this Amendment shall be construed together and considered one and the same agreement. 
 IN WITNESS WHEREOF, the Bank and the
Director have caused this Amendment to be executed on the date first written above. 
  

							
	EXECUTIVE	 		  	FEDERAL SAVINGS BANK
				
	 /s/ James H. Schulte
	 		  	By:	 	 /s/ Judy A. Lovely

	James H. Schulte	 		  	Title:	 	Secretary

  
 20Exhibit 4.1

 

Exhibit 4.1

 

SERIES A WARRANT

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

BRIDGELINE DIGITAL, INC.

 

SERIES A WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:
__________________

Number
of Shares of Common Stock: ___________________

Date of
Issuance: March , 2019 (“Issuance Date”)

 

Bridgeline Digital,
Inc., a Delaware corporation (the “Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, [ ], the registered holder hereof or
its permitted assigns (the “Holder”), is entitled, subject to
the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, at any time or
times on or after the earlier of (i) the date of the Authorized
Share Approval and (ii) six months following the Subscription Date,
but not after 11:59 p.m., New York time, on the Expiration Date,
(as defined below), ______________ (_____________)1 fully paid nonassessable shares of
Common Stock, all subject to adjustment as provided
herein (the
“Warrant
Shares”). Except as otherwise defined herein,
capitalized terms in this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, this “Warrant”), shall have the meanings
set forth in Section 17. This Warrant is one of the Series
A Warrants to purchase
Common Stock (the “SPA
Warrants”) issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of March __, 2019
(the “Subscription
Date”), by and among the Company and the investors
(the “Buyers”)
referred to therein (the “Securities Purchase Agreement”).
Capitalized terms used herein and not otherwise defined shall have
the definitions ascribed to such terms in the Securities Purchase
Agreement.

 

1. EXERCISE
OF WARRANT.

 

(a) Mechanics of Exercise. Subject
to the terms and conditions hereof (including, without limitation,
the limitations set forth in Section 1(f) and 1(h)), this Warrant
may be exercised by the Holder at any time or times on or after the
Issuance Date, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A (the
“Exercise
Notice”), of the Holder's election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal
to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the
“Aggregate Exercise
Price”) in cash by wire transfer of immediately
available funds or (B) if the provisions of Section 1(d) are
applicable, by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section
1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of
the original Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares. On or
before the first (1st) Trading Day
following the date on which the Company has received the Exercise
Notice, the Company shall transmit by electronic mail an
acknowledgment of confirmation of receipt of the Exercise Notice to
the Holder and the Company's transfer agent (the
“Transfer
Agent”). On or before the earlier of (i) the second
(2nd)
Trading Day and (ii) the number of Trading Days comprising the
Standard Settlement Period, in each case, following the date on
which the Holder delivers the Exercise Notice to the Company, so
long as the Holder delivers the Aggregate Exercise Price (or notice
of a Cashless Exercise) on or prior to the second (2nd) Trading Day
following the date on which the Company has received the Exercise
Notice (the “Share Delivery
Date”) (provided that if the Aggregate Exercise Price
has not been delivered by such date, the Share Delivery Date shall
be two (2) Trading Days after the Aggregate Exercise Price (or
notice of a Cashless Exercise) is delivered), the Company shall (X)
provided that the Transfer Agent is participating in The Depository
Trust Company (“DTC”) Fast Automated Securities
Transfer Program and (A) the Warrant Shares are subject to an
effective resale registration statement in favor of the Holder or
(B) if exercised via Cashless Exercise, at a time when Rule 144
would be available for immediate resale of the Warrant Shares by
the Holder, credit such aggregate number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the Holder's or
its designee's balance account with DTC through its Deposit /
Withdrawal At Custodian system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program
or (A) the Warrant Shares are not subject to an effective resale
registration statement in favor of the Holder and (B) if exercised
via Cashless Exercise, at a time when Rule 144 would not be
available for immediate resale of the Warrant Shares by the Holder,
issue and dispatch by overnight courier to the address as specified
in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the
number of Warrant Shares to which the Holder is entitled pursuant
to such exercise. The Company shall be responsible for all fees and
expenses of the Transfer Agent and all fees and expenses with
respect to the issuance of Warrant Shares via DTC, if any. Upon
delivery of the Exercise Notice, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date such Warrant Shares are
credited to the Holder's DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. If
this Warrant is submitted in connection with any exercise pursuant
to this Section 1(a) and the number of Warrant Shares represented
by this Warrant submitted for exercise is greater than the number
of Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three (3)
Trading Days after any exercise and at its own expense, issue a new
Warrant (in accordance with Section 7(d)) representing the right to
purchase the number of Warrant Shares issuable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares
with respect to which this Warrant is exercised. No fractional
Warrant Shares are to be issued upon the exercise of this Warrant,
but rather the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. The Company shall pay any
and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. The
Company's obligations to issue and deliver Warrant Shares in
accordance with the terms and subject to the conditions hereof are
absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any
setoff, counterclaim, recoupment, limitation or
termination.

 

 

1 Insert 100% of the
aggregate number of shares of Common Stock issuable under the
Preferred Shares purchased by the Holder pursuant to the Securities
Purchase Agreement on the Issuance Date.

 

 

-1-

 

 

(b) Exercise Price. For purposes of
this Warrant, “Exercise
Price” means $0.18 per share, subject to adjustment as
provided herein.

