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NEITHER
THIS SECURITY NOR THE SECURITIES UNDERLYING THIS SECURITY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (2)
AN OPINION OF HOLDER’S COUNSEL, IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.

 

WARRANT
NO. 2015-[___]

 

PROPHASE
LABS, INC.

 

	Warrant
    Shares: [                ]	Issuance
    Date: December 11, 2015 

 

THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, John E. Ligums, Jr. (the
“Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after December 11, 2015 (the “Issuance Date”) and on or prior to the close of
business on the third anniversary of the Issuance Date (the “Termination Date”) but not thereafter, to subscribe
for and purchase from ProPhase Labs, Inc., a Delaware corporation (the “Company”), up to [                    ]
shares (the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section
1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain
Subscription Agreement (the “Agreement”), dated December 11, 2015, between the Company and the Holder. Provided
notwithstanding the forgoing, for purposes of this Warrant, the following terms shall have the following meanings:

 

(a)“Business
Day” means any day on which the Principal Market is open for trading including any day on which the Principal Market
is open for trading for a period of time less than the customary time.

 

(b)“Common
Stock” means the common stock, par value $0.0005 per share, of the Company.

 

(c)“Principal
Market” means The NASDAQ Global Market; provided, however, that in the event the Common Stock is ever not listed or
traded on The NASDAQ Global Market and is listed or traded on The NASDAQ Capital Market, The NASDAQ Global Select Market, the
New York Stock Exchange, the NYSE MKT, the NYSE Arca or the OTC Bulletin Board (it being understood that as used herein “OTC
Bulletin Board” shall also mean any successor or comparable market quotation system or exchange to the OTC Bulletin Board
such as the OTCQB operated by the OTC Markets Group, Inc.), then the “Principal Market” shall mean such other market
or exchange on which the Common Stock is then listed or traded.

 

    	 	 	 

    	 	 	 

    

 

(c)“Transfer
Agent” means American Stock Transfer and Trust Company, or such other Person who is then serving as the transfer agent
for the Company in respect of the Common Stock.

 

Section
2. Exercise.

 

a)
Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Issuance Date and on or before the Termination Date by delivery to the Company (or such other office
or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing
on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within three
(3) Business Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of
the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States
bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased
all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender
this Warrant to the Company for cancellation within three (3) Business Days of the date the final Notice of Exercise is delivered
to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal
to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form
within one (1) Business Day of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall
be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount
stated on the face hereof.

 

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

 

c)
Cashless Exercise. At the Holder’s sole discretion this Warrant may be exercised, in whole or in part, at such time
by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

	 	(A)
    =	the
    VWAP on the Business Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless
    exercise,” as set forth in the applicable Notice of Exercise;
	 	 	 
	 	(B)
    =	the
    Exercise Price of this Warrant, as adjusted hereunder; and
	 	 	 
	 	(X)
    =	the
    number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
    if such exercise were by means of a cash exercise rather than a cashless exercise.

 

    	 	 	 

    	 	 	 

    

 

“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on the Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market as reported by Bloomberg L.P. (based on a Business Day from 9:30 a.m. (Eastern Standard
Time to 4:02 p.m. (Eastern Standard Time), (b) if the OTC Bulletin Board is not a Principal Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is
not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink
Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market
value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).

 

d)
Mechanics of Exercise.

 

i.
Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer
Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its
Deposit/Withdrawal at Custodian (“DWAC”) system if the Company is then a participant in such system and either
(A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares
by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery to the address specified
by the Holder in the Notice of Exercise by the date that is three (3) Business Days after the latest of (A) the delivery to the
Company of the Notice of Exercise Form, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise
Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”).
This Warrant shall be deemed to have been exercised on the first date on which all of the foregoing have been delivered to the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised,
with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by
the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.

 

ii.
Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called
for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. 

 

iii.
Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then, the Holder will have the
right to rescind such exercise.

 

    	 	 	 

    	 	 	 

    

 

iv.
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing
the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount,
if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such
purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares
of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v.
No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise,
the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.
Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may
be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued
in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient
to reimburse it for any transfer tax incidental thereto.

 

vii.
Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise
of this Warrant, pursuant to the terms hereof.

 

    	 	 	 

    	 	 	 

    

 

e)
Holder’s Exercise Limitations. Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall
not be exercisable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would
beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Stock. To the extent the
above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible,
exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable
(as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the
basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). 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. For the purposes of this paragraph, beneficial ownership and all determinations
and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in
accordance with Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder. The provisions of this
paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage
limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common
Stock shall be third party beneficiaries of this paragraph and the Company may not amend or waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then
outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock,
including, without limitation, pursuant to this Warrant. At any time the Holder may increase or decrease the Maximum Percentage
to any other percentage not in excess of 9.99% as specified in a written notice by the Holder to the Company; provided that any
such increase will not be effective until the 61st day after such notice is delivered to the Company. For purposes of the Warrant,
“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act.

