Document:

Exhibit

OBSERVER RIGHTS AGREEMENT
This Observer Rights Agreement (this “Agreement”) is dated as of October 26, 2018 by and between MidSouth Bancorp, Inc., a Louisiana corporation (the “Company”), and Jacobs Asset Management, LLC (“JAM”).
WHEREAS, JAM is the investment manager or adviser to certain private investment funds and managed accounts (JAM “clients”) that collectively Beneficially Own approximately 7% of the outstanding shares of the Company’s common stock; and
WHEREAS, JAM has requested that it be granted certain information and observation rights with respect to the board of directors of the Company (the “Board”); and
WHEREAS, the Board has determined that granting JAM such information and observation rights on the terms and conditions hereof is in the best interests of the Company;
NOW THEREFORE, the Company and JAM agree as follows:
1.During the term of this Agreement, JAM shall be entitled to designate one person as an observer (the “Board Observer”) to the Board; provided that any such Board Observer shall be reasonably acceptable to the Company (and the Company acknowledges that Adam Aspes and Daniel Oxman are reasonably acceptable to the Company) and shall have executed and delivered to the Company a copy of the Acknowledgement and Agreement to be Bound in the form attached hereto as Exhibit A (the “Acknowledgement”).  The initial Board Observer shall be Adam Aspes; provided that JAM shall be entitled to, upon written notice to the Company, replace the then-present Board Observer with a new Board Observer.  The Board Observer shall have the right to attend all meetings of the Board and committees thereof (in each case whether in person, by telephone or otherwise) in a non-voting observer capacity, and the Company shall provide the Board Observer with information rights equivalent to those of a Board member, subject to the provisions hereof. Regardless of the foregoing, the Company shall have the right to exclude the Board Observers from meetings of the Board or committees thereof or omit to provide the Board Observer with certain information and materials if (but only to the extent) the Company’s legal counsel or a majority of the Board determines in good faith that such exclusion or omission is necessary in order to (i) preserve attorney-client privilege, (ii) comply with its fiduciary obligations under applicable law, (iii) comply with applicable law or regulation, including to protect confidential supervisory information under any order, notice or regulation of a bank regulatory authority, or (iv) address any conflict of interest.  In the event that the Board Observer is excluded from a meeting of the Board or a committee thereof, the Company shall inform the Board Observer of the general nature of the subject matter discussed and explain the Board’s rationale for the decision to exclude the Board Observer. 
2.The Company shall provide to the Board Observer notice of any and all Board meetings and, subject to the provisions and exclusions hereof (including, without limitation, the exclusions described in Section 1 hereof), a copy of the materials provided to all members of the Board and the committees thereof at the time such materials are provided to members of the Board and such committees, including without limitation, the minutes of all Board meetings and committee meetings (all of which information shall be subject to the confidentiality provisions set forth in Section 3 hereof). 
3.a.    The Board Observer agrees that he or she will hold all Evaluation Material in strict confidence and will not disclose or divulge any such information to any person or entity, or use such 

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information for any purpose other than to monitor and seek to enhance the value of the investments of JAM’s clients in the Company and other than in connection with his status as a Board Observer. For purposes of this Agreement, the term “Evaluation Material” means any and all information concerning or relating to the Company or any of its subsidiaries or affiliates that is furnished to the Board Observer in his or her capacity as a Board Observer (regardless of the manner in which it is furnished, including in written or electronic format or orally, gathered by visual inspection or otherwise), together with all notes, analyses, reports, models, compilations, studies, interpretations, documents, records or extracts thereof containing, referring, relating to, based upon or derived from such information, in whole or in part. The term “Evaluation Material” shall not include such information that (a) can be shown to have been or becomes available to the Board Observer on a non-confidential basis from a source other than the Company or any of its affiliates not known by the Board Observer, JAM or any of their respective affiliates or Representatives to be bound by an agreement or obligation of confidentiality with respect to such information, (b) is or becomes generally available to the public other than as a result of a disclosure by the Board Observer, JAM or any of their respective affiliates or Representatives in violation of this Agreement, or (c) has been or is independently developed by the Board Observer, JAM or any of their respective affiliates or Representatives without the use of any Evaluation Material. Notwithstanding the foregoing, the Board Observer may provide Evaluation Material to any JAM officer or employee (each, a “Representative”) who has a need to know such information provided that any such Representative provided with any such information shall keep it confidential to the same extent as the Board Observer is required under this Agreement and use it only for such purposes as the Board Observer is permitted to use it under this Agreement; and, in any event, JAM shall be responsible for any non-compliance with such confidentiality and use requirements by any Board Observer or Representative who is provided with such information. In furtherance, and not in limitation, of the foregoing, JAM and the Board Observer shall, and shall instruct their Representatives to, use all reasonable and prudent efforts to protect and safeguard the Evaluation Material from disclosure to at least the same extent that they do so with respect to JAM’s own confidential information.

b.     In the event that JAM, the Board Observer or any Representative becomes legally compelled to disclose any Evaluation Material, JAM and the Board Observer agree, unless prohibited by law, to provide the Company with reasonable advance notice under the circumstances prior to any such disclosure to enable the Company to seek a protective order or other appropriate remedy (and if the Company seeks such an order or other remedy, JAM and the Board Observer will provide such cooperation as the Company shall reasonably request, at the Company’s sole cost and expense). If in the absence of a protective order or the receipt of a waiver hereunder JAM, the Board Observer or such Representative is nonetheless, based on the advice of the Board Observer’s or JAM’s legal counsel, required to disclose any such information, JAM, the Board Observer or such Representative, as the case may be, may make the required disclosure (solely to the extent required) without liability under this Agreement. In no event will JAM, the Board Observer or any of their Representatives oppose action by the Company to obtain a protective order or other remedy to prevent the disclosure of Evaluation Material or to obtain reliable assurance that confidential treatment will be accorded the Evaluation Material. For the avoidance of doubt, it is understood that there shall be no “legal requirement” requiring JAM, the Board Observer or any of their Representatives to disclose any Evaluation Material solely by virtue of the fact that, absent such disclosure, any of them or any of their respective affiliates, or any of JAM’s clients, would be prohibited from purchasing, selling or engaging in derivative or other voluntary transactions with respect to, the Company’s common stock or the securities of any other company or otherwise proposing or making an offer to do any of the foregoing, or any of them would be unable to file any proxy materials in compliance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or the rules and regulations promulgated thereunder. In addition, nothing contained in this Agreement shall require any notice to be given or limit or prohibit the Board Observer, JAM or any such Representative from providing any information demanded or requested in the course of a routine examination or inquiry by a regulatory authority having jurisdiction over the Board 

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Observer, JAM, JAM’s clients or such Representative so long as such examination or inquiry is not known by the Board Observer, JAM or any such Representative to be targeted at the Company or any of its affiliates or JAM’s clients’ investment in the Company. 

c.    JAM and the Board Observer acknowledge that (a) none of the Company or any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any Evaluation Material, and (b) none of the Company or any of its representatives shall have any liability to JAM, the Board Observer, any JAM client, any Representative of JAM or the Board Observer or any of their respective affiliates relating to or resulting from the use of the Evaluation Material or any errors therein or omissions therefrom. 

