Document:

exv4w1

Exhibit 4.1

COMMON STOCK PURCHASE WARRANT

RXI PHARMACEUTICALS CORPORATION

	 	 	 

	Warrant Shares: [ ]

	 	Issue Date: March [ ], 2011

          THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
[ ] (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise
and the conditions hereinafter set forth, at any time on or after the date hereof (the
“Exercisability Date”) and on or prior to the close of business on April [ ], 2012 (the
“Termination Date”) but not thereafter, to subscribe for and purchase from RXi
Pharmaceuticals Corporation, a Delaware corporation (the “Company”), up to [ ] shares (the
“Warrant Shares”) of common stock of the Company (“Common Stock”).

Section 1. Definitions. Capitalized terms used herein shall have the meanings
given to them herein.

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
Exercisability 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. 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.

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     b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $1.70, subject to adjustment hereunder (the “Exercise Price”).

     c) Cashless Exercise. If at the time of exercise hereof there is no effective
registration statement registering, or the prospectus contained therein is not available for
the issuance of the Warrant Shares to the Holder, then this Warrant may also 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 a market or
exchange, the daily volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the on such market or exchange on which the Common Stock is then
listed or quoted as reported by Bloomberg L.P. (based on a business day from 9:30 a.m. (New
York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a
market or exchange, 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 Company and reasonably acceptable to the Holders of a majority in interest of
the Securities then outstanding, the fees and expenses of which shall be paid by the
Company.

     Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant,
to the extent not exercised prior thereto, 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 Agent

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Commission (“DWAC”) system if the Company is then a participant
in such system and either (A) there is an effective Registration Statement
covering the issuance of the Warrant Shares to the 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 properly
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 the
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the 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 Warrant Share Delivery Date, the Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder
anticipated receiving from the Company (a “Buy-In”), then the
Company shall, within five (5) business days after the Holder’s request and
in the Holder’s discretion, either (i) pay cash to the Holder in an amount,
equal to the Holder’s total purchase price (including reasonable

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brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock)
shall terminate and this Warrant shall be restored to its pre-exercise
numbers of shares, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times
(B) the VWAP (as reported by Bloomberg) on the date of the event giving rise
to the Company’s obligation to deliver such certificate.

Notwithstanding the foregoing, the Company shall not be required to make the
payments set forth herein in the case of uncertificated Warrant Shares if
the Holder fails to timely file a request with the depository trust company
to receive such uncertificated Warrant Shares.

Notwithstanding the foregoing, 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, then the Holder will have the right to rescind
such Notice of Exercise. 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 a
Certificate 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.

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     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. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with
the Holder’s affiliates, and any other Persons acting as a group together with the Holder or
any of the Holder’s affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon exercise of this Warrant with respect to
which such determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by the Holder or any of its affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of the Company
including, without limitation, any other securities of the Company or any Company
subsidiary consolidated in the Company’s financial statements which would entitle the holder
thereof to acquire at any time Common Stock (“Common Stock Equivalents”) subject to
a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this Section 2(e)
applies, the determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any affiliates) and of which portion of this
Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of
a Notice of Exercise shall be deemed to be the Holder’s determination of whether this
Warrant is exercisable (in relation to other securities owned by the Holder together with
any affiliates) and of which portion of this Warrant is exercisable, in each case subject to
the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination and shall have no liability for exercises of the
Warrant that are in non-compliance with the Beneficial Ownership Limitation. In addition,
a determination as to any group status as contemplated above shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(e), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the
Commission, as the case may be, (B) a more recent public announcement by the Company or (C)
a more recent written notice by the Company or the transfer agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two (2) business days confirm orally

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and in writing to the Holder the number of shares of Common Stock then outstanding as
established by (A), (B) or (C) above, as applicable. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or exercise
of securities of the Company, including this Warrant, by the Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.9% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior
notice to the Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant
held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any
such increase or decrease will not be effective until the 61st day after such
notice is delivered to the Company and shall only be effective with respect to such Holder.
The provisions of this paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or
any portion hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.

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) Adjustment upon Issuance of Shares of Common Stock. If and whenever on or
after the date hereof, the Company issues or sells, or in accordance with this

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Section 3(b) is deemed to have issued or sold, any shares of Common Stock, including
the issuance or sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued by the Company in
connection with any Exempt Issuance (defined below), for a consideration per share (the
“New Issuance Price”) less than a price (the “Applicable Price”) equal to
the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or
sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced and only reduced to an amount
equal to the New Issuance Price. For purposes of determining the adjusted Exercise Price
under this Section 3(b), the following shall be applicable:

     (i) Issuance of Options. If the Company in any manner grants
any Options (as defined below), other than in connection with any Exempt Issuance,
and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities (as defined below) issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 3(b)(i), the “lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion, exercise or exchange of
such Convertible Securities issuable upon exercise of any such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Exercise Price shall be made upon the actual
issuance of such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible Securities.
“Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Common Stock Equivalents. “Convertible
Securities” means any stock or securities (other than Options) convertible into
or exercisable or exchangeable for shares of Common Stock or Common Stock
Equivalents.