 

Section
3. Certain Adjustments.

 

a)
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company
upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted
such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a)
shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend
or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)
Subsequent Rights Offerings. If the Company, at any time while the Warrant is outstanding, shall issue rights, options
or warrants to all holders of Common Stock (and not to the Holders) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the VWAP on the record date mentioned below, then, the Exercise Price shall be multiplied
by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance
of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights,
options or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase
at such VWAP. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

 

    	 	 	 

    	 	 	 

    

 

c)
Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders
of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights
or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at
such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in
a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

 

d)
Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in
one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company,
directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of
the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one
or more related transactions consummates a stock or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not
the survivor (the “Successor Entity”) to assume 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 3(d) pursuant to written agreements
in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of this Warrant, deliver to the Holder in exchange for this Warrant
a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant
which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent
to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder
to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being
for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction).
Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that
from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring
to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect
as if such Successor Entity had been named as the Company herein.

 

    	 	 	 

    	 	 	 

    

 

e)
Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share,
as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as
of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

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

 

g)
Notice to Holder.

 

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

 

ii.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed
to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent
that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of
its subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

    	 	 	 

    	 	 	 

    

 

Section
4. Transfer of Warrant.

 

a)
Transferability. Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder
(including, without limitation, any registration rights) are transferable, in whole or in part (such partial transfer not less
than 5,000 Warrant Shares), upon surrender of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees,
as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant,
if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having
a new Warrant issued.

 

b)
New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved
in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated
the Issuance Date set forth on the first page of this Warrant and shall be identical with this Warrant except as to the number
of Warrant Shares issuable pursuant thereto.

 

c)
Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose
(the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d)
Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a
view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable
state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

    	 	 	 

    	 	 	 

    

 

Section
5. Miscellaneous.

 

a)
No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other
rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).

 

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

 

c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next
succeeding Business Day.

 

d)
Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable
law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company covenants
that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Except and to the extent
as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary
or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant. Before
taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.

 

    	 	 	 

    	 	 	 

    

 

e)
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall
be determined in accordance with the provisions of the Agreement.

 

f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered,
and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities
laws.

 

g)
Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies. Without limiting any
other provision of this Warrant or the Agreement, if the Company willfully and knowingly fails to comply with any provision of
this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

 

h)
Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Agreement.

 

i)
Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant
to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.

 

j)
Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k)
Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted
assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.

 

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

 

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

 

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

 

(Signature
Pages Follow)

 

    	 	 	 

    	 	 	 

    

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first
above indicated.

 

	 	PROPHASE
    LABS, INC.
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 

 

    	 	 	 

    	 	 	 

    

 

NOTICE
OF EXERCISE

 

TO:
PROPHASE LABS, INC.

 

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

 

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

 

[  ]
in lawful money of the United States; or

 

[  ]
the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c),
to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure
set forth in subsection 2(c).

 

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

 

 

 

The
Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

 

 

 

 

 

 

[SIGNATURE
OF HOLDER]

 

Name
of Investing Entity:

  

Signature
of Authorized Signatory of Investing Entity:

 

Name
of Authorized Signatory:

  

Title
of Authorized Signatory:

 

Date:

 

 

    	 	 	 

    	 	 	 

    

 

ASSIGNMENT
FORM

 

(To
assign the foregoing warrant, execute

this
form and supply required information.

Do
not use this form to exercise the warrant.)

FOR
VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned
to

 

__________________________________________________
whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated:
______________, _______

 

Holder’s
Signature: ________________________________________________

 

Holder’s
Address: ________________________________________________

 

_______________________________________________________________

 

 

Signature
Guaranteed: _____________________________________________

 

NOTE:
The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration
or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.SECURITY
AGREEMENT

 

THIS
SECURITY AGREEMENT (the “Security Agreement”), dated as of the 11th day of December, 2015, is made
by and among PROPHASE LABS, INC., a Delaware corporation, Pharmaloz Manufacturing Inc.,
a Delaware corporation, and Quigley Pharma
Inc., a Delaware corporation, each with an address of 621 N. Shady Retreat Road, Doylestown PA 18901 (each an “Obligor”
and collectively, the “Obligors”), and John E. Ligums, Jr., as collateral agent for the secured parties
identified on Schedule A (in such capacity as collateral agent, together with its successors and assigns, the “Collateral
Agent”).

 

BACKGROUND

 

A.The
Obligors are borrowers under certain 12% Secured Promissory Notes – Series A (together with any renewals, extensions or
modifications thereof, collectively referred to as the “Notes”) payable to the order of the secured parties
identified on Schedule A (together with any future holders of any Notes, collectively, the “Secured Parties”),
which schedule shall be amended from time to time to identify all persons holding Notes. The aggregate maximum outstanding original
principal amount of all Notes is $3,000,000.