 

(c) Company's Failure to Timely Deliver
Securities. If the Company shall fail for any reason or for
no reason to issue to the Holder on or prior to the Share Delivery
Date either (I) if the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program, a certificate for
the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's
share register or if the Transfer Agent is participating in the DTC
Fast Automated Securities Transfer Program, to credit the Holder's
balance account with DTC, for such number of shares of Common Stock
to which the Holder is entitled upon the Holder's exercise of this
Warrant or (II) if the Registration Statement covering the resale
of the Warrant Shares that are the subject of the Exercise Notice
(the “Unavailable Warrant
Shares”) is not available for the resale of such
Unavailable Warrant Shares and the Company fails to promptly, but
in no event later than as is required pursuant to the Registration
Rights Agreement (x) so notify the Holder and (y) deliver the
Warrant Shares electronically without any restrictive legend by
crediting such aggregate number of Warrant Shares to which the
Holder is entitled pursuant to such exercise to the Holder's or its
designee's balance account with DTC through its Deposit /
Withdrawal At Custodian system (the event described in the
immediately foregoing clause (II) is hereinafter referred as a
“Notice Failure”
and together with the event described in clause (I) above, an
“Exercise
Failure”), then, in addition to all other remedies
available to the Holder, (X) the Company shall pay in cash to the
Holder on each day after the Share Delivery Date and during such
Exercise Failure an amount equal to 1.0% of the product of (A) the
sum of the number of shares of Common Stock not issued to the
Holder on or prior to the Share Delivery Date and to which the
Holder is entitled, and (B) any trading price of the Common Stock
selected by the Holder in writing as in effect at any time during
the period beginning on the applicable date of delivery of an
Exercise Notice and ending on the applicable Share Delivery Date,
and (Y) the Holder, upon written notice to the Company, may void
its Exercise Notice with respect to, and retain or have returned,
as the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the
voiding of an Exercise Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the
date of such notice pursuant to this Section 1(c) or otherwise. In
addition to the foregoing, if on or prior to the Share Delivery
Date either (I) if the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program, the Company shall
fail to issue and deliver a certificate to the Holder and register
such shares of Common Stock on the Company's share register or, if
the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder's exercise hereunder or pursuant
to the Company's obligation pursuant to clause (ii) below or (II) a
Notice Failure occurs, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise)
shares of Common Stock relating to the applicable Exercise Failure
(a “Buy-In”),
then the Company shall, within five (5) Trading Days after the
Holder's request and in the Holder's discretion, either (i) pay
cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so
purchased (the “Buy-In
Price”), at which point the Company's obligation to
deliver such certificate (and to issue such shares of Common Stock)
or credit the Holder's balance account with DTC for such shares of
Common Stock shall terminate, or (ii) promptly honor its obligation
to deliver to the Holder a certificate or certificates representing
such shares of Common Stock or credit the Holder's balance account
with DTC, as applicable, and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) any trading
price of the Common Stock selected by the Holder in writing as in
effect at any time during the period beginning on the applicable
date of delivery of an Exercise Notice and ending on the applicable
Share Delivery Date. Nothing herein shall limit the 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 (or to electronically deliver such shares of Common
Stock) upon the exercise of this Warrant as required pursuant to
the terms hereof.

 

 

	
 

	
	
 

 

-2-

 

 

(d) Cashless Exercise.  Notwithstanding anything contained
herein to the contrary, if the Registration Statement covering the
resale of the Unavailable Warrant Shares is not available for the
resale of such Unavailable Warrant Shares, the Holder may, in its
sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made
to the Company upon such exercise in payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the
“Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):

 

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

B

 

For
purposes of the foregoing formula:

 

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

 

B= as
applicable: (i) the Weighted Average Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable
Exercise Notice if such Exercise Notice is (1) both executed and
delivered pursuant to Section 1(a) hereof on a day that is not a
Trading Day or (2) both executed and delivered pursuant to Section
1(a) hereof on a Trading Day prior to the opening of “regular
trading hours” (as defined in Rule 600(b)(64) of Regulation
NMS promulgated under the federal securities laws) on such Trading
Day, (ii) at the option of the Holder, either (y) the Weighted
Average Price of the Common Stock on the Trading Day immediately
preceding the date of the applicable Exercise Notice or (z) the bid
price of the Common Stock on the principal Trading Market as
reported by Bloomberg as of the time of the Holder's execution of
the applicable Exercise Notice if such Exercise Notice is executed
during “regular trading hours” on a Trading Day and is
delivered within two (2) hours thereafter (including until two (2)
hours after the close of “regular trading hours” on a
Trading Day) pursuant to Section 1(a) hereof or (iii) the Weighted
Average Price of the Common Stock on the date of the applicable
Exercise Notice if the date of such Exercise Notice is a Trading
Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of “regular
trading hours” on such Trading Day;

 

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

 

If
shares of Common Stock are issued pursuant to this Section 1(d),
the Company hereby acknowledges and agrees that the Warrant Shares
issued in a Cashless Exercise shall be deemed to have been acquired
by the Holder, and the holding period for the Warrant Shares shall
be deemed to have commenced, on the date this Warrant was
originally issued pursuant to the Securities Purchase Agreement.
The Company agrees not to take any position contrary to this
Section 1(d).

 

(e) Disputes. In the case of a
dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section
12.