     (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, other than in connection with any
Exempt Issuance, and the lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance or sale
of such Convertible Securities for such price per share. For the purposes of this
Section 3(b)(ii), the “lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon

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the issuance or sale of the Convertible Security and upon conversion, exercise
or exchange of such Convertible Security. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any Options
for which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 3(b), no further adjustment of the Exercise Price shares
shall be made by reason of such issue or sale.

     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases at any
time, then the Exercise Price in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold. For purposes of
this Section 3(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or decreased in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the date of
such increase or decrease. No adjustment pursuant to this Section 3(b) shall be
made if such adjustment would result in an increase of the Exercise Price then in
effect.

     (iv) Calculation of Consideration Received. If any shares of
Common Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the VWAP
of such security on the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the amount
of consideration therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable to such
shares of Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring valuation
(the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Business Days after the tenth

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(10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the
Company.

     (v) Record Date. If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares of Common Stock,
Options or Convertible Securities, then such record date will be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or purchase,
as the case may be.

     (vi) “Exempt Issuance.” For the purposes of this Warrant, “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or exchange of or
exchangeable for or convertible into shares of Common Stock issued and outstanding
on the date hereof, provided that such securities have not been amended since date
hereof to increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only
be a Person (or to the equityholders of a Person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional
benefits in addition to the investment of funds, but shall not, for the purposes of
this clause (c), include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary business
is investing in securities.

     c) 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

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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.

     d) 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 (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the 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.

     e) 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

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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.

     Notwithstanding the foregoing, in the event of a Fundamental Transaction, at the
request of the Holder delivered before the 90th day after such Fundamental Transaction, the
Company (or the Successor Entity, as defined below) shall purchase this Warrant from the
Holder by paying to the Holder, within five Business Days after such request (or, if later,
on the effective date of the Fundamental Transaction), cash in an amount equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant on the date of such
Fundamental Transaction. “Black Scholes Value” means the value of this Warrant
based on the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
using (i) a price per share of Common Stock equal to the Weighted Average Price of the
Common Stock for the business day immediately preceding the date of consummation of the
applicable Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date
of consummation of the applicable Fundamental Transaction and (iii) an expected volatility
equal to the lesser of 80% and the 60-day volatility obtained from the HVT function on
Bloomberg determined as of the business day next following the public announcement of the
applicable 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 in accordance with the provisions of this
Section 3(e) 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, 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

11

 

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), and which is reasonably satisfactory in form and substance to the Holder. 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 referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such Successor
Entity had been named as the Company herein.

     f) 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.

     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 during the term in
which this Warrant may be exercised by the Holder (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

12

 

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 the
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 securities laws,
this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company 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 include reference to the initial 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 and the Warrant number.

13

 

     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
written 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 of 1933, as amended (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, 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

14

 

regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed. “Trading Market” means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the ate in
question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board
(or any successors to any of the foregoing). 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
laws of the State of New York.

     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.

15

 

     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, 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. The Company shall provide Holder with prompt written notice of all
actions taken pursuant to this Warrant. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in writing, will be
mailed (a) if within the domestic United States by first-class registered or certified
airmail, or nationally recognized overnight express courier, postage prepaid, or by
facsimile or (b) if delivered from outside the United States, by International Federal
Express or facsimile, and (c) will be deemed given (i) if delivered by first-class
registered or certified mail domestic, three business days after so mailed, (ii) if
delivered by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so mailed and
(iv) if delivered by facsimile, upon electronic confirmation of receipt, and will be
delivered and addressed as follows:

(i) if to the Company, to:

RXi Pharmaceuticals Corporation

60 Prescott Street

Worcester, MA 01605

Attn: Chief Executive Officer

Facsimile: 508-767-3862

With Copies to:

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Attn: Marc Rubenstein

Facsimile: 617-951-7050

(ii) if to the Holder, at the address of the
Holder appearing on the books of the Company.

     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

16

 

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

     m) 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.

     n) 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 Page Follows)

17

 

     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.