 

B.As
a condition to extending the financial accommodations represented by the Notes, the Obligors have agreed to grant in favor of
the Collateral Agent, for the benefit of the Secured Parties, a security interest in the Collateral (as hereinafter define) to
secure their obligations under the obligations under the Notes.

 

C.Capitalized
terms contained in Section 1 of this Security Agreement and used hereinafter shall have the meanings ascribed to them in
the revised Article 9 of the Uniform Commercial Code as enacted in the State of Delaware and in effect on the date hereof (the
“Uniform Commercial Code”), unless the context requires otherwise. Other capitalized terms which are used herein
without definition shall have the meanings ascribed to them in the Notes.

 

NOW,
THEREFORE, incorporating the Background Section herein, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, in consideration of the foregoing and intending to be legally bound, the Obligors and the Collateral
Agent hereby agree as follows:

 

Section
1.Creation of Security Interest. Each Obligor hereby grants to the Collateral Agent, for the benefit of
the Secured Parties, a security interest in and lien priority position, a Lien upon and security interest in, all of such Obligors’s
right, title and interest in and to the following property and assets of such Obligor, in each case whether now owned or existing
or hereafter acquired or arising and wherever located (collectively, the “Collateral”):

 

(i)all
Accounts;

 

(ii)all
Chattel Paper;

 

(iii)the
Commercial Tort Claims (if any) set forth on Schedule I hereto;

 

(iv)all
Contracts;

 

(v)all
Deposit Accounts;

 

(vi)all
Documents;

 

(vii)all
Equipment;

 

    	1

    	 

    

 

(viii)all
Fixtures;

 

(ix)all
General Intangibles;

 

(x)all
Goods;

 

(xi)all
Instruments;

 

(xii)all
Inventory;

 

(xiii)all
Investment Property;

 

(xiv)all
Letter-of-Credit Rights;

 

(xv)all
Software;

 

(xvi)all
Supporting Obligations;

 

(xvii)all
cash, cash equivalents and money of the Obligor, wherever held;

 

(xviii)to
the extent not covered or not specifically excluded by clauses (i) through (xvii) above, all of such Obligor’s other personal
property;

 

(xix)all
Records evidencing or relating to any of the foregoing or that are otherwise necessary or useful in the collection thereof;

 

(xx)all
accessions, additions, attachments, improvements, modifications and upgrades to, replacements of and substitutions for any of
the foregoing; and

 

(xxi)any
and all proceeds, as defined in the Uniform Commercial Code, products, rents, royalties and profits of or from any and all of
the foregoing and, to the extent not otherwise included in the foregoing, (w) all payments under any insurance (whether or not
the Collateral Agent is the loss payee thereunder), indemnity, warranty or guaranty with respect to any of the foregoing Collateral,
(x) all payments in connection with any requisition, condemnation, seizure or forfeiture with respect to any of the foregoing
Collateral, (y) all claims and rights (but not obligations) to recover for any past, present or future infringement or dilution
of or injury to any Collateral consisting of copyrights patent or trademarks, and (z) all other amounts from time to time paid
or payable under or with respect to any of the foregoing Collateral (collectively, “Proceeds”). For purposes
of this Agreement, the term “Proceeds” includes whatever is receivable or received when Collateral or Proceeds are
sold, exchanged, collected or otherwise disposed of, whether voluntarily or involuntarily.

 

Section
2.Secured Obligations. The lien and security interest created herein is given as security for the prompt
payment, performance, satisfaction and discharge of the following obligations (the “Obligations”) of the Obligors:
(i) to pay the principal and interest and any other liabilities of the Obligors to the Secured Parties under the Notes in accordance
with the terms thereof; (ii) to repay the Secured Parties all amounts advanced by the Collateral Agent and Secured Parties under
this Security Agreement or otherwise on behalf of the Obligors, including, but without limitation, advances for taxes, levies,
insurance, rent, wages, repairs to or maintenance or storage of any Collateral; and (iii) to reimburse the Secured Parties and
the Collateral Agent, on demand, for all of the Secured Parties’ and Collateral Agent’s expenses and costs, including
the reasonable fees and expenses of its counsel, in connection with the negotiation, preparation, administration, amendment, modification,
or enforcement of the Notes and this Security Agreement.

 

    	2

    	 

    

 

Section
3.Representations and Warranties. The Obligors, as of the date hereof and as long as the Notes remain outstanding,
represents and warrants as follows:

 

3.1Good
Title to Collateral. The Obligors have good and marketable title and valid right in and to the Collateral free and clear
of all liens and encumbrances other than the security interests granted to the Collateral Agent.

 

3.2Fictitious
Name, Merger, Consolidation. No Obligor has, during the past five (5) years, been known by or used any other corporate
or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person,
or acquired any of its property or assets out of the ordinary course of business.