d.    All Evaluation Material shall remain the property of the Company. No other person shall by virtue of any disclosure of and/or use of any Evaluation Material acquire any rights with respect thereto, all of which rights shall remain exclusively with the Company. At any time after the date on which this Agreement has been terminated pursuant to Section 10 hereof, JAM and the Board Observer will promptly return to the Company or destroy all hard copies of the Evaluation Material and use reasonable best efforts to permanently erase or delete all electronic copies of the Evaluation Material in their or any of their Representatives’ possession or control (and, upon the request of the Company, shall certify to the Company in writing that such Evaluation Material has been erased or deleted, as the case may be); provided, however, that JAM shall be entitled to retain copies of the Evaluation Material to the extent required by applicable law or regulation or by its internal document retention and compliance policies. Notwithstanding the return or erasure or deletion of Evaluation Material, the Board Observer, JAM and their Representatives will continue to be bound by the obligations contained herein. 

e.    The Board Observer and JAM hereby acknowledge that they are aware that the United States securities laws prohibit any person who has received from an issuer any material, non-public information from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. 

f.    The Board Observer and JAM agree that, while this Agreement is in effect, neither the Board Observer nor JAM will purchase or sell securities of the Company (including for the account of JAM’s clients) other than (i) at times when members of the Board are permitted to purchase or sell Company securities (i.e., during “trading windows”) or (ii) in a transaction that a member of the Board would otherwise be permitted to effect pursuant to the Company’s policy on securities transactions by members of the Board (the “Trading Policy”). The Company represents and warrants to the Board Observer and JAM that it has provided to them a true and complete copy of the Trading Policy and agrees to provide to the Board Observer and JAM promptly from time to time (but in no event later than when provided to members of the Board), including for a period ending on the six (6) months following the time when the Board Observer ceases to have observer rights pursuant to Section 1 of this Agreement, copies of all updates to the Trading Policy and all notices provided to members of the Board concerning the closing of a trading window or the failure of a trading window to open and the opening or re-opening of any trading window under the Trading Policy. Notwithstanding the foregoing agreements in this Section 3(f), neither the Board Observer, JAM nor JAM’s clients shall be subject to the Trading Policy. 

4.During the term of this Agreement, JAM and the Board Observer shall not, and shall cause their respective Representatives and affiliates not to, directly or indirectly:

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a.    acquire, offer, seek or propose to acquire, or agree to acquire, by purchase or otherwise, Beneficial Ownership of Company common stock if after giving effect to such acquisition JAM and its clients and their respective affiliates would collectively Beneficially Own more than 9.99% of the outstanding shares of Company common stock; provided, that, (i) upon the written consent from the Federal Reserve Board, JAM and its clients and their respective affiliates may acquire shares of Company common stock resulting in Beneficial Ownership greater than 9.99%; and (ii) nothing herein will require Company common stock to be sold to the extent that JAM and its clients and their respective affiliates, collectively, exceed the ownership limit under this clause (a) as the result of a share repurchase or similar Company action that reduces the number of outstanding shares of Company common stock; 

b.    make, or in any way participate, in any “solicitation” of “proxies” to vote (as such terms are used in the rules of the Securities and Exchange Commission (the “SEC”)), or seek to advise or influence any person with respect to the voting of (including engaging in any withhold the vote campaign) any Company common stock; 

c.    separately or in conjunction with any other person, submit a proposal for or offer of (with or without conditions) (including to the Board if any such proposal would reasonably be expected to be required to be disclosed by JAM, the Board Observer or the Company), any Extraordinary Transaction. “Extraordinary Transaction” means any of the following involving the Company or any of its subsidiaries or its or their securities or a material amount of the assets or businesses of the Company or any of its subsidiaries: any tender offer or exchange offer, merger, acquisition, business combination, reorganization, restructuring, recapitalization, spin-off, split-off, licensing, sale or acquisition of, or joint venture or other partnership with respect to, material assets, sale or purchase of securities, liquidation or dissolution, or any similar transaction; 

d.    form, join or in any way participate in a 13D Group with any person other than the Board Observer, JAM, JAM’s clients or any of their respective affiliates; 

e.    present at any annual meeting or any special meeting of the Company’s shareholders or through action by written consent any proposal for consideration for action by shareholders, conduct any shareholder referendum, seek to call a special meeting of the Company’s shareholders, propose any nominee for election to the Board or seek the removal of any member of the Board; 

f.    grant any proxy, consent or other authority to vote with respect to any matters (other than to the named proxies included in the Company’s proxy card for an annual meeting or a special meeting) or deposit any of the Company common stock (or any securities convertible into, exchangeable for or otherwise exercisable to acquire such common stock) held by any of them in a voting trust or other arrangement of similar effect, or subject them to a voting agreement or other arrangement of similar effect; 

g.    make or issue, or cause to be made or issued, any public disclosure, statement or announcement (including the filing or furnishing of any document or report with the SEC or any other governmental agency or any disclosure to any journalist, member of the media or securities analyst) (x) in support of any solicitation described in clause (b) above or otherwise inconsistent with the restrictions set forth in this Section 4, or (y) negatively commenting upon the Company, including the Company’s corporate strategy, business, corporate activities, Board or management (and including making any statements critical of the Company’s business, strategic direction, capital structure or compensation practices); 

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h.     institute, solicit, assist or join, as a party, any litigation, arbitration or other proceeding against or involving the Company or any of its current or former directors or officers (including derivative actions) other than to enforce the provisions of this Agreement; 

i.    make any request under Section 1-1602 of the Louisiana Business Corporation Act; 

j.    other than in open market transactions where the identity of the purchaser is not known and in underwritten widely dispersed public offerings, sell shares of Company common stock representing 5% or more of the outstanding shares of Company common stock to a single purchaser (or group of affiliated purchasers) or any 13D Group or sell shares of Company common stock to any single purchaser (or group of affiliated purchasers) or any 13D Group if, to JAM’s knowledge, as a result thereof such purchaser (or group of affiliated purchasers) or 13D Group would Beneficially Own 5% or more of the outstanding shares of Company common stock; 

k.     request the Company or any of its representatives, directly or indirectly, to amend or waive any provision of this Section 4, in each case which would reasonably be expected to result in a public announcement of such request; 

l.    enter into any discussions, negotiations, agreements or undertakings with any person with respect to the foregoing or advise, assist, encourage or seek to persuade others to take any action with respect to any of the foregoing. 

JAM and the Board Observer agree to promptly advise the Company if they receive an approach or inquiry regarding a potential proposed acquisition or proxy contest with respect to the Company.

5.JAM and the Board Observer represent and warrant that they, together with their affiliates and JAM’s clients, Beneficially Own 1,166,457 shares of the Company’s common stock as of the date of this Agreement.
6.The Company will reimburse JAM for its actual out-of-pocket expenses incurred in connection with this matter, in an amount not to exceed $50,000, within ten business days of receiving reasonably satisfactory documentation with respect to such expenses. The Company will also reimburse reasonable out-of-pocket pre-approved travel expenses incurred by the Board Observer in connection with attending meetings of the Board as well as pre-approved travel expenses related to the Company for non-Board related issues.

7.No failure or delay by the Company in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, and no modification hereof shall be effective, unless in writing and signed by all parties hereto.