	 	 	 	 	 
	 	RXI PHARMACEUTICALS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

18

 

NOTICE OF EXERCISE

TO: RXI PHARMACEUTICALS CORPORATION

          (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

[ ] [if permitted] 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.exv4w2

Exhibit 4.2

COMMON STOCK PURCHASE WARRANT

RXI PHARMACEUTICALS CORPORATION

			
	Warrant Shares: [ ]
	 	Issue Date: March [ ], 2011

          THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
[ ] (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise
and the conditions hereinafter set forth, at any time on or after the date hereof (the
“Exercisability Date”) and on or prior to the close of business on March [ ], 2016 (the
“Termination Date”) but not thereafter, to subscribe for and purchase from RXi
Pharmaceuticals Corporation, a Delaware corporation (the “Company”), up to [ ] shares (the
“Warrant Shares”) of common stock of the Company (“Common Stock”).

     Section 1. Definitions. Capitalized terms used herein shall have the
meanings given to them herein.

     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
Exercisability 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. 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.

1

 

     b) Exercise Price. The exercise price per share of the Common Stock under
this Warrant shall be $1.87, subject to adjustment hereunder (the “Exercise Price”).

     c) Cashless Exercise. If at the time of exercise hereof there is no
effective registration statement registering, or the prospectus contained therein is not
available for the issuance of the Warrant Shares to the Holder, then this Warrant may also
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 a market or
exchange, the daily volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the on such market or exchange on which the Common Stock is then
listed or quoted as reported by Bloomberg L.P. (based on a business day from 9:30 a.m. (New
York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a
market or exchange, 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 Company and reasonably acceptable to the Holders of a majority in interest of
the Securities then outstanding, the fees and expenses of which shall be paid by the
Company.

     Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant,
to the extent not exercised prior thereto, 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 Agent

2

 

Commission (“DWAC”) system if the Company is then a participant
in such system and either (A) there is an effective Registration Statement
covering the issuance of the Warrant Shares to the 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 properly
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 the Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the 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 Warrant Share Delivery Date, the Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder
anticipated receiving from the Company (a “Buy-In”), then the
Company shall, within five (5) business days after the Holder’s request and
in the Holder’s discretion, either (i) pay cash to the Holder in an amount,
equal to the Holder’s total purchase price (including reasonable

3

 

brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock)
shall terminate and this Warrant shall be restored to its pre-exercise
numbers of shares, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times
(B) the VWAP (as reported by Bloomberg) on the date of the event giving rise
to the Company’s obligation to deliver such certificate.

Notwithstanding the foregoing, the Company shall not be required to make the
payments set forth herein in the case of uncertificated Warrant Shares if
the Holder fails to timely file a request with the depository trust company
to receive such uncertificated Warrant Shares.

Notwithstanding the foregoing, 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, then the Holder will have the right to rescind
such Notice of Exercise. 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 a
Certificate 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.

4

 

     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. The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to
such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder
(together with the Holder’s affiliates, and any other Persons acting as a group together
with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of this Warrant
with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its
affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company including, without limitation, any other securities of the
Company or any Company subsidiary consolidated in the Company’s financial statements which
would entitle the holder thereof to acquire at any time Common Stock (“Common Stock
Equivalents”) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its affiliates.
Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, it being acknowledged by the Holder that the
Company is not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the limitation contained
in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in
relation to other securities owned by the Holder together with any affiliates) and of which
portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and
the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by the Holder
together with any affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination and shall have no
liability for exercises of the Warrant that are in non-compliance with the Beneficial
Ownership Limitation. In addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 2(e), in determining
the number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or
annual report filed with the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by the Company or the
transfer agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within two (2) business days confirm
orally

5

 

and in writing to the Holder the number of shares of Common Stock then outstanding as
established by (A), (B) or (C) above, as applicable. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or exercise
of securities of the Company, including this Warrant, by the Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.9% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior
notice to the Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant
held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any
such increase or decrease will not be effective until the 61st day after such
notice is delivered to the Company and shall only be effective with respect to such Holder.
The provisions of this paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or
any portion hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.

     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) Adjustment upon Issuance of Shares of Common Stock. If and whenever on
or after the date hereof, the Company issues or sells, or in accordance with this

6

 

Section 3(b) is deemed to have issued or sold, any shares of Common Stock, including the
issuance or sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued by the Company in
connection with any Exempt Issuance (defined below), for a consideration per share (the
“New Issuance Price”) less than a price (the “Applicable Price”) equal to
the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or
sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced and only reduced to an amount
equal to the New Issuance Price. For purposes of determining the adjusted Exercise Price
under this Section 3(b), the following shall be applicable:

     (i) Issuance of Options. If the Company in any manner grants
any Options (as defined below), other than in connection with any Exempt Issuance,
and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities (as defined below) issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 3(b)(i), the “lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion, exercise or exchange of
such Convertible Securities issuable upon exercise of any such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Exercise Price shall be made upon the actual
issuance of such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible Securities.
“Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Common Stock Equivalents. “Convertible
Securities” means any stock or securities (other than Options) convertible into
or exercisable or exchangeable for shares of Common Stock or Common Stock
Equivalents.