 

3.3Organization.
Each Obligor is a corporation organized under the laws of the State of Delaware. Each Obligor’s exact legal name is as set
forth in the first paragraph of this Security Agreement. If any Obligor has more than one place of business, the chief executive
offices of such Obligor are at the address set forth in the first paragraph of this Security Agreement.

 

3.4Filings
of Record. No financing statement covering any of the Collateral is on file in any public office, other than the financing
statements filed in favor of the Collateral Agent for the benefit of the Secured Parties.

 

3.5Non-Contravention.
The making and performing of this Security Agreement is not in contravention of or prohibited by an indenture, agreement, or undertaking
to which any Obligor is a party or by which the Obligor is bound or affected.

 

3.6Financing
Statements. Completed Uniform Commercial Code financing statements (including fixture filings, as applicable), or other
appropriate filings, recordings or registrations containing a description of the Collateral have been delivered to the Collateral
Agent for filing with the Secretary of State of the State of Delaware, which are all the filings, recordings or registrations
that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest
in favor of the Collateral Agent, for the benefit of the Secured Parties, in respect of all Collateral in which the security interest
granted hereunder may be perfected by filing, recording or registration in the United States (or any political subdivision thereof)
and its territories and possessions, and no further or subsequent filing, refiling, rerecording, registration or reregistrations
is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements.

 

Section
4.Collection, Disposition and Use of Collateral.

 

4.1
Accounts. The Collateral Agent, on behalf of the Secured Parties, hereby authorizes the Obligors to collect all
Accounts from the Account Debtors. The Proceeds of Accounts so collected by the Obligors shall be received and held by the Obligors
in trust for the Collateral Agent for the benefit of the Secured Parties but may be applied by the Obligors in their discretion
towards payment of the Obligations or other purposes as permitted under the Note. So long as there has been no Event of Default
(as hereinafter defined) hereunder, the Obligors shall be permitted to collect the Proceeds of Accounts from customers and the
Obligors shall be free to make payments to satisfy their business obligations including working capital expenditures in the ordinary
course of the Obligors’ business. Upon the occurrence of an Event of Default, the authority hereby given to the Obligors
to collect the Proceeds of Accounts in trust for the Collateral Agent may be terminated by the Collateral Agent at any time and
the Collateral Agent, on behalf of the Secured Parties, shall have the right at any time thereafter, acting if it so chooses in
any Obligor’s name, to collect Accounts itself, to sell, assign, compromise, discharge or extend the time for payment of
any Account, and to do all acts and things necessary or incidental thereto and each Obligor hereby ratifies all such acts. Upon
the occurrence of an Event of Default, at the Collateral Agent’s request, the Obligors will notify Account Debtors and any
guarantor thereof that the Accounts payable by such Account Debtors have been assigned to the Collateral Agent for the benefit
of the Secured Parties and shall indicate on all billings to Account Debtors that payments thereon are to be made to the Collateral
Agent for the benefit of the Secured Parties. Upon the occurrence of an Event of Default, the Obligors shall not compromise, discharge,
extend the time for payment or otherwise grant any indulgence or allowance with respect to any Account without the prior written
consent of the Collateral Agent.

 

    	3

    	 

    

 

4.2Inventory;
Ordinary Course. So long as there has been no Event of Default hereunder, the Obligors shall be permitted to process and
sell their Inventory and, to the extent not material, other forms of Collateral, but only to the extent that such processing and
sale are conducted in the ordinary course of the Obligors’ business.

 

Section
5.Covenants and Agreements of the Obligor.

 

5.1Maintenance
and Inspection of Books and Records. The Obligors shall maintain complete and accurate books and records and shall make
all necessary entries therein to reflect the costs, values and locations of their Inventory and the transactions and documents
giving rise to their Accounts and all payments, credits and adjustments thereto. The Obligors shall keep the Collateral Agent
fully informed as to the location of all such books and records. The Collateral Agent’s rights hereunder shall be enforceable
at law or in equity, and the Obligors consent to the entry of judicial orders or injunctions enforcing specific performance of
such obligations hereunder.

 

5.2Notice
of Change/Relocation by Obligor. The Obligors will furnish to the Collateral Agent prompt written notice of any change
(i) in any Obligor’s corporate name or in any trade name used to identify it in the conduct of its business or in the ownership
of its properties, (ii) in the location of any Obligor’s chief executive office, its principal place of business, any office
in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned
by it is located (including the establishment of any such new office or facility), (iii) in any Obligor’s identity or corporate
structure, (iv) in any Obligor’s Federal Taxpayer Identification Number or (v) in any Obligor’s jurisdiction of organization.
The Obligors agree not to effect or permit any change referred to in the preceding sentence unless all filings have been made
under the Uniform Commercial Code or otherwise that are required in order for Collateral Agent to continue at all times following
such change to have a valid, legal and perfected security interest in all Collateral for the benefit of the Secured Parties. The
Obligors also agree promptly to notify the Collateral Agent if any material portion of the Collateral is damaged or destroyed.