8.This Agreement shall be governed by, and construed in accordance with, the laws of the State of Louisiana, without giving effect to choice of law doctrines, and can be amended only in writing and by joint agreement of JAM and the Company.  If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto.  If such provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable provision had (to the extent not enforceable) never been contained in the Agreement.  Each of the parties hereto consents to personal jurisdiction in such State and voluntarily submits to the jurisdiction of the courts of such State in any action or proceeding with respect to this Agreement, including the federal district courts located in such State.  Each 

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party agrees that it/him may be served with process at the address set forth on the signature page hereof, and further agrees not to commence any action, suit or proceeding related hereto except in such courts.  

9.This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same Agreement.  One or more counterparts of this Agreement may be delivered by telecopier or .pdf electronic transmission, with the intention that they shall have the same effect as an original counterpart hereof.

10.This Agreement and (subject to the next following sentence) the rights granted herein, shall terminate upon the earliest of (i) following the nine (9) month anniversary of the date of this Agreement, the Board Observer’s delivery of written notice to the Company that he has terminated this Agreement; (ii) following the second (2nd) anniversary of the date of this Agreement, the Company’s delivery of written notice to the Board Observer that it has terminated this Agreement; and (iii) following JAM ceasing to be the Beneficial Owner of 5.0% or more of the outstanding common stock of the Company (subject to adjustment in the event of a stock split, dividend or similar event), the Company’s delivery of written notice to the Board Observer that it has terminated this Agreement. The obligations pursuant to Section 3 hereof relating to the confidentiality and use of information shall survive any termination of this Agreement for a period of 12 months and the obligations of the Company pursuant to Section 3(f) shall survive any termination of this Agreement for a period of 6 months.

11.Nothing in this Agreement shall render the Board Observer a fiduciary of the Company or of any affiliate, shareholder or creditor of the Company.

12.The parties hereto agree that irreparable damage would occur in the event that the provisions contained in this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled (without bond) to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions thereof, this being in addition to any other remedy to which they may be entitled by law or equity, and any party sued for breach of this Agreement expressly waives any defense that a remedy in damages would be adequate.
13.For purposes of this Agreement, the term:

a.    “13D Group” means any group of persons formed for the purpose of acquiring, holding, voting or disposing of shares of Company common stock (or any securities convertible, exchangeable for or otherwise exercisable to acquire such Company common stock) which would be required under Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, to file a statement on Schedule 13D pursuant to Rule 13d-l(a) or Schedule 13G pursuant to Rule 13d-1(c) with the SEC as a “person” within the meaning of Section 13(d)(3) of the Exchange Act if such group beneficially owned (within the meaning set forth in Rule 13d-3 or Rule 13d-5(b)(1) of the rules and regulations promulgated under the Exchange Act) shares of Company common stock representing more than 5% of the shares thereof then outstanding. 

b.    “Beneficially Own,” “Beneficial Owner” or “Beneficial Ownership” shall have the meaning (or the correlative meaning, as applicable) set forth in Rule 13d-3 and Rule 13d-5(b)(1) of the rules and regulations promulgated under the Exchange Act; provided that, “Beneficially Own” and “Beneficial Ownership” shall include securities which are beneficially owned, directly or indirectly, by a person as a Receiving Party; provided further, that the number of shares of Company common stock that a person is deemed to beneficially own pursuant to this proviso in connection with a particular Derivatives Contract shall not exceed the number of Notional Common Shares with respect to such Derivatives Contract. 

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c.    “Derivatives Contract” shall mean a contract between two parties (the “Receiving Party” and its counterparty) that is designed to produce economic benefits and risks to the Receiving Party that correspond substantially to the ownership by the Receiving Party of a number of shares of Company common stock specified or referenced in such contract (the number corresponding to such economic benefits and risks, the “Notional Common Shares”), regardless of whether (i) obligations under such contract are required or permitted to be settled through the delivery of cash, shares of Company common stock or other property or (b) such contract conveys any voting rights in shares of Company common stock, without regard to any short or similar position under the same or any other Derivatives Contract. For the avoidance of doubt, interests in broad-based index options, broad-based index futures and broad-based publicly traded market baskets of stocks approved for trading by the appropriate federal governmental authority shall not be deemed to be Derivatives Contracts. 

d.    “person” shall be broadly interpreted to include the media, the internet and any individual, corporation, partnership, limited liability company, group, trust, estate, joint venture, organization and any governmental, administrative, arbitral or regulatory representative or authority (including any court) or other entity of any kind or nature. 

[Signature Page Follows]

IN WITNESS WHEREOF, the Company and JAM have caused this Agreement to be executed as of the date first set forth above.

MIDSOUTH BANCORP, INC.

By: /s/ D. Michael Kramer        
Name: D. Michael Kramer
Title: Director

JACOBS ASSET MANAGEMENT, LLC

By: /s/ Sy Jacobs______________________
Name: Sy Jacobs
Title: Managing Member

EXHIBIT A
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
This Acknowledgement and Agreement to be Bound (“Acknowledgement”) is given by the undersigned as a representative designated by Jacobs Asset Management, LLC (“JAM”) to act as the Board Observer pursuant to that certain Observer Rights Agreement by and between MidSouth Bancorp, Inc. (the “Company”) and JAM, dated as of October 26, 2018 (the “Agreement”). Capitalized terms used, but not defined, herein have the meanings ascribed thereto in the Agreement.

1.    By his execution of this Acknowledgement, the undersigned acknowledges and agrees:
a.    That he has received and reviewed a copy of the Agreement and that his execution of this Acknowledgement is a condition precedent to his appointment as the Board Observer under the Agreement. 

b.    To treat any Evaluation Material obtained by him from the Company (or any director, officer, employee or agent thereof) in accordance with Section 3 of the Agreement.

c.    That either JAM or the undersigned may terminate the undersigned's service as the Board Observer at any time, with or without cause. If the undersigned ceases to serve as the Board Observer, he shall (a) no longer be entitled to exercise any rights afforded to the Board Observer under the Agreement and (b) as promptly as practicable (but in any event not later than two business days thereafter) deliver all physical materials containing or consisting of Evaluation Material in his possession or control to JAM.

2.    Upon the written request of the Company or JAM, the undersigned will promptly execute and deliver any and all further instruments and documents and take such further action as such party deems necessary to effect the purposes of this Acknowledgement.
3.    No provision of this Acknowledgement may be amended, modified or waived, except in a writing signed by the undersigned and the Company. The invalidity or unenforceability of any provision of this Acknowledgement shall not affect the validity or enforceability of any other provision, and if any restriction in this Acknowledgement is found by a court to be unreasonable or unenforceable, then such court may amend or modify the restriction so it can be enforced to the fullest extent permitted by law. This Acknowledgement may be executed by electronic signature in any number of counterparts, each of which together shall constitute one and the same instrument.
4.    The undersigned acknowledges and agrees that irreparable damage would occur in the event that the provisions contained in the Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled (without bond) to seek an injunction or injunctions to prevent breaches of the Agreement and to enforce specifically the terms and provisions thereof, this being in addition to any other remedy to which they may be entitled by law or equity, and any party sued for breach of the Agreement expressly waives any defense that a remedy in damages would be adequate. 
5.    Section 8 of the Agreement shall be applicable to this Acknowledgement, and the undersigned hereby agrees to be bound thereby, as if set forth herein. If any notice, request, demand or other communication is given to the undersigned under this Acknowledgement, it shall be given to him at his address set forth on the signature page hereto or such other address as the undersigned shall have provided in writing to the Company and JAM in writing.