     (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, other than in connection with any
Exempt Issuance, and the lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance or sale
of such Convertible Securities for such price per share. For the purposes of this
Section 3(b)(ii), the “lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon

7

 

the issuance or sale of the Convertible Security and upon conversion, exercise
or exchange of such Convertible Security. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any Options
for which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 3(b), no further adjustment of the Exercise Price shares
shall be made by reason of such issue or sale.

     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases at any
time, then the Exercise Price in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold. For purposes of
this Section 3(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or decreased in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the date of
such increase or decrease. No adjustment pursuant to this Section 3(b) shall be
made if such adjustment would result in an increase of the Exercise Price then in
effect.

     (iv) Calculation of Consideration Received. If any shares of
Common Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the VWAP
of such security on the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the amount
of consideration therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring valuation
(the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Business Days after the tenth

8

 

(10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the
Company.

     (v) Record Date. If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares of Common Stock,
Options or Convertible Securities, then such record date will be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or purchase,
as the case may be.

     (vi) “Exempt Issuance.” For the purposes of this Warrant, “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or exchange of or
exchangeable for or convertible into shares of Common Stock issued and outstanding
on the date hereof, provided that such securities have not been amended since date
hereof to increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only
be a Person (or to the equityholders of a Person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional
benefits in addition to the investment of funds, but shall not, for the purposes of
this clause (c), include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary business
is investing in securities.

     c) 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

9

 

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.

     d) 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 (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the 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.

     e) 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

10

 

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.

     Notwithstanding the foregoing, in the event of a Fundamental Transaction, at the
request of the Holder delivered before the 90th day after such Fundamental Transaction, the
Company (or the Successor Entity, as defined below) shall purchase this Warrant from the
Holder by paying to the Holder, within five Business Days after such request (or, if later,
on the effective date of the Fundamental Transaction), cash in an amount equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant on the date of such
Fundamental Transaction. “Black Scholes Value” means the value of this Warrant
based on the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
using (i) a price per share of Common Stock equal to the Weighted Average Price of the
Common Stock for the business day immediately preceding the date of consummation of the
applicable Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date
of consummation of the applicable Fundamental Transaction and (iii) an expected volatility
equal to the lesser of 80% and the 60-day volatility obtained from the HVT function on
Bloomberg determined as of the business day next following the public announcement of the
applicable 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 in accordance with the provisions of this
Section 3(e) 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, 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

11

 

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), and which is reasonably satisfactory in form and substance to the Holder. 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 referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such Successor
Entity had been named as the Company herein.

     f) 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.

     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 during the term
in which this Warrant may be exercised by the Holder (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

12

 

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 the
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 securities laws,
this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company 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 include reference to the initial 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 and the Warrant number.

13

 

     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
written 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 of 1933, as amended (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, 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

14

 

regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed. “Trading Market” means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the ate in
question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board
(or any successors to any of the foregoing). 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
laws of the State of New York.

     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.

15

 

     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, 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. The Company shall provide Holder with prompt written notice of
all actions taken pursuant to this Warrant. Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in writing, will
be mailed (a) if within the domestic United States by first-class registered or certified
airmail, or nationally recognized overnight express courier, postage prepaid, or by
facsimile or (b) if delivered from outside the United States, by International Federal
Express or facsimile, and (c) will be deemed given (i) if delivered by first-class
registered or certified mail domestic, three business days after so mailed, (ii) if
delivered by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so mailed and
(iv) if delivered by facsimile, upon electronic confirmation of receipt, and will be
delivered and addressed as follows:

	 	(i)	 	if to the Company, to:

RXi Pharmaceuticals Corporation

60 Prescott Street

Worcester, MA 01605

Attn: Chief Executive Officer

Facsimile: 508-767-3862
	 
	 	 	 	With Copies to:
	 
	 	 	 	Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Attn: Marc Rubenstein

Facsimile: 617-951-7050
	 
	 	(ii)	 	if to the Holder, at the address of the
Holder appearing on the books of the Company.

     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

16

 

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

     m) 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.

     n) 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 Page Follows)

17

 

     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.

	 	 	 	 	 
	 	RXI PHARMACEUTICALS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

NOTICE OF EXERCISE

TO: RXI PHARMACEUTICALS CORPORATION

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

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

o in lawful money of the United States; or

o [if permitted] 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.

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