 

5.3Confirmation
of Accounts. The Obligors agree that the Collateral Agent shall at all times have the right to confirm orders and to verify
any or all of the Obligors’ Accounts in the Collateral Agent’s name for the benefit of the Secured Parties, or in
any fictitious name used by the Collateral Agent for verifications, or through any public accountants.

 

5.4Delivery
of Accounts Documentation. At such intervals as the Collateral Agent shall require, the Obligors shall deliver to the
Collateral Agent copies of purchase orders, invoices, contracts, shipping and delivery receipts and any other document or instrument
which evidences or gives rise to an Account.

 

5.5Physical
Inspection of Inventory. The Obligors shall permit the Collateral Agent and its authorized agents to inspect any or all
of the Obligors’ Inventory at all reasonable times.

 

    	4

    	 

    

 

5.6Notice
of the Collateral Agent’s Interests. If requested by the Collateral Agent, the Obligors shall give notice of the
Collateral Agent’s security interests in the Collateral to any third person with whom the Obligors has any actual or prospective
contractual relationship or other business dealings.

 

5.7Accounts
Agings. The Obligors shall furnish the Collateral Agent with agings of their Accounts in such form and detail and at such
intervals as the Collateral Agent may from time to time require but not more frequently than quarterly unless there has been an
Event of Default.

 

5.8Defend
the Collateral. In the event that the Collateral shall hereafter become subject to any lien, encumbrance, security interest
or claim of any other person or entity (other than with the express written consent of the Collateral Agent), the Obligors shall
immediately undertake to secure the release of the Collateral from such lien, encumbrance, security interest or claim at the Obligors’
own cost and expense. The Obligors shall appear in and defend any action or proceeding which may affect the security interest
of the Collateral Agent in the Collateral.

 

5.9Insurance
of Collateral. The Obligors shall keep standard property and casualty loss coverage of their Inventory against such perils
with AAA rated insurance companies. All insurance policies shall name the Collateral Agent, as collateral agent for the Secured
Parties, as secured party/loss payee and shall provide for not less than thirty (30) days’ advance notice in writing to
the Collateral Agent of any cancellation thereof. The Collateral Agent shall have the right (but shall be under no obligation)
to pay any of the premiums on such insurance. Any premiums paid by the Collateral Agent shall, if the Collateral Agent so elects,
be considered an advance at the highest rate of interest provided in the Notes, and all such accrued interest shall be payable
on demand. Any credit insurance covering Accounts shall name the Collateral Agent as loss payee. The Obligors expressly authorize
their insurance carriers to pay proceeds of all insurance policies covering any or all of the Collateral directly to the Collateral
Agent for the benefit of the Secured Parties.

 

5.10Existence.
Except in connection with an internal reorganization, each Obligor shall preserve its existence and not merge into or consolidate
with any other entity, or sell all or substantially all of its assets. The Obligor shall not change the state of its organization,
its name, or place of business without obtaining the prior written consent of the Collateral Agent, which will not be unreasonably
withheld. Obligor agrees not to effect or permit any change referred to in the preceding sentences unless all filings have been
made under the Uniform Commercial Code or otherwise that are required in order for Collateral Agent to continue at all times following
such change to have a valid, legal and perfected security interest in all Collateral for the benefit of the Secured Parties.

 

5.11Perfection
of Collateral Agent’s Interests.

 

(a)The
Obligors agree to cooperate and join, at their expense, with the Collateral Agent in taking such steps as are necessary, in the
Collateral Agent’s judgment, to perfect or continue the perfected status of the security interests granted hereunder, including,
without limitation, the execution and delivery of any financing statements, amendments thereto and continuation statements.

 

(b)The
Collateral Agent may at any time and from time to time, file financing statements, continuation statements and amendments thereto
that describe the Collateral in particular or as all assets of the Obligors or words of similar effect and which contain any other
information required by the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement,
continuation statement or amendment, including whether any Obligor is an organization, the type of organization and any organization
identification number issued to such Obligor. The Obligors agree to furnish any such information to the Collateral Agent promptly
upon request.

 

    	5

    	 

    

 

(c)The
Obligors shall, at any time and from time to time, take such steps as the Collateral Agent may require for the Collateral Agent
to insure the continued perfection and priority of the Collateral Agent’s security interest in any of the Collateral and
of the preservation of its rights therein.

 

5.12Maintenance
of Inventory. The Obligors shall care for and preserve the Inventory in good condition.

 

5.13Notification
of Adverse Change in Collateral. The Obligors agree immediately to notify the Collateral Agent if (a) any Account Debtor
refuses to retain or returns any goods, the sale or delivery of which gave rise to an Account; (b) any Account has arisen pursuant
to a sale under terms which differ materially from those customarily offered by the Obligor; or (c) any event occurs or is discovered
which would cause any material diminution in the value of any significant item or type of Collateral, except as would not have
a material adverse effect on the Obligor or its business.