IN WITNESS WHEREOF, the undersigned has executed this Acknowledgement as of the date first above written.
	
		
	 
	 

	 
	_____________________________________ 
Print Name: [BOARD OBSERVER NAME]
Address: [ADDRESS OF OBSERVER]

Date: [DATE]

ACKNOWLEDGED AND ACCEPTED as of this __ day of _______________, 20__:

MIDSOUTH BANCORP, INC.

By:___________________________________
Name:
Title:

JACOBS ASSET MANAGEMENT, LLC

By:  __________________________________
Name:
Title:

[Signature page to Acknowledgement and Agreement to be Bound]

7Exhibit
4.4

 

THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY OTHER SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAWS, OR (2) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.

 

IN ADDITION,
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED,
OR BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT, OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC
DISPOSITION OF SUCH SECURITIES BY ANY PERSON FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS IMMEDIATELY FOLLOWING THE DATE OF EFFECTIVENESS
OF THE PUBLIC OFFERING OF THE COMPANY’S SECURITIES PURSUANT TO REGISTRATION STATEMENT NO.: 333-226774 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, EXCEPT IN ACCORDANCE WITH FINRA RULE 5110(G)(2).

 

ETON PHARMACEUTICALS,
INC.

UNDERWRITER WARRANT

300,000 shares of Common Stock

November [___], 2018

 

This
UNDERWRITER WARRANT (this “Warrant”) of Eton Pharmaceuticals, Inc., a corporation, duly organized and
validly existing under the laws of the State of Delaware (the “Company”), is being issued pursuant to that
certain Underwriting Agreement, dated November [___], 2018 (the “Underwriting Agreement”), between the Company
and National Securities Corporation (the “Underwriter”) relating to a firm commitment public offering (the
“Offering”) of 3,000,000 shares of common stock, $0.001 par value, of the Company (the “Common Stock”)
underwritten by the Underwriter.

 

FOR
VALUE RECEIVED, the Company hereby grants to National Securities Corporation and its permitted successors and assigns (collectively,
the “Holder”) the right to purchase from the Company up to 300,000 shares of Common Stock (such shares underlying
this Warrant, the “Warrant Shares”), at a per share purchase price equal to $7.50 (the “Exercise Price”),
subject to the terms, conditions and adjustments set forth below in this Warrant.

 

1.            Date
of Warrant Exercise. This Warrant shall become exercisable twelve (12) months after the Base Date (the “Exercise
Date”). As used in this Warrant, the term “Base Date” shall mean November [___], 2018 (the effective
date of the registration statement). Except as permitted by applicable rules of the Financial Industry Regulatory Authority, Inc.
(“FINRA”), this Warrant and the underlying Warrant Shares shall not be sold, transferred, assigned, pledged
or hypothecated prior to the date that is one hundred eighty (180) days immediately following the Base Date pursuant to FINRA
Rule 5110(g)(1), except as permitted under FINRA Rule 5110(g)(2).

 

2.            Expiration
of Warrant. This Warrant shall expire on the five (5) year anniversary of the Base Date (the “Expiration Date”).

 

3.            Exercise
of Warrant. This Warrant shall be exercisable pursuant to the terms of this Section 3.

 

	 	3.1	Manner
    of Exercise.

 

(a)          This
Warrant may only be exercised by the Holder hereof on or after the Exercise Date and on or prior to the Expiration Date, in accordance
with the terms and conditions hereof, in whole or in part (but not as to fractional shares) with respect to any portion of this
Warrant, during the Company’s normal business hours on any day other than a Saturday or a Sunday or a day on which commercial
banking institutions in New York, New York are authorized by law to be closed (a “Business Day”), by surrender
of this Warrant to the Company at its office maintained pursuant to Section 10.2(a) hereof, accompanied by a written exercise
notice in the form attached as Exhibit A to this Warrant (or a reasonable facsimile thereof) duly executed by the Holder,
together with the payment of the aggregate Exercise Price for the number of Warrant Shares purchased upon exercise of this Warrant.
Upon surrender of this Warrant, the Company shall cancel this Warrant document and shall, in the event of partial exercise, replace
it with a new Warrant document in accordance with Section 3.3.

 

    	 	1	 

     

    

 

(b)          Except
as provided for in Section 3.1(c) below, each exercise of this Warrant must be accompanied by payment in full of the aggregate
Exercise Price in cash by check or wire transfer in immediately available funds for the number of Warrant Shares being purchased
by the Holder upon such exercise.

 

(c)          The
aggregate Exercise Price for the number of Warrant Shares being purchased may also, in the sole discretion of the Holder, be paid
in full or in part on a “cashless basis” at the election of the Holder:

 

	 	(i)	in
    the form of Common Stock owned by the Holder (based on the Fair Market Value (as defined below) of such Common Stock on the
    date of exercise);

 

	 	(ii)	in
    the form of Warrant Shares withheld by the Company from the Warrant Shares otherwise to be received upon exercise of this
    Warrant having an aggregate Fair Market Value on the date of exercise equal to the aggregate Exercise Price of the Warrant
    Shares being purchased by the Holder; or

 

	 	(iii)	by
    a combination of the foregoing, provided that the combined value of all cash and the Fair Market Value of any shares surrendered
    to the Company is at least equal to the aggregate Exercise Price for the number of Warrant Shares being purchased by the Holder.

 

For
purposes of this Warrant, the term “Fair Market Value” means with respect to a particular date, the average
closing price of the Common Stock for the five (5) trading days immediately preceding the applicable exercise herein as officially
reported by the principal securities exchange on which the Common Stock is then listed or admitted to trading, or, if the Common
Stock is not listed or admitted to trading on any securities exchange as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.

 

To
illustrate a cashless exercise of this Warrant under Section 3.1(c)(ii) (or for a portion thereof for which cashless exercise
treatment is requested as contemplated by Section 3.1(c)(iii) hereof), the calculation of such exercise shall be as follows:

 

X = Y (A-B)/A

 

where:

 

X
=      the number of Warrant Shares to be issued to the Holder (rounded to the nearest whole share).

 

Y =      the
number of Warrant Shares with respect to which this Warrant is being exercised.

 

A =      the
Fair Market Value of the Common Stock.

 

B =      the
Exercise Price.

 

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(d)          For
purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood, and acknowledged that the Common Stock issuable
upon exercise of this Warrant in a cashless exercise transaction as described in Section 3.1(c) above shall be deemed to have
been acquired at the time this Warrant was issued. Moreover, it is intended, understood, and acknowledged that the holding period
for the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction as described in Section 3.1(c)
above shall be deemed to have commenced on the date this Warrant was issued.

 

3.2           When
Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been duly surrendered to the Company as provided in Sections 3.1
and 12 hereof, and, at such time, the Holder in whose name any certificate or certificates for Warrant Shares shall be issuable
upon exercise as provided in Section 3.3 hereof shall be deemed to have become the holder or holders of record thereof of the
number of Warrant Shares purchased upon exercise of this Warrant.