 

 

	
 

	
	
 

 

-3-

 

 

(f) Beneficial Ownership Limitations on
Exercises. Notwithstanding
anything to the contrary contained herein, the Company shall not
effect the exercise of any portion of this Warrant, and the Holder
shall not have the right to exercise any portion of this Warrant,
pursuant to the terms and conditions of this Warrant and any such
exercise shall be null and void and treated as if never made, to
the extent that after giving effect to such exercise, the Holder
together with the other Attribution Parties collectively would
beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the
number of shares of Common Stock outstanding immediately after giving effect to
such exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned by the Holder and the other
Attribution Parties shall include the number of shares of
Common Stock held by the Holder and
all other Attribution Parties plus the number of shares of
Common Stock issuable upon exercise of
this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of
shares of Common Stock which would be
issuable upon (A) exercise of the remaining, unexercised portion of
this Warrant beneficially owned by the Holder or any of the other
Attribution Parties and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any convertible notes or
convertible preferred stock or warrants, including
the Series B
Warrants, Series C Warrants and
Preferred Shares (as defined in the Securities Purchase Agreement))
beneficially owned by the Holder or any other Attribution Party
subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 1(f). For purposes of this
Section 1(f), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “1934 Act”). For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock
the Holder may acquire upon the
exercise of this Warrant without exceeding the Maximum Percentage,
the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the
Company's most recent Annual Report on Form 10-K, Quarterly Report
on Form 10-Q, Current Report on Form 8-K or other public filing
with the Securities and Exchange Commission (the
“SEC”), as the
case may be, (y) a more recent public announcement by the Company
or (3) any other written notice by the
Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding (the “Reported Outstanding Share
Number”). If the Company
receives an Exercise Notice from the Holder at a time when the
actual number of outstanding shares of Common Stock
is less than the Reported Outstanding
Share Number, the Company shall (i) notify the Holder in writing of
the number of shares of Common Stock then outstanding and, to the extent that such
Exercise Notice would otherwise cause the Holder's beneficial
ownership, as determined pursuant to this Section 1(f), to exceed
the Maximum Percentage, the Holder must notify the Company of a
reduced number of Warrant Shares to be purchased pursuant to such
Exercise Notice (the number of
shares by which such purchase is reduced, the
“Reduction
Shares”) and (ii) as soon
as reasonably practicable, the Company shall return to the Holder
any exercise price paid by the Holder for the Reduction
Shares. For any reason at any time, upon the written or oral
request of the Holder, the Company
shall within one (1) Trading Day confirm orally and in writing or
by electronic mail to the Holder the number of shares of
Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock
shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder and any other Attribution
Party since the date as of which the Reported Outstanding Share
Number was reported. In the event that the issuance of
shares of Common Stock to the Holder
upon exercise of this Warrant results in the Holder and the other
Attribution Parties being deemed to beneficially own, in the
aggregate, more than the Maximum Percentage of the number of
outstanding shares of Common Stock (as determined under Section 13(d) of the 1934
Act), the number of shares so issued by which the Holder's and the
other Attribution Parties' aggregate beneficial ownership exceeds
the Maximum Percentage (the “Excess
Shares”) shall be deemed
null and void and shall be cancelled ab initio, and the Holder
shall not have the power to vote or to transfer the Excess Shares.
As soon as reasonably practicable after the issuance of the Excess
Shares has been deemed null and void, the Company shall return to
the Holder the exercise price paid by the Holder for the Excess
Shares. Upon delivery of a written notice to the Company,
the Holder may from time to time increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% as
specified in such notice; provided that (i) any such increase in
the Maximum Percentage will not be effective until the sixty-first
(61st) day
after such notice is delivered to the Company and (ii) any such
increase or decrease will apply only to the Holder and the other
Attribution Parties and not to any other holder of SPA Warrants
that is not an Attribution Party of the Holder. For purposes of
clarity, the shares of Common Stock issuable pursuant to the terms
of this Warrant in excess of the Maximum Percentage shall not be
deemed to be beneficially owned by the Holder for any purpose
including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the
1934 Act. No prior
inability to exercise this Warrant pursuant to this paragraph shall
have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of
exercisability. The provisions of this
paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 1(f) to
the extent necessary to correct this paragraph or any portion of
this paragraph which may be defective or inconsistent with the
intended beneficial ownership limitation contained in this Section
1(f) or to make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not
be waived and shall apply to a successor holder of this
Warrant.

 

 

	
 

	
	
 

 

-4-

 

 