 

5.14Reimbursement
and Indemnification. The Obligors agree to pay (or reimburse, as the Collateral Agent may elect) the Collateral Agent
on demand for out-of-pocket expenses incurred in connection with the Collateral Agent’s exercise of its rights under this
Security Agreement. The Obligors agree to indemnify the Collateral Agent and hold it harmless against any costs, expenses, losses,
damages and liabilities (including reasonable attorneys’ fees and court costs) incurred in connection with this Security
Agreement, other than as a direct result of the Collateral Agent’s gross negligence or willful misconduct.

 

5.15Use
of the Collateral. The Obligors shall use the Collateral lawfully and only with insurance coverage and shall not use the
Collateral so as to cause or result in waste, unreasonable deterioration or depreciation.

 

5.16Consent
to Sell the Collateral. Except as otherwise permitted under this Security Agreement, the Obligors shall not, without the
written consent of the Collateral Agent, which will not be unreasonably withheld, sell, contract to sell, lease, encumber or dispose
of the Collateral until the Obligations to the Secured Parties have been fully and finally discharged.

 

5.17Taxes
and Assessments. The Obligors shall pay, when due, all taxes, assessments, charges, liens, levies or encumbrances now
or hereafter assessed against the Collateral.

 

5.18No
Other Security Interests. The Obligors shall not grant any security interests to any other Person in the Collateral.

 

5.19Negative
Pledge on Real Property. The Obligors hereby agree that they shall not sell, assign or transfer their interest in, or
create, incur, assume or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, hypothecation, assignment,
deposit arrangement or other preferential arrangement, charge or encumbrance (including without limitation, any conditional sale,
or other title retention agreement, or finance lease) of any nature (an “Encumbrance”), upon or with respect
to the real property located at 500 North 15th Avenue, Lebanon, PA 17046 (the “Real Property”), or authorize
the filing under the Uniform Commercial Code of any jurisdiction of a financing statement in the nature of a fixture filing on
their personal property located on or used in connection with the Real Property which names any Obligor as debtor, or sign any
security agreement authorizing any secured party to file such financing statement on the Real Property without the written permission
of the Collateral Agent. In the event of a sale of the Real Property or any other event which results in proceeds being distributed
to any Person (a “Capital Event”), the Obligors agree that all such Capital Event proceeds, to the extent of
the Obligations, shall be paid to the Collateral Agent for the benefit of the Lenders prior to any distribution or payment to
any other Person.

 

    	6

    	 

    

 

Section
6.Power of Attorney. The Obligors hereby appoint the Collateral Agent as its lawful attorney-in-fact, said
appointment being coupled with an interest, with full power of substitution, to do, at the Collateral Agent’s option, and
at the Obligors’ expense and liability, all acts and things which the Collateral Agent may deem necessary or desirable to
effectuate its rights under this Security Agreement, including without limitation, (a) file financing statements and otherwise
perfect any security interest granted hereby, (b) correspond and negotiate directly with insurance carriers, (c) upon the occurrence
of an Event of Default hereunder, receive, open and dispose of in any reasonable manner all mail addressed to the Obligor and
notify Postal Service authorities to change the address for mail addressed to the Obligor to an address designated by the Collateral
Agent, (d) upon the occurrence of an Event of Default hereunder, communicate with Account Debtors and other third parties for
the purpose of protecting or preserving the Collateral, and (e) upon the occurrence of an Event of Default hereunder, in the Obligor’s
or the Collateral Agent’s name, to demand, collect, receive, and receipt for, compound, compromise, settle and give acquittance
for, and prosecute and discontinue or dismiss, with or without prejudice, any suit or proceeding respecting any of the Collateral.
This power, being coupled with an interest is irrevocable until the Obligations have been fully satisfied.

 

Section
7.Default. The occurrence of an Event of Default as defined in the Notes shall constitute an event of default
(“Event of Default”) hereunder.

 

Section
8.Collateral Agent’s Rights upon Default. After an acceleration of the unpaid principal and accrued
interest pursuant to the terms of the Notes, the Collateral Agent, on behalf and for the benefit of the Secured Parties, may immediately
and without notice pursue any remedy available at law or in equity to collect, enforce or satisfy any Obligations, including any
or all of the following, which rights and remedies are cumulative, may be exercised from time to time, and are in addition to
any rights and remedies available to the Secured Parties under the Notes.

 

8.1Uniform
Commercial Code Rights. Exercise any and all of the rights and remedies of a secured party under the Uniform Commercial
Code, including the right to require the Obligors to assemble the Collateral and make it available to the Collateral Agent at
a place reasonably convenient to the parties.

 

8.2Collection
Rights. Enforce the obligations of any Account Debtor or other person obligated on Collateral and exercise the rights
of the Obligors with respect to the obligation of any Account Debtor or other person obligated on Collateral to make payment or
otherwise render performance to the Obligors. Notify the Account Debtors or other person obligated on Collateral that payments
are to be made directly to the Collateral Agent, or to such post office box as the Collateral Agent may direct.