 

3.3           Delivery
of Common Stock Certificates and New Warrant. As soon as reasonably practicable after each exercise of this Warrant, in whole
or in part, and in any event within three (3) Business Days thereafter, the Company, at its expense (including the payment by
it of any applicable issue taxes), will cause to be issued in the name of and delivered to the Holder hereof or, subject to Sections
9 and 10 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct:

 

(a)          a
certificate or certificates (with appropriate restrictive legends, as applicable) for the number of duly authorized, validly issued,
fully paid and non-assessable Warrant Shares to which the Holder shall be entitled upon exercise; and

 

(b)          in
case exercise is in part only, a new Warrant document of like tenor, dated the date hereof, for the remaining number of Warrant
Shares issuable upon exercise of this Warrant after giving effect to the partial exercise of this Warrant (including the delivery
of any Warrant Shares as payment of the Exercise Price for such partial exercise of this Warrant).

  

4.            Certain
Adjustments. For so long as this Warrant is outstanding:

 

4.1           Mergers
or Consolidations. If at any time after the date hereof there shall be a capital reorganization (other than a combination
or subdivision of Common Stock otherwise provided for herein) resulting in a reclassification to or change in the terms of securities
issuable upon exercise of this Warrant (a “Reorganization”), or a merger or consolidation of the Company with
another corporation, association, partnership, organization, business, individual, government or political subdivision thereof
or a governmental agency (a “Person” or the “Persons”) (other than a merger with another
Person in which the Company is a continuing corporation and which does not result in any reclassification or change in the terms
of securities issuable upon exercise of this Warrant or a merger effected exclusively for the purpose of changing the domicile
of the Company) (a “Merger”), then, as a part of such Reorganization or Merger, lawful provision and adjustment
shall be made so that the Holder shall thereafter be entitled to receive, upon exercise of this Warrant, the number of shares
of stock or any other equity or debt securities or property receivable upon such Reorganization or Merger by a holder of the number
of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such Reorganization
or Merger. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the Reorganization or Merger to the end that the provisions of this Warrant (including
adjustment of the Exercise Price then in effect and the number of Warrant Shares) shall be applicable after that event, as near
as reasonably may be, in relation to any shares of stock, securities, property or other assets thereafter deliverable upon exercise
of this Warrant. The provisions of this Section 4.1 shall similarly apply to successive Reorganizations and/or Mergers.

 

4.2           Splits
and Subdivisions; Dividends. In the event the Company should at any time or from time to time effectuate a split or subdivision
of the outstanding shares of Common Stock or pay a dividend in or make a distribution payable in additional shares of Common Stock
or other securities, or rights convertible into, or entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration
by such holder for the additional shares of Common Stock or Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of the applicable record date (or the date of such distribution,
split or subdivision if no record date is fixed), the per share Exercise Price shall be appropriately decreased and the number
of Warrant Shares shall be appropriately increased in proportion to such increase (or potential increase) of outstanding shares;
provided, however, that no adjustment shall be made in the event the split, subdivision, dividend or distribution is not effectuated.

 

    	 	3	 

     

    

 

4.3           Combination
of Shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination
of the outstanding shares of Common Stock, the per share Exercise Price shall be appropriately increased and the number of shares
of Warrant Shares shall be appropriately decreased in proportion to such decrease in outstanding shares.

 

4.4           Adjustments
for Other Distributions. In the event the Company shall declare a distribution payable in securities of other Persons, evidences
of indebtedness issued by the Company or other Persons, assets (excluding cash dividends or distributions to the holders of Common
Stock paid out of current or retained earnings and declared by the Company’s Board of Directors) or options or rights not
referred to in Sections 4.2 or 4.3 then, in each such case for the purpose of this Section 4.4, upon exercise of this Warrant,
the Holder shall be entitled to a proportionate share of any such distribution as though the Holder was the actual record holder
of the number of Warrant Shares as of the record date fixed for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.

  

5.            No
Impairment. The Company will not, by amendment of its certificate of incorporation or by-laws or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all of the terms and in the taking of all actions necessary or appropriate in order to protect the rights of the
Holder against impairment.

 

6.            Notice
as to Adjustments. With respect to each adjustment pursuant to Section 4 of this Warrant, the Company, at its expense, will
promptly compute the adjustment or re-adjustment in accordance with the terms of this Warrant and furnish the Holder with a certificate
certified and confirmed by the Secretary or Chief Financial Officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment or re-adjustment and the amount of such adjustment or re-adjustment, the method of calculation thereof
and the facts upon which the adjustment or re-adjustment is based, and the Exercise Price and the number of Warrant Shares or
other securities purchasable hereunder after giving effect to such adjustment or re-adjustment, which report shall be mailed by
first class mail, postage prepaid to the Holder.

 

7.            Reservation
of Shares. The Company shall, solely for the purpose of effecting the exercise of this Warrant, at all times during the term
of this Warrant, reserve and keep available out of its authorized shares of Common Stock, free from all taxes, liens and charges
with respect to the issue thereof and not subject to preemptive rights of shareholders of the Company, such number of its shares
of Common Stock as shall from time to time be sufficient to effect in full the exercise of this Warrant. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to effect in full the exercise of this Warrant, in addition
to such other remedies as shall be available to Holder, the Company will promptly take such corporate action as may, in the opinion
of its counsel, be necessary to increase the number of authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purposes, including without limitation, using its Reasonable Commercial Efforts (as defined in
Section 19 hereof) to obtain the requisite shareholder approval necessary to increase the number of authorized shares of Common
Stock. The Company hereby represents and warrants that all shares of Common Stock issuable upon proper exercise of this Warrant
shall be duly authorized and, when issued and paid for upon proper exercise, shall be validly issued, fully paid and nonassessable.

 

	 	8.	Registration
    and Listing.

 

8.1           Definition
of Registrable Securities; Majority. As used herein, the term “Registrable Securities” means any shares
of Common Stock issuable upon the exercise of this Warrant until the date (if any) on which such shares shall have been transferred
or exchanged and new certificates for them not bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of the shares shall not require registration or qualification under the Securities Act or any
similar state law then in force. For purposes of this Warrant, the term “Majority Holders” shall mean in excess
of fifty percent (50%) of the then outstanding Warrant Shares.

    	 	4	 

     

    

 

	 	8.2	Demand
    Registration Rights.

 

(a)          The
Company, upon written demand (“Demand Notice”) of the Majority Holders, agrees to register on one occasion
all of the Registrable Securities (a “Demand Right”). On such occasion, the Company will file a registration
statement or a post-effective amendment to the registration statement covering the Registrable Securities within forty-five (45)
days after receipt of a Demand Notice and use its Reasonable Commercial Efforts to have such registration statement or post-effective
amendment declared effective as soon as possible thereafter; provided, however, that the Company shall not be required to comply
with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback
registration rights pursuant to Section 8.3 hereof and either: (i) the Holder has elected to participate in the offering covered
by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities
of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such
offering is consummated. The demand for registration may be made at any time during a period of four years beginning one (1) year
from the Base Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice to all other registered
Holders of the Warrants and/or the Registrable Securities within ten days from the date of the receipt of any such Demand Notice.