(g) Insufficient Authorized Shares.
If at any time after the Company obtains Stockholder Approval, the
Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon exercise of this Warrant at least a
number of shares of Common Stock equal to 100% of the number of
shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of this Warrant then outstanding without
regard to any limitation on exercise included herein (the
“Required Reserve
Amount” and the failure to have such sufficient number
of authorized and unreserved shares of Common Stock, an
“Authorized Share
Failure”), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of
Common Stock to an amount sufficient to allow the Company to
reserve the Required Reserve Amount for this Warrant then
outstanding either through an increase in the authorized number of
shares of Common Stock or a reverse stock split of the outstanding
shares of Common Stock. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for
the approval of an increase in the number of authorized shares of
Common Stock or a reverse stock split of the outstanding shares of
Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its
best efforts to solicit its stockholders' approval of such increase
in authorized shares of Common Stock or a reverse stock split of
the outstanding shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such
proposal. Notwithstanding the foregoing, if any such time of an
Authorized Share Failure, the Company is able to obtain the written
consent of a majority of the shares of its issued and outstanding
shares of Common Stock to approve the increase in the number of
authorized shares of Common Stock or a reverse stock split of the
outstanding shares of Common Stock, the Company may satisfy this
obligation by obtaining such consent and submitting for filing with
the SEC an Information Statement on Schedule 14C. In the event that
upon any exercise of this Warrant following six (6) months
following the Subscription Date, the Company does not have
sufficient authorized shares to deliver in satisfaction of such
exercise, then unless the Holder elects to void such attempted
exercise, in lieu of issuing shares of Common Stock hereunder, the
Company shall pay to the Holder within three (3) Trading Days of
the applicable exercise, cash in an amount equal to the product of
(i) the number of Warrant Shares that the Company is unable to
deliver pursuant to this Section 1(g) and (ii) as applicable, (A)
the Weighted Average Price of the Common Stock on the Trading Day
immediately preceding the date of the applicable Exercise Notice if
such Exercise Notice is (x) both executed and delivered pursuant to
Section 1(a) hereof on a day that is not a Trading Day or (y) both
executed and delivered pursuant to Section 1(a) hereof on a Trading
Day prior to the opening of “regular trading hours” (as
defined in Rule 600(b)(64) of Regulation NMS promulgated under the
federal securities laws) on such Trading Day, (B) at the option of
the Holder, either (x) the Weighted Average Price of the Common
Stock on the Trading Day immediately preceding the date of the
applicable Exercise Notice or (y) the bid price of the Common Stock
on the principal Trading Market as reported by Bloomberg as of the
time of the Holder's execution of the applicable Exercise Notice if
such Exercise Notice is executed during “regular trading
hours” on a Trading Day and is delivered within two (2) hours
thereafter (including until two (2) hours after the close of
“regular trading hours” on a Trading Day) pursuant to
Section 1(a) hereof or (C) the Weighted Average Price of the Common
Stock on the date of the applicable Exercise Notice if the date of
such Exercise Notice is a Trading Day and such Exercise Notice is
both executed and delivered pursuant to Section 1(a) hereof after
the close of “regular trading hours” on such Trading
Day.

 

(h) Issuance Restrictions. The
Company may not issue any shares of Common Stock upon exercise of
this Warrant unless and until such date that the Company has
obtained Stockholder Approval.

 

 

	
 

	
	
 

 

-5-

 

 

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

 

(a)
Adjustment Upon
Subdivision or Combination of Common Stock. If the Company
at any time on or after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the
Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of
Warrant Shares will be proportionately decreased. Any adjustment
under this Section 2(c) shall become effective at the close of
business on the date the subdivision or combination becomes
effective.

 

(b)
Reset. On the First
Reset Date, the Second Reset Date, if any, and the Third Reset
Date, if any (as such terms are defined in the Series C Warrants),
the Exercise Price shall be adjusted to equal the lower of (i) the
Exercise Price then in effect and (ii) 100% of the applicable Reset
Price determined as of the applicable date of determination. Upon
each such reset of the Exercise Price pursuant to this Section
2(d), the number of Warrant Shares issuable immediately prior to
such reset shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price then in effect
immediately prior to such reset by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such
reset and dividing the product thereof by the Exercise Price
resulting from such reset.

 

(c)
Other Events. If
any event occurs of the type contemplated by the provisions of this
Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares,
as mutually determined by the Company's Board of Directors and the
Required Holders, so as to protect the rights of the Holder;
provided that no
such adjustment pursuant to this Section 2(e) will increase the
Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.

 

(d)
Voluntary Adjustment By
Company. The Company may at any time during the term of this
Warrant, with the prior written consent of the Required Holders,
reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the
Company.

 

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

 

 

	
 

	
	
 

 

-6-

 

 

4. PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

 

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

 

 

	
 

	
	
 

 

-7-

 

 