 

8.3Sale
of Collateral. Upon ten (10) business days’ prior written notice to the Obligors, which the Obligors hereby
acknowledge to be sufficient, commercially reasonable and proper, the Collateral Agent may sell, lease or otherwise dispose of
any or all of the Collateral at any time and from time to time at public or private sale, with or without advertisement thereof
and apply the proceeds of any such sale first to the Collateral Agent’s expenses in preparing the Collateral for sale (including
reasonable attorneys’ fees), second to the complete satisfaction of the Obligations and third, as required by the Uniform
Commercial Code. The Obligors waive the benefit of any marshalling doctrine with respect to the Collateral Agent’s exercise
of its rights hereunder. The Obligors grants a royalty-free license to the Collateral Agent for all patents, service marks, trademarks,
trade names, copyrights, computer programs and other intellectual property and proprietary rights sufficient to permit the Collateral
Agent to exercise all rights granted to the Collateral Agent under this Section 8.3.

 

    	7

    	 

    

 

Section
9.Notices. Any written notices required or permitted by this Security Agreement shall be effective if delivered
in accordance with the Notes.

 

Section
10.No Assumption of Liability. The lien and security interest granted hereunder is granted as security only
and shall not subject the Collateral Agent or the Secured Parties to, or in any way alter or modify, any obligation or liability
of Obligors with respect to or arising out of the Collateral.

 

Section
11.Miscellaneous.

 

11.1No
Waiver. No delay or omission by the Collateral Agent in exercising any right or remedy hereunder shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise thereof shall preclude any further exercise thereof
or the exercise of any other right or remedy.

 

11.2Preservation
of Rights. The Collateral Agent and the Secured Parties shall have no obligation or responsibility to take any steps to
enforce or preserve rights against any parties to any Account and such obligation and responsibility shall be those of the Obligors
exclusively. Further, the Obligors hereby authorize the Collateral Agent, and the Collateral Agent shall have the continuing rights,
at its sole option and discretion, but is not obligated to: (a) do anything which the Collateral Agent is required but fails to
do hereunder, and in particular the Collateral Agent may, if any Obligor fails to do so: (i) insure or take any reasonable steps
to protect the Collateral, (ii) pay all taxes, levies, expenses and costs arising with respect to the Collateral, or (iii) pay
any premiums payable on any policy of insurance required to be obtained or maintained hereunder; (b) direct any insurer to make
payment of any insurance proceeds, including any returned or unearned premiums, directly to the Collateral Agent, for the benefit
of the Secured Parties, and apply such moneys to any Obligations evidenced or secured hereby in such order or fashion as the Collateral
Agent may elect; and (c) inspect the Collateral at any reasonable time. In addition to rights given to the Collateral Agent in
this Security Agreement and to the Secured Parties in the Notes, the Collateral Agent shall have all the rights and remedies of
a secured party in or under any applicable law, including without limitation, the Uniform Commercial Code.

 

11.3Successors
and Assigns. This Security Agreement (a) shall be binding upon the Obligors and the Collateral Agent and their respective
permitted successors and assigns and (b) shall inure to the benefit of each Obligor and the Collateral Agent and its respective
permitted successors and assigns; provided, however that no Obligor may assign its rights hereunder or any interest herein without
the prior written consent of the Collateral Agent, and any such assignment or attempted assignment by any Obligor shall be void
and of no effect with respect to the Collateral Agent. The Collateral Agent may assign this Security Agreement in whole or in
part in its sole discretion at any and all time(s).

 

11.4Complete
Agreement. This Security Agreement and the instructions and notices required or permitted to be executed and delivered
hereunder set forth the entire agreement of the parties with respect to the subject matter hereof, and supersede any prior agreement
and contemporaneous oral agreements of the parties concerning its subject matter.

 

11.5Counterparts;
Effectiveness. This Security Agreement may be executed in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one
and the same Security Agreement. This Security Agreement may be executed by exchange of facsimile signatures, which shall be deemed
original signatures for purposes of this Security Agreement or otherwise. This Security Agreement shall be deemed to have been
executed and delivered when the Collateral Agent has received counterparts hereof executed by all parties listed on the signature
page(s) hereto.

 

    	8

    	 

    

 

11.6Amendments.
No modification, rescission, waiver, release or amendment of any provisions of this Security Agreement shall be effective unless
set forth in a written agreement signed by the Obligors and the Collateral Agent.

 

11.7Termination.
Upon the payment in full in cash of the Obligations, the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Obligors. Upon any such termination, at the Obligors’ cost and expense, the Collateral Agent
will execute and deliver to the Obligors such documents as it shall reasonably request to evidence such termination or the Collateral
Agent shall authorize the Obligors and their designees to take all reasonable actions and make all filings necessary or desirable
to effectuate the termination and release of the liens and security interests in the Collateral.