 

(b)          The
Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 8.2(a), but the
Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent
them in connection with the sale of the Registrable Securities. The Company agrees to use its Reasonable Commercial Efforts to
qualify or register the Registrable Securities in such states as are reasonably requested by the Majority Holder(s); provided,
however, that in no event shall the Company be required to register the Registrable Securities in a state in which such registration
would cause (i) the Company to be obligated to register, license or qualify to do business in such state, submit to general service
of process in such state or would subject the Company to taxation as a foreign corporation doing business in such jurisdiction
or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any registration statement or post-effective amendment filed pursuant to the Demand Right granted under Section
8.2(a) to remain effective for a period of nine (9) consecutive months from the effective date of such registration statement
or post-effective amendment. The Holders shall only use the prospectuses provided by the Company to sell the Registrable Securities
covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company
advises the Holder that such prospectus may no longer be used due to a material misstatement or omission.

 

	 	8.3	Incidental
    Registration Rights.

 

(a)          If
the Company, for a period of six (6) years commencing one (1) year after the Base Date, proposes to register any of its securities
under the Securities Act (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities
Act or pursuant to registration on Form S-4 or S-8 or any successor forms) whether for its own account or for the account of any
holder or holders of its shares other than Registrable Securities (any shares of such holder or holders (but not those of the
Company and not Registrable Securities) with respect to any registration are referred to herein as, “Other Shares”),
the Company shall at each such time give prompt (but not less than thirty (30) days prior to the anticipated effectiveness thereof)
written notice to the holders of Registrable Securities of its intention to do so. The holders of Registrable Securities shall
exercise the “piggy-back” rights provided herein by giving written notice within fifteen (15) days after the receipt
of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such holder). Except
as set forth in Section 8.3(b), the Company will use its Reasonable Commercial Efforts to effect the registration under the Securities
Act of all of the Registrable Securities which the Company has been so requested to register by such holder, to the extent required
to permit the disposition of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the
registration statement which covers the securities which the Company proposes to register. The Company will pay all Registration
Expenses, as defined in Section 8.6 herein, in connection with each registration of Registrable Securities pursuant to this Section
8.3.

 

    	 	5	 

     

    

 

 (b)          If
the Company at any time proposes to register any of its securities under the Securities Act as contemplated by this Section 8.3
and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by a holder of
Registrable Securities, use its Reasonable Commercial Efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder among the securities to be distributed by such underwriters, provided that if
the managing underwriter of such underwritten offering shall inform the Company by letter of its belief that inclusion in such
registration statement and/or distribution of all or a specified number of such securities proposed to be distributed by such
underwriters would interfere with the successful marketing of the securities being distributed by such underwriters (such letter
to state the basis of such belief and the approximate number of such Registrable Securities, such Other Shares and shares held
by the Company proposed so to be registered which may be distributed without such effect), then the Company may, upon written
notice to such holder, the other holders of Registrable Securities, and holders of such Other Shares, reduce pro rata in accordance
with the number of shares of Common Stock desired to be included in such registration statement and/or distribution (if and to
the extent stated by such managing underwriter to be necessary to eliminate such effect) the number of such Registrable Securities
and Other Shares the registration and/or distribution of which shall have been requested by each holder thereof so that the resulting
aggregate number of such Registrable Securities and Other Shares so included in such registration and/or distribution, together
with the number of securities to be included in such registration and/or distribution for the account of the Company, shall be
equal to the number of shares stated in such managing underwriter’s letter.

 

8.4           Registration
Procedures. Whenever the holders of Registrable Securities have properly requested that any Registrable Securities be registered
pursuant to the terms of this Warrant, the Company shall use its Reasonable Commercial Efforts to effect the registration for
the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the
Company shall as expeditiously as possible:

 

(a)          prepare
and file with the SEC a registration statement with respect to such Registrable Securities and use its Reasonable Commercial Efforts
to cause such registration statement to become effective;

 

(b)          notify
such holders of the effectiveness of each registration statement filed hereunder and prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to (i) keep
such registration statement effective and the prospectus included therein usable for a period commencing on the date that such
registration statement is initially declared effective by the SEC and ending on the earlier of (A) the date when all Registrable
Securities covered by such registration statement have been sold pursuant to the registration statement or cease to be Registrable
Securities, or (B) nine months from the effective date of the registration statement; and (ii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;

 

(c)          furnish
to such holders such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included
in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities owned by such holders;

 

(d)          use
its Reasonable Commercial Efforts to register or qualify such Registrable Securities under such other securities or blue sky laws
of such jurisdictions as such holders reasonably request and do any and all other acts and things which may be reasonably necessary
or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by
such holders; provided, however, that the Company shall not be required to: (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph; (ii) subject itself to taxation in any such jurisdiction;
or (iii) consent to general service of process in any such jurisdiction;

 

(e)          notify
such holders, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material
fact or omits any material fact necessary to make the statements therein, in light of the circumstances in which they are made,
not materially misleading, and, at the reasonable request of such holders, the Company shall prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not
contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in
light of the circumstances in which they are made, not materially misleading;

 

    	 	6	 

     

    

 

(f)          provide
a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;

 

(g)          make
available for inspection by any underwriter participating in any disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company’s officers, directors, managers, employees and independent accountants
to supply all information reasonably requested by any such underwriter, attorney, accountant or agent in connection with such
registration statement;

 

(h)          otherwise
use its Reasonable Commercial Efforts to comply with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement of the Company, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and, at the option of the Company, Rule 158 thereunder;

 

(i)          in
the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such
registration statement for sale in any jurisdiction, the Company shall use its Reasonable Commercial Efforts promptly to obtain
the withdrawal of such order; and

 

(j)          if
the offering is underwritten, use its Reasonable Commercial Efforts to furnish on the date that Registrable Securities are delivered
to the underwriters for sale pursuant to such registration, an opinion dated such date of counsel representing the Company for
the purposes of such registration, addressed to the underwriters covering such issues as are reasonably required by such underwriters.

 

8.5           Listing.
The Company shall secure the listing of the Common Stock underlying this Warrant upon each national securities exchange or automated
quotation system upon which shares of Common Stock are then listed or quoted (subject to official notice of issuance) and shall
maintain such listing of shares of Common Stock. The Company shall at all times comply in all material respects with the Company’s
reporting, filing and other obligations under the by-laws or rules of the Nasdaq Capital Market (or such other national securities
exchange or market on which the Common Stock may then be listed, as applicable). 

 

8.6           Expenses.
The Company shall pay all Registration Expenses relating to the registration and listing obligations set forth in this Section
8. For purposes of this Warrant, the term “Registration Expenses” means: (a) all registration, filing and FINRA
fees, (b) all reasonable fees and expenses of complying with securities or blue sky laws, (c) all word processing, duplicating
and printing expenses, (d) the fees and disbursements of counsel for the Company and of its independent public accountants, including
the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance,
(e) premiums and other costs of policies of insurance (if any) against liabilities arising out of the public offering of the Registrable
Securities being registered if the Company desires such insurance, if any, and (f) fees and disbursements of one counsel for the
selling holders of Registrable Securities; provided however, that, in any case where Registration Expenses are not to be borne
by the Company, such expenses shall not include (and such expenses shall be borne by the Company): (i) salaries of Company personnel
or general overhead expenses of the Company, (ii) auditing fees, or (iii) other expenses for the preparation of financial statements
or other data, to the extent that any of the foregoing either is normally prepared by the Company in the ordinary course of its
business or would have been incurred by the Company had no public offering taken place. Registration Expenses shall not include
any underwriting discounts and commissions which may be incurred in the sale of any Registrable Securities and transfer taxes
of the selling holders of Registrable Securities.