(b) Fundamental Transactions. The
Company shall not enter into or be party to a Fundamental
Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this
Section 4(b) pursuant to written agreements in form and substance
satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements
, if so requested by the Holder, to deliver to each holder of the
SPA Warrants in exchange for such SPA Warrants a security of the
Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the
shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares
of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to
such Fundamental Transaction, and satisfactory to the Required
Holders, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant
to such Fundamental Transaction and the value of such shares of
capital stock, such adjustments to the number of shares of capital
stock and such exercise price being for the purpose of protecting
the economic value of this Warrant immediately prior to the
occurrence or consummation of such Fundamental Transaction). Any
security issuable or potentially issuable to the Holder pursuant to
the terms of this Warrant on the consummation of a Fundamental
Transaction shall be registered and freely tradable by the Holder
without any restriction or limitation or the requirement to be
subject to any holding period pursuant to any applicable securities
laws. No later than (i)
thirty (30) days prior to the occurrence or consummation of any
Fundamental Transaction or (ii) if later, the first Trading Day
following the date the Company first becomes aware of the
occurrence or potential occurrence of a Fundamental Transaction,
the Company shall deliver written notice thereof via facsimile or
electronic mail and overnight courier to the Holder. Upon
the occurrence or consummation of any Fundamental Transaction, and
it shall be a required condition to the occurrence or consummation
of any Fundamental Transaction that, the Company and the Successor
Entity or Successor Entities, jointly and severally, shall succeed
to, and the Company shall cause any Successor Entity or Successor
Entities to jointly and severally succeed to, and be added to the
term “Company” under this Warrant (so that from and
after the date of such Fundamental Transaction, each and every
provision of this Warrant referring to the “Company”
shall refer instead to each of the Company and the Successor Entity
or Successor Entities, jointly and severally), and the Company and
the Successor Entity or Successor Entities, jointly and severally,
may exercise every right and power of the Company prior thereto and
shall assume all of the obligations of the Company prior thereto
under this Warrant with the same effect as if the Company and such
Successor Entity or Successor Entities, jointly and severally, had
been named as the Company in this Warrant, and, solely at the
request of the Holder, if the Successor Entity and/or Successor
Entities is a publicly traded corporation whose common stock is
quoted on or listed for trading on an Eligible Market, shall
deliver (in addition to and without limiting any right under this
Warrant) to the Holder in exchange for this Warrant a security of
the Successor Entity and/or Successor Entities evidenced by a
written instrument substantially similar in form and substance to
this Warrant and exercisable for a corresponding number of shares
of capital stock of the Successor Entity and/or Successor Entities
(the “Successor Capital
Stock”) equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to
such Fundamental Transaction (such corresponding number of shares
of Successor Capital Stock to be delivered to the Holder shall be
equal to the greater of (A) the quotient of (i) the aggregate
dollar value of all consideration (including cash consideration and
any consideration other than cash (“Non-Cash Consideration”), in such
Fundamental Transaction, as such values are set forth in any
definitive agreement for the Fundamental Transaction that has been
executed at the time of the first public announcement of the
Fundamental Transaction or, if no such value is determinable from
such definitive agreement, as determined in accordance with Section
12 with the term “Non-Cash
Consideration” being substituted for the term “Exercise
Price”) that the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction or the
record, eligibility or other determination date for the event
resulting in such Fundamental Transaction, had this Warrant been
exercised immediately prior to such Fundamental Transaction or the
record, eligibility or other determination date for the event
resulting in such Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant) (the
“Aggregate
Consideration”) divided by (ii) the per share Closing
Sale Price of such Successor Capital Stock on the Trading Day
immediately prior to the consummation or occurrence of the
Fundamental Transaction and (B) the product of (i) the quotient
obtained by dividing (x) the Aggregate Consideration, by (y) the
Closing Sale Price of the Common Stock on the Trading Day
immediately prior to the consummation or occurrence of the
Fundamental Transaction and (ii) the highest exchange ratio
pursuant to which any stockholder of the Company may exchange
shares of Common Stock for Successor Capital Stock) (provided, however, to the extent that the
Holder's right to receive any such shares of publicly traded common
stock (or their equivalent) of the Successor Entity would result in
the Holder and its other Attribution Parties exceeding the Maximum
Percentage, if applicable, then the Holder shall not be entitled to
receive such shares to such extent (and shall not be entitled to
beneficial ownership of such shares of publicly traded common stock
(or their equivalent) of the Successor Entity as a result of such
consideration to such extent) and the portion of such shares shall
be held in abeyance for the Holder until such time or times, as its
right thereto would not result in the Holder and its other
Attribution Parties exceeding the Maximum Percentage, at which time
or times the Holder shall be delivered such shares to the extent as
if there had been no such limitation), and such security shall be
satisfactory to the Holder, and with an identical exercise price to
the Exercise Price hereunder (such adjustments to the number of
shares of capital stock and such exercise price being for the
purpose of protecting after the consummation or occurrence of such
Fundamental Transaction the economic value of this Warrant that was
in effect immediately prior to the consummation or occurrence of
such Fundamental Transaction, as elected by the Holder solely at
its option). Upon occurrence or consummation of the Fundamental
Transaction, and it shall be a required condition to the occurrence
or consummation of such Fundamental Transaction that, the Company
and the Successor Entity or Successor Entities shall deliver to the
Holder confirmation that there shall be issued upon exercise of
this Warrant at any time after the occurrence or consummation of
the Fundamental Transaction, as elected by the Holder solely at its
option, shares of Common Stock, Successor Capital Stock or, in lieu
of the shares of Common Stock or Successor Capital Stock (or other
securities, cash, assets or other property purchasable upon the
exercise of this Warrant prior to such Fundamental Transaction),
such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or
subscription rights), which for purposes of clarification may
continue to be shares of Common Stock, if any, that the Holder
would have been entitled to receive upon the happening of such
Fundamental Transaction or the record, eligibility or other
determination date for the event resulting in such Fundamental
Transaction, had this Warrant been exercised immediately prior to
such Fundamental Transaction or the record, eligibility or other
determination date for the event resulting in such Fundamental
Transaction (without regard to any limitations on the exercise of
this Warrant), as adjusted in accordance with the provisions of
this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the occurrence or consummation of any
Fundamental Transaction pursuant to which holders of shares of
Common Stock are entitled to receive securities, cash, assets or
other property with respect to or in exchange for shares of Common
Stock (a “Corporate
Event”), the Company shall make appropriate provision
to ensure that, and any applicable Successor Entity or Successor
Entities shall ensure that, and it shall be a required condition to
the occurrence or consummation of such Corporate Event that, the
Holder will thereafter have the right to receive upon exercise of
this Warrant at any time after the occurrence or consummation of
the Corporate Event, shares of Common Stock or Successor Capital
Stock or, if so elected by the Holder, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property)
purchasable upon the exercise of this Warrant prior to such
Corporate Event (but not in lieu of such items still issuable under
Sections 3 and 4(a), which shall continue to be receivable on the
shares of Common Stock or on the such shares of stock, securities,
cash, assets or any other property otherwise receivable with
respect to or in exchange for shares of Common Stock), such shares
of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights and
any shares of Common Stock) which the Holder would have been
entitled to receive upon the occurrence or consummation of such
Corporate Event or the record, eligibility or other determination
date for the event resulting in such Corporate Event, had this
Warrant been exercised immediately prior to such Corporate Event or
the record, eligibility or other determination date for the event
resulting in such Corporate Event (without regard to any
limitations on exercise of this Warrant). Provision made pursuant
to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Holder. The provisions of this
Section 4(b) shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events.