 

11.8Governing
Law. This Security Agreement shall be governed by and be construed under the internal laws of the State of Delaware without
reference to conflict of laws principles.

 

11.9Severability.
If any provision of this Security Agreement shall be held invalid or unenforceable under applicable law in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability of such provision in any other jurisdiction or
the validity or enforceability of any other provision of this Security Agreement that can be given effect without such invalid
or unenforceable provision.

 

11.10Waiver
of Jury Trial. Each and every party to this Security Agreement agrees that any suit, action or proceeding, whether claim
or counterclaim, brought or instituted by any party hereto or any successor or assign of any party, on or with respect to this
Security Agreement or the dealings of the parties with respect hereto, shall be tried only by a court and not by a jury. EACH
AND EVERY PARTY HEREBY KNOWINGLY, EXPRESSLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING. Further, each party waives any right it may have to claim or recover, in any such suit, action or proceeding,
any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. EACH
OBLIGOR ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF THIS SECURITY AGREEMENT AND THAT THE
COLLATERAL AGENT WOULD NOT EXTEND CREDIT TO SUCH OBLIGOR IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS SECURITY
AGREEMENT.

 

11.11Acknowledgment.
THIS SECURITY AGREEMENT CONTAINS A POWER OF ATTORNEY COUPLED WITH AN INTEREST AND IS FOR THE SOLE BENEFIT OF THE COLLATERAL
AGENT. THIS SECURITY AGREEMENT IS BEING EXECUTED IN CONNECTION WITH A LOAN OR OTHER FINANCIAL TRANSACTION FOR BUSINESS PURPOSES
AND NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. THE COLLATERAL AGENT, AS AGENT FOR THE OBLIGORS, UNDER THE POWER
OF ATTORNEY, IS NOT A FIDUCIARY FOR THE OBLIGORS, IN EXERCISING ANY OF ITS RIGHTS OR POWERS PURSUANT TO THE POWER OF ATTORNEY,
MAY DO SO FOR THE SOLE BENEFIT OF THE COLLATERAL AGENT AND THE SECURED PARTIES AND NOT FOR THE OBLIGORS.

 

11.12Jurisdiction.
IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS SECURITY AGREEMENT OR
THE RELATIONSHIP EVIDENCED HEREBY, OBLIGORS AND THE COLLATERAL AGENT HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF
THE COURT OF COMMON PLEAS OF BUCKS COUNTY, PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
OBLIGORS AND THE COLLATERAL AGENT EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED
IN ANY SUCH COURT, AND OBLIGORS AND THE COLLATERAL AGENT HEREBY WAIVE ANY OBJECTION WHICH THEY MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS. OBLIGORS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND ANY OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND ANY OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO IT AT THE ADDRESS SET FORTH ABOVE AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE PROVIDING OF SUCH NOTICE. NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED, OR OPERATE, TO AFFECT
THE RIGHTS OF THE COLLATERAL AGENT OR OBLIGORS TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY THE COLLATERAL AGENT OR ANY OBLIGOR OF ANY CLAIM, OR ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM, OR THE TAKING
OF ANY ACTION UNDER THIS SECURITY AGREEMENT OR OTHERWISE TO ENFORCE SAME, IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

 

[Signatures
Follow]

 

    	9

    	 

    

 

IN
WITNESS WHEREOF, the undersigned hereto, intending to create an instrument under seal, have duly executed this Security Agreement
the day and year aforesaid and have affixed their respective seals or have adopted as their own the seals typed next to their
respective signatures with the intent to be legally bound hereby as of the day and year first above written.

 

	 	OBLIGORS:
	 	 
	 	PROPHASE
    LABS, INC.,
	 	 
	 	By:
    	/s/ Ted Karkus
	 	 	Ted
    Karkus CEO

 

	 	Pharmaloz
    Manufacturing Inc.,

 

	 	By:
    	/s/ Ted Karkus
	 	Name:
    	Ted Karkus
	 	Title:
    	CEO

 

 

	 	Quigley
    Pharma Inc.,

 

	 	By:	/s/
    Ted Karkus
	 	Name:
    	Ted
    Karkus
	 	Title:
    	CEO

 

	 	COLLATERAL
    AGENT:
	 	 
	 	/s/
    John E. Ligums, Jr.
	 	John
    E. Ligums, Jr.

 

    	1

    	 

    

 

Schedule
A to

Security
Agreement,

dated
December 11, 2015, by and among

ProPhase
Labs, Inc., Pharmaloz Manufacturing Inc., Phusion Labs Manufacturing, Inc. and Quigley Pharma Inc.

 

List
of Secured Parties

 

John
E. Ligums, Jr.

Justin
J. Leonard

 

    	 

    	 

    

 

Schedule
I

 

Commercial
Tort Claims

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