 

    	 	7	 

     

    

 

8.7           Information
Provided by Holders. Any holder of Registrable Securities included in any registration shall furnish to the Company such information
as the Company may reasonably request in writing, including, but not limited to, a completed and executed questionnaire requesting
information customarily sought of selling security holders, to enable the Company to comply with the provisions hereof in connection
with any registration referred to in this Warrant. The Holder agrees to suspend all sales of Registrable Securities pursuant to
a registration statement filed under Section 8.3 in the event the Company notifies Holder pursuant to Section 8.4(e) that the
prospectus relating thereto is no longer current and will not resume sales under such registration statement until advised by
the Company that the prospectus has been appropriately supplemented or amended.

 

8.8           FINRA
Public Offering System Filings. In the event that a registration statement covering the Registrable Securities is filed, within
one (1) Business Day of the filing of such registration statement, the Company will prepare and file the selling stockholder resale
offering described in such registration statement for review by FINRA via FINRA’s Public Offering System filing system (“Public
Offering System Filing”) for the purpose of having the prospectus contained within such registration statement treated
as a “base prospectus” in connection with such resale offering. The Company will use its Reasonable Commercial Efforts
to have the Public Offering System Filing approved by FINRA within thirty (30) days of such filing date. The Company shall bear
all expenses of the Public Offering System Filing, including fees and expenses of one counsel or other advisor to the Holder.
In all circumstances, the Company shall pay for all FINRA filing fees associated with the Public Offering System Filing.

 

8.9           Effectiveness
Period. The Company shall use its Reasonable Commercial Efforts to keep each registration statement contemplated hereunder
continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities
covered by such registration statement have been sold, (ii) all Registrable Securities covered by such registration statement
may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144 under
the Securities Act, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed
and reasonably acceptable to the Company’s transfer agent and the affected holders of Registrable Securities, or (iii) nine
months from the effective date of such registration statement.

 

8.10         Net
Cash Settlement. Notwithstanding anything herein to the contrary, in no event will the Holder hereof be entitled to receive
a net-cash settlement as liquidated damages in lieu of physical settlement in shares of Common Stock, regardless of whether the
Common Stock underlying this Warrant is registered pursuant to an effective registration statement; provided, however, that the
foregoing will not preclude the Holder from seeking other remedies at law or equity for breaches by the Company of its registration
obligations hereunder.

 

	 	9.	Restrictions
    on Transfer.

 

9.1           Restrictive
Legends. This Warrant and each Warrant issued upon transfer or in substitution for this Warrant pursuant to Section 10 hereof,
each certificate for Common Stock issued upon the exercise of the Warrant and each certificate issued upon the transfer of any
such Common Stock shall be transferable only upon satisfaction of the conditions specified in this Section 9. Each of the foregoing
securities shall be stamped or otherwise imprinted with a legend reflecting the restrictions on transfer set forth herein and
any restrictions required under the Securities Act or other applicable securities laws.

 

9.2           Notice
of Proposed Transfer. Prior to any transfer of any securities which are not registered under an effective registration statement
under the Securities Act (“Restricted Securities”), which transfer may only occur if there is an exemption
from the registration provisions of the Securities Act and all other applicable securities laws, the Holder will give written
notice to the Company of the Holder’s intention to effect a transfer (and shall describe the manner and circumstances of
the proposed transfer). The following provisions shall apply to any proposed transfer of Restricted Securities:

 

(i)          If
in the opinion of counsel for the Holder reasonably satisfactory to the Company the proposed transfer may be effected without
registration of the Restricted Securities under the Securities Act (which opinion shall state in detail the basis of the legal
conclusions reached therein), the Holder shall thereupon be entitled to transfer the Restricted Securities in accordance with
the terms of the notice delivered by the Holder to the Company. Each certificate representing the Restricted Securities issued
upon or in connection with any transfer shall bear the restrictive legends required by Section 9.1 hereof.

 

    	 	8	 

     

    

 

(ii)         If
the opinion called for in (i) above is not delivered, the Holder shall not be entitled to transfer the Restricted Securities until
either: (x) receipt by the Company of a further notice from such Holder pursuant to the foregoing provisions of this Section 9.2
and fulfillment of the provisions of clause (i) above, or (y) such Restricted Securities have been effectively registered under
the Securities Act.

 

9.3           Certain
Other Transfer Restrictions. Notwithstanding any other provision of this Warrant: (i) prior to the Exercise Date, this Warrant
or the Restricted Securities thereunder may only be transferred or assigned to the persons permitted under FINRA Rule 5110(g),
and (ii) subject at all times to FINRA Rule 5110(g), no opinion of counsel shall be necessary for a transfer of Restricted Securities
by the holder thereof to any Person employed by or owning equity in the Holder, if the transferee agrees in writing to be subject
to the terms hereof to the same extent as if the transferee were the original purchaser hereof and such transfer is permitted
under applicable securities laws.

 

9.4           Termination
of Restrictions. Except as set forth in Section 9.3 hereof and subject at all times to FINRA Rule 5110(g), the restrictions
imposed by this Section 9 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted
Securities: (a) which shall have been effectively registered under the Securities Act, or (b) when, in the opinion of counsel
for the Company, such restrictions are no longer required in order to insure compliance with the Securities Act or Section 10
hereof. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the Holder thereof shall be entitled
to receive from the Company, without expense (other than applicable transfer taxes, if any), new securities of like tenor not
bearing the applicable legends required by Section 9.1 hereof.

 

	 	10.	Ownership,
    Transfer, Sale and Substitution of Warrant.

 

10.1         Ownership
of Warrant. The Company may treat any Person in whose name this Warrant is registered in the Warrant Register maintained pursuant
to Section 10.2(b) hereof as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except
that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer
thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary. Subject to Sections 9 and 10
hereof, this Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued.

 

	 	10.2	Office;
    Exchange of Warrant.

 

(a)          The
Company will maintain its principal office at the location identified in the prospectus relating to the Offering or at such other
offices as set forth in the Company’s most current filing (as of the date notice is to be given) under the Securities Exchange
Act of 1934, as amended, or as the Company otherwise notifies the Holder.

 

(b)          The
Company shall cause to be kept at its office maintained pursuant to Section 10.2(a) hereof a Warrant Register for the registration
and transfer of the Warrant. The name and address of the holder of the Warrant, the transfers thereof and the name and address
of the transferee of the Warrant shall be registered in such Warrant Register. The Person in whose name the Warrant shall be so
registered shall be deemed and treated as the owner and holder thereof for all purposes of this Warrant, and the Company shall
not be affected by any notice or knowledge to the contrary.

 

(c)          Upon
the surrender of this Warrant, properly endorsed, for registration of transfer or for exchange at the office of the Company maintained
pursuant to Section 10.2(a) hereof, the Company at its expense will (subject to compliance with Section 9 hereof, if applicable)
execute and deliver to or upon the order of the Holder thereof a new Warrant of like tenor, in the name of such holder or as such
holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face thereof
for the number of shares of Common Stock called for on the face of the Warrant so surrendered (after giving effect to any previous
adjustment(s) to the number of Warrant Shares).