 

 

 

-8-

 

 

 

(c) Notwithstanding the
foregoing, in the event of Fundamental Transaction, at the request
of the Holder delivered before the ninetieth (90th) day after the
occurrence or consummation of such Fundamental Transaction,
the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the
Holder, within five (5) Business Days after such request (or, if
later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes
Value of the remaining unexercised portion of this Warrant on the
date of such Fundamental Transaction; provided, however, that, if such
Fundamental Transaction is not within the Company's control,
including not approved by the Company's Board of Directors, the
Holder shall only be entitled to receive from the Company or any
Successor Entity, as of the date of consummation of such
Fundamental Transaction, the same type or form of consideration
(and in the same proportion), at the Black Scholes Value of the
unexercised portion of this Warrant, that is being offered and paid
to the holders of Common Stock of the Company in connection with
such Fundamental Transaction, whether that consideration be in the
form of cash, stock or any combination thereof, or whether the
holders of Common Stock are given the choice to receive from among
alternative forms of consideration in connection with such
Fundamental Transaction.

 

5. NONCIRCUMVENTION. The Company
hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation or 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 of the provisions of this Warrant
and take all action as may be required to protect the rights of the
Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii)
shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 100% of the
number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of all Warrants issued pursuant to
the Securities Purchase Agreement then outstanding (without regard
to any limitations on exercise and assuming that the Maximum
Eligibility Number is being determined based on a Reset Price equal
to $0.08 (as adjusted for stock splits, stock dividends,
recapitalizations, reorganizations, reclassification, combinations,
reverse stock splits or other similar events occurring after the
Subscription Date)).

 

 

	
 

	
	
 

 

-9-

 

 

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

 

7. REISSUANCE OF
WARRANTS.

 

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

 

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

 

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

 

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

 

 

	
 

	
	
 

 

-10-

 

 

8. NOTICES. Whenever notice is
required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f)
of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to
this Warrant, including in reasonable detail a description of such
action and the reason therefor. Without limiting the generality of
the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on
which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common
Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of shares of
Common Stock or (C) for determining rights to vote with respect to
any Fundamental Transaction, dissolution or liquidation;
provided in each
case that such information shall be made known to the public prior
to or in conjunction with such notice being provided to the Holder.
It is expressly understood and agreed that the time of exercise
specified by the Holder in each Exercise Notice shall be definitive
and may not be disputed or challenged by the Company.

 

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

 

10. GOVERNING LAW; JURISDICTION; JURY
TRIAL. This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this
Warrant shall be governed by, the internal laws of the State of 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. The Company hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or
that the venue of such suit, action or proceeding is improper. The
Company 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 to the Company at the address
set forth in Section 9(f) of the Securities Purchase 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 manner permitted by law. Nothing contained herein shall be
deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other
jurisdiction to collect on the Company's obligations to the Holder,
to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other court ruling in
favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

11. CONSTRUCTION; HEADINGS. This
Warrant shall be deemed to be jointly drafted by the Company and
all the Buyers and shall not be construed against any Person as the
drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation
of, this Warrant.

 

 

	
 

	
	
 

 

-11-

 

 

12. DISPUTE RESOLUTION. In the case
of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall
submit the disputed determinations or arithmetic calculations via
facsimile or electronic mail within two (2) Business Days of
receipt of the Exercise Notice 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 of the
Exercise Price or the Warrant Shares within three (3) 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 or electronic mail (a) the
disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the
Warrant Shares to the Company's independent, outside accountant.
The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results
no later than ten (10) 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.

 

13. 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 and the other Transaction Documents, at law or
in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the
Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company 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.

 

14. TRANSFER. This Warrant and the
Warrant Shares may be offered for sale, sold, transferred, pledged
or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities
Purchase Agreement.

 

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

 

16. DISCLOSURE. Upon receipt or
delivery by the Company of any notice in accordance with the terms
of this Warrant, unless the Company has in good faith determined
that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its
Subsidiaries (as defined in the Securities Purchase Agreement), the
Company shall contemporaneously with any such receipt or delivery
publicly disclose such material, nonpublic information on a Current
Report on Form 8-K or otherwise. In the event that the Company
believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall
indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall
be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the
Company or its Subsidiaries.

 

 

	
 

	
	
 

 

-12-

 

 

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

 

(a) “1933 Act” means the Securities Act
of 1933, as amended.

 

(b) “Affiliate” shall have the meaning
ascribed to such term in Rule 405 of the 1933 Act.

 

(c) “Approved Stock Plan” means any
employee benefit plan which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer or director for
services provided to the Company.

 

(d) “Attribution Parties” means,
collectively, the following Persons and entities: (i) any
investment vehicle, including, any funds, feeder funds or managed
accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's
investment manager or any of its Affiliates or principals, (ii) any
direct or indirect Affiliates of the Holder or any of the
foregoing, (iii) any Person acting or who could be deemed to be
acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Common
Stock would or could be aggregated with the Holder's and the other
Attribution Parties for purposes of Section 13(d) of the 1934 Act.
For clarity, the purpose of the foregoing is to subject
collectively the Holder and all other Attribution Parties to the
Maximum Percentage.

 

(e) “Black Scholes Value” means the
value of this Warrant calculated using the Black-Scholes Option
Pricing Model obtained from the “OV” function on
Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction, or, if the
Fundamental Transaction is not publicly announced, the date the
Fundamental Transaction is consummated, for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the remaining term of this
Warrant as of such date of request, (ii) an expected volatility
equal to the greater of 100% and the 100 day volatility obtained
from the HVT function on Bloomberg as of the Trading Day
immediately following the public announcement of the applicable
Fundamental Transaction, or, if the Fundamental Transaction is not
publicly announced, the date the Fundamental Transaction is
consummated, (iii) the underlying price per share used in such
calculation shall be the greater of (x) the highest Weighted
Average Price of the Common Stock during the period beginning on
the Trading Day prior to the execution of definitive documentation
relating to the applicable Fundamental Transaction and ending on
(A) the Trading Day immediately following the public announcement
of such Fundamental Transaction, if the applicable Fundamental
Transaction is publicly announced or (B) the Trading Day
immediately following the consummation of the applicable
Fundamental Transaction if the applicable Fundamental Transaction
is not publicly announced and (y) the sum of the price per share
being offered in cash, if any, plus the value of any non-cash
consideration, if any, being offered in the Fundamental
Transaction, (iv) a zero cost of borrow and (v) a 360 day
annualization factor.

 

(f) “Bloomberg” means Bloomberg
Financial Markets.

 

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

 

 

	
 

	
	
 

 

-13-

 

 

(h) “Closing Bid Price” and
“Closing Sale
Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price
or the closing trade price, as the case may be, then the last bid
price or the last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if
the Principal Market is not the principal securities exchange or
trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the OTC Link or
“pink sheets” by OTC Markets Group Inc. (formerly Pink
OTC Markets Inc.). If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing
Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or other similar transaction during
the applicable calculation period.

 

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

 

(j) “Convertible Securities” means any
stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for shares of
Common Stock.

 

(k) “Designee” means Empery Asset
Management, LP.

 

(l) “Eligible Market” means the
Principal Market, the NYSE American, The Nasdaq Global Select
Market, The Nasdaq Global Market, The Nasdaq Capital Market, The
New York Stock Exchange, Inc. or the OTC QX.

 

(m) “Excluded Securities” means any
Common Stock issued or issuable or deemed to be issued in
accordance with Section 2(a) hereof by the Company: (i) under any
Approved Stock Plan, (ii) upon exercise of any SPA, Series A
Warrants, any Series B Warrants and any Series C Warrants, in each
case issued pursuant to the Securities Purchase Agreement;
provided, that the
terms of such SPA Warrants Series B Warrants and Series C Warrants
are not amended, modified or changed on or after the Subscription
Date, or (iii) upon conversion, exercise or exchange of any Options
or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date; provided, that such issuance of
Common Stock upon exercise of such Options or Convertible
Securities is made pursuant to the terms of such Options or
Convertible Securities in effect on the date immediately preceding
the Subscription Date and such Options or Convertible Securities
are not amended, modified or changed on or after the Subscription
Date.

 

(n) “Expiration Date” means the date
that is sixty-six(66) months after the Issuance Date or if such
date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a “Holiday”), the next day that is
not a Holiday.

 

(o) Intentionally
omitted.

 

 

	
 

	
	
 

 

-14-

 

 

(p) “Fundamental Transaction” means (A)
that the Company shall, directly or indirectly, including through
Subsidiaries, Affiliates or otherwise, in one or more related
transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity,
or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company or
any of its “significant subsidiaries” (as defined in
Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow
the Company to be subject to or have its Common Stock be subject to
or party to one or more Subject Entities making, a purchase, tender
or exchange offer that is accepted by the holders of at least
either (x) 50% of the outstanding shares of Common Stock, (y) 50%
of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party
to, or Affiliated with any Subject Entities making or party to,
such purchase, tender or exchange offer were not outstanding; or
(z) such number of shares of Common Stock such that all Subject
Entities making or party to, or Affiliated with any Subject Entity
making or party to, such purchase, tender or exchange offer, become
collectively the beneficial owners (as defined in Rule 13d-3 under
the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such
Subject Entities, individually or in the aggregate, acquire, either
(x) at least 50% of the outstanding shares of Common Stock, (y) at
least 50% of the outstanding shares of Common Stock calculated as
if any shares of Common Stock held by all the Subject Entities
making or party to, or Affiliated with any Subject Entity making or
party to, such stock purchase agreement or other business
combination were not outstanding; or (z) such number of shares of
Common Stock such that the Subject Entities become collectively the
beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of
at least 50% of the outstanding shares of Common Stock, or (v)
reorganize, recapitalize or reclassify its Common Stock, (B) that
the Company shall, directly or indirectly, including through
Subsidiaries, Affiliates or otherwise, in one or more related
transactions, allow any Subject Entity individually or the Subject
Entities in the aggregate to be or become the “beneficial
owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, whether through acquisition, purchase,
assignment, conveyance, tender, tender offer, exchange, reduction
in outstanding shares of Common Stock, merger, consolidation,
business combination, reorganization, recapitalization, spin-off,
scheme of arrangement, reorganization, recapitalization or
reclassification or otherwise in any manner whatsoever, of either
(x) at least 50% of the aggregate ordinary voting power represented
by issued and outstanding shares of Common Stock, (y) at least 50%
of the aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock not held by all such Subject
Entities as of the Subscription Date calculated as if any shares of
Common Stock held by all such Subject Entities were not
outstanding, or (z) a percentage of the aggregate ordinary voting
power represented by issued and outstanding shares of Common Stock
or other equity securities of the Company sufficient to allow such
Subject Entities to effect a statutory short form merger or other
transaction requiring other stockholders of the Company to
surrender their shares of Common Stock without approval of the
stockholders of the Company or (C) directly or indirectly,
including through Subsidiaries, Affiliates or otherwise, in one or
more related transactions, the issuance of or the entering into any
other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this
definition to the extent necessary to correct this definition or
any portion of this definition which may be defective or
inconsistent with the intended treatment of such instrument or
transaction.