 

10.3         Replacement
of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any mutilation, upon surrender of this Warrant for cancellation
at the office of the Company maintained pursuant to Section 10.2(a) hereof, the Company will execute and deliver, in lieu thereof,
a new Warrant of like tenor and dated the date hereof.

 

    	 	9	 

     

    

 

10.4         Opinions.
In connection with the sale of the Warrant Shares by Holder, the Company agrees to cooperate with the Holder, and at the Company’s
expense, to have its counsel provide any legal opinions required to remove the restrictive legends from the Warrant Shares in
connection with a sale, transfer or legend removal request of Holder.

 

11.          Indemnification.
In the event of any piggyback registration of any Warrant Shares under the Securities Act, and in connection with any registration
statement or any other disclosure document pursuant to which securities of the Company are sold, the Company will, and hereby
does, jointly and severally, indemnify and hold harmless the Holder, its directors, officers, fiduciaries, and agents (each, a
“Covered Person”) against any losses, claims, damages or liabilities, joint or several, to which such Covered
Person may be or become subject under the Securities Act, any other securities or other laws of any jurisdiction, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (1) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference
in any registration statement under the Securities Act, any preliminary prospectus or final prospectus included therein, or any
amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document, or
(2) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement
therein not misleading, and will reimburse such Covered Person for any legal or any other expenses incurred in connection with
investigating or defending any such loss, claim, damage, liability, action or proceeding, provided, however, the Company shall
not be liable to any Covered Person in any such case to the extent that any such loss, claim, damage, liability, action or proceeding
is determined, by a final, non-appealable judgment by a court or arbitral tribunal of competent jurisdiction, to have arisen out
of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, amendment or supplement, any document incorporated by reference
or other such disclosure document in reliance upon and in conformity with written information furnished to the Company through
an instrument duly executed by such Covered Person specifically stating that it is for use in the preparation thereof.

 

12.          No
Rights or Liabilities as Stockholder. No Holder shall be entitled to vote or be deemed the holder of any equity securities
which may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the
Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings until the Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have become deliverable, as provided herein.

 

13.          Notices.
Any notice or other communication in connection with this Warrant shall be given in writing and directed to the parties hereto
as follows: (a) if to the Holder, at the address of the holder in the Warrant Register maintained pursuant to Section 10 hereof,
or (b) if to the Company, to the attention of its Chief Executive Officer at its office maintained pursuant to Section 10.2(a)
hereof; provided, that the exercise of the Warrant shall also be effected in the manner provided in Section 3 hereof. Notices
shall be deemed properly delivered and received when delivered to the notice party (i) if personally delivered, upon receipt or
refusal to accept delivery, (ii) if sent via facsimile, upon mechanical confirmation of successful transmission thereof generated
by the sending telecopy machine, (iii) if sent by a commercial overnight courier for delivery on the next Business Day, on the
first Business Day after deposit with such courier service, (iv) if sent by registered or certified mail, five (5) Business Days
after deposit thereof in the U.S. mail, or (v) if sent by email, the date of transmission if such notice or communication is delivered
via email at the email address specified in the Underwriting Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Business
Day, or the next Business Day after the date of transmission if such notice or communication is delivered via email at the email
address specified in the Underwriting Agreement on a day that is not a Business Day or later than 5:00 p.m. (prevailing Pacific
time) on a Business Day.

 

    	 	10	 

     

    

 

14.          Payment
of Taxes. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying
this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the transfer or registration of this Warrant or any certificate
for shares of Common Stock underlying this Warrant in a name other than that of the Holder. The Holder is responsible for all
other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying
this Warrant upon exercise hereof.

 

15.          Amendments.
This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or termination is sought.

 

16.          Governing
Law. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York. Each
of the parties consents to the exclusive jurisdiction of the Federal or state courts whose districts encompass any part of the
County of New York located in the City of New York, New York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by any manner permitted by law.

 

17.
         Section Headings. The section headings in this Warrant are for purposes of convenience
only and shall not constitute a part hereof.

 

18.          Severability.
In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability
of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will
attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

19.
         Reasonable Commercial Efforts. When used herein, the term “Reasonable
Commercial Efforts” means, with respect to the applicable obligation of the Company, reasonable commercial efforts for
similarly situated, publicly-traded companies.

 

(Signature
on Following Page)

 

    	 	11	 

     

    

 

IN
WITNESS WHEREOF, the Company has caused this Underwriter Warrant to be duly executed as of the date first above written.

 

	 	ETON
    PHARMACEUTICALS, INC.
	 	 	 
	   	By:	 
	 	 	Name: 	 
	 	 	Title:	 

 

    	 	12	 

     

    

 

EXHIBIT
A

FORM OF EXERCISE NOTICE

[To be executed only upon exercise of Warrant]

 

To ETON PHARMACEUTICALS, INC.:

 

The undersigned registered holder
of the within Warrant hereby irrevocably exercises the Warrant pursuant to Section 3.1 of the Warrant with respect to [_____]
Warrant Shares, at an exercise price of $7.50 per share, and requests that the certificates for such Warrant Shares be issued,
subject to Sections 9 and 10, in the name of and delivered to:

 

	 
	 
	 
	 

 

The undersigned is hereby making
payment for the Warrant Shares in the following manner:

[check one]

 

 ̈
by cash in accordance with Section 3.1(b) of
the Warrant

 

 ̈
via cashless exercise in accordance with Section
3.1(c) of the Warrant in the following manner:

 

	 
	 
	 

 

The undersigned hereby represents
and warrants that it is, and has been since its acquisition of the Warrant, the record and beneficial owner of the Warrant.

 

	Dated:	 	 
	 
	 	 
	Print or Type Name	 

 

	 	 	 
	(Signature must conform in all respects
    to name of

    holder as specified on the face of Warrant)	 

 

	 	 
	(Street Address)	 
	 	 
	 	 
	(City)	(State)	(Zip
    Code)	 
	 	 	 	 

 

    	 	13	 

     

    

 

EXHIBIT
B

FORM OF ASSIGNMENT

[To be executed only upon transfer of Warrant]

 

For value received, the undersigned
registered holder of the within Warrant hereby sells, assigns and transfers unto______________________ [include name and addresses]
the rights represented by the Warrant to

purchase________ shares of Common
Stock of ETON PHARMACEUTICALS, INC. to which the Warrant relates, and appoints________ Attorney to make such transfer on the books
of ETON PHARMACEUTICALS maintained for the purpose, with full power of substitution in the premises.

 

	Dated:	 	 	 
	 	(Signature must conform in all

    respects to name of holder as 

    specified on the face of Warrant)	 	 
	 	 	 	 
	 	 	 	 
	 	(Street Address)	 	 
	 	 	 	 
	 	 	 	 
	 	(City) 	(State) 	(Zip Code)	 	 
	 	 	 	 
	Signed in the presence of:	 	 	 
	 	 	 	 
	 	(Signature of Transferee)	 	 
	 	 	 	 
	 	 	 	 
	 	(Street Address)	 	 
	 	 	 	 
	 	 	 	 
	 	(City) 	(State)	(Zip Code)	 	 
	 	 	 	 
	Signed in the presence of:	 	 	 

 

    	 	14

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