 

(q) “Group” means a “group”
as that term is used in Section 13(d) of the 1934 Act and as
defined in Rule 13d-5 thereunder.

 

(r) “Maximum Eligibility Number” shall
have the meaning ascribed to such term in the Series C
Warrants.

 

 

	
 

	
	
 

 

-15-

 

 

(s) “Option Value” means the value of
an Option calculated using the Black-Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg determined
as of (A) the Trading Day prior to the public announcement of the
issuance of the applicable Option, if the issuance of such Option
is publicly announced or (B) the Trading Day immediately following
the issuance of the applicable Option if the issuance of such
Option is not publicly announced, for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the remaining term of the
applicable Option as of the applicable date of determination, (ii)
an expected volatility equal to the greater of 100% and the 100 day
volatility obtained from the HVT function on Bloomberg as of (A)
the Trading Day immediately following the public announcement of
the applicable Option if the issuance of such Option is publicly
announced or (B) the Trading Day immediately following the issuance
of the applicable Option if the issuance of such Option is not
publicly announced, (iii) the underlying price per share used in
such calculation shall be the highest Weighted Average Price of the
Common Stock during the period beginning on the Trading Day prior
to the execution of definitive documentation relating to the
issuance of the applicable Option and ending on (A) the Trading Day
immediately following the public announcement of such issuance, if
the issuance of such Option is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable
Option if the issuance of such Option is not publicly announced,
(iv) a zero cost of borrow and (v) a 360 day annualization
factor.

 

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

 

(u) “Parent Entity” of a Person means
an entity that, directly or indirectly, controls the applicable
Person, including such entity whose common capital or equivalent
equity security is quoted or listed on an Eligible Market (or, if
so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or
such entity, the Person or such entity designated by the Required
Holders or in the absence of such designation, such Person or
entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.

 

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

 

(w) “Principal Market” means the NASDAQ
Capital Market.

 

(x) Intentionally
omitted.

 

(y) Intentionally
omitted.

 

(z) “Qualified Eligible Market”
means the NYSE American, The Nasdaq Global Select Market, The
Nasdaq Global Market, The Nasdaq Capital Market or The New York
Stock Exchange, Inc.

 

(aa) Intentionally
omitted.

 

(bb) “Registration
Rights Agreement” means that certain Registration
Rights Agreement dated as of the Subscription Date by and among the
Company and the Buyers.

 

(cc) “Registration
Statement” means that certain Registration Rights
Agreement dated as of the Subscription Date by and among the
Company and the Buyers.

 

 

	
 

	
	
 

 

-16-

 

 

(dd) “Required
Holders” means the holders of the SPA Warrants
representing at least a majority of the shares of Common Stock
underlying the SPA Warrants then outstanding and shall include the
Designee so long as the Designee or any of its Affiliates holds any
SPA Warrants, Hudson Bay Capital Management LP so long as Hudson
Bay Capital Management LP or any of its Affiliates holds any SPA
Warrants, and Sabby Management, LLC so long as Sabby Management,
LLC or any of its Affiliates holds any SPA Warrants.

 

(ee) “Reset
Price” shall have the meaning ascribed to such term in
the Series C Warrants.

 

(ff) Intentionally
omitted.

 

(gg) Intentionally
omitted.

 

(hh) “Series
B Warrants” shall have the meaning ascribed to such
term in the Securities Purchase Agreement.

 

(ii) “Series
C Warrants” shall have the meaning ascribed to such
term in the Securities Purchase Agreement.

 

(jj) “Standard
Settlement Period” means the standard settlement
period, expressed in a number of Trading Days, on the Company's
primary Eligible Market with respect to the Common Stock as in
effect on the date of delivery of the applicable Exercise
Notice.

 

(kk) “Subject
Entity” means any Person, Persons or Group or any
Affiliate or associate of any such Person, Persons or
Group.

 

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

 

(mm) Intentionally
omitted.

 

(nn) Intentionally
omitted.

 

(oo) “Trading
Day” means any day on which the Common Stock is traded
on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock on such day, then on
the principal securities exchange or securities market on which the
Common Stock is then traded.

 

(pp) “Weighted
Average Price” means, for any security as of any date,
the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New
York time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00
p.m., New York time (or such other time as the Principal Market
publicly announces is the official close of trading), as reported
by Bloomberg through its “Volume at Price” function or,
if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the
electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time (or such other time as
such market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York time (or such other time as
such market publicly announces is the official close of trading),
as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours,
the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported
in the OTC Link or “pink sheets” by OTC Markets Group
Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average
Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Weighted Average Price of such
security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the
Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section
12 with the term “Weighted Average Price” being
substituted for the term “Exercise Price.” All such
determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or other
similar transaction during the applicable calculation
period.

 

[Signature Page Follows]

	
 

	
	
 

 

-17-

 

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

 

 

BRIDGELINE
DIGITAL, INC.

 

 

By:
___________________________

Name:

Title:

 

-18-

 

EXHIBIT A

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

 

BRIDGELINE DIGITAL, INC.

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

 

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

 

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

 

____________ a
“Cashless
Exercise” with respect to _______________ Warrant
Shares, resulting in a delivery obligation of the Company to the
Holder of __________ shares of Common Stock representing the
applicable Net Number.

 

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

 

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

 

Date:
_______________ __, ______

 

 

 

   Name
of Registered Holder

 

 

By:           

Name:

Title:

 

 

 

-19-

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Company, LLC to issue the above
indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated March , 2019 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust
Company, LLC.

 

BRIDGELINE
DIGITAL, INC.

 

 

By:
________________________________

Name:

Title:

 

 

 

-20-

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