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                                                                    EXHIBIT 10.3

THE WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAW. THE WARRANT AND THE
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER SAID ACT AND ANY APPLICABLE SECURITIES LAWS OR AN EXEMPTION
THEREFROM UNDER SAID ACT OR LAWS. THE COMPANY MAY REQUEST, AS A CONDITION TO ANY
TRANSFER, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT.

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THE REGISTRATION RIGHTS PROVISIONS ATTACHED HERETO AS EXHIBIT A.

Warrant No. ________                                         ____________ Shares
                                     FORM OF
                                     WARRANT

                           To Purchase Common Stock of

                                   SCOLR, INC.

         This certifies that, for value received, _______________________ or its
registered assigns (the "Holder") is entitled to purchase from SCOLR, Inc., a
Delaware corporation (the "Company"), at any time and from time to time after
the date hereof until the Expiration Date, the number of shares of Common Stock
(as defined below) of the Company as set forth above, in whole or in part,
including fractional parts, at a purchase price of One Dollar Fifteen and
One-Half Cents ($1.155) per share (the "Purchase Price"). The number of Warrant
Shares (as defined below) and the Purchase Price therefor are subject to
adjustment as herein after set forth in Section 6. This is one of a series of
warrants in substantially the same form that were originally issued on the Issue
Date.

         SECTION 1.        Certain Definitions. For all purposes of this
Warrant, the following terms shall have the meanings indicated:

                  "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the date hereof, other than Warrant Shares,
whether now authorized or not, other than Excluded Shares.

                  "Commission" means the Securities and Exchange Commission, or
any other Federal agency then administering the Securities Act.

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                  "Common Stock" means and includes the Company's authorized
common stock, par value $0.001 per share, and also includes any Common Stock of
any class of the Company hereafter authorized that shall not be limited to a
fixed sum or percentage of par value in respect of the rights of the holder
thereof to participate in dividends and in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
and includes any Common Stock of any class or classes resulting from any
successive changes or reclassifications or reclassification thereof.

                  "Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.

                  "Current Market Price" means the 10-day average closing bid
prices of a share of Common Stock as reported on NASDAQ for the period of 10
consecutive Trading Days ending on the date of determination; provided, however,
if the Common Stock is not listed or admitted to trading on NASDAQ, as reported
on the principal national security exchange or quotation system on which the
Common Stock is quoted or listed or admitted to trading; or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be, or if not listed or admitted for trading
on any national securities exchange or quoted in the over-the-counter market,
the Current Market Price shall be the Fair Value on such date.

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

                  "Excluded Shares" means:

                  (a)      (i) shares of Common Stock issuable upon the exercise
of options and warrants (including this Warrant) and that are outstanding on the
Issue Date and (ii) such number of additional shares of Common Stock as may
become issuable upon the exercise of such options, warrants and convertible
preferred stock by reason of adjustments required pursuant to the anti-dilution
provisions applicable to such securities as in effect on the Issue Date;

                  (b)      (i) shares of Common Stock issuable upon the exercise
of options and warrants granted or issued by the Company to its employees,
officers, directors, consultants and advisors, up to a maximum number of such
shares issuable at any point in time while this Warrant is exercisable that does
not exceed 20% of the then issued and outstanding shares of Common Stock;
provided, in each such case, that the exercise price for any such share shall
not be less than 85% of the Fair Value of the Common Stock on the date of grant
or issuance of the option or warrant (the "Minimum Price"), and (ii) such
additional number of shares of Common Stock as may become issuable pursuant to
the terms of any such options or warrants by reason of adjustments required
pursuant to anti-dilution provisions applicable to such securities in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or

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any dividend on Common Stock payable in Common Stock and anti-dilution
adjustments that do not adjust the exercise price below the Minimum Price;

                  (c)      shares of Common Stock issuable upon exercise of
warrants issued to equipment lessors, banks or other institutional credit
financing sources of the Company in connection with the provision of financing
or the rendering of other services to the Company up to a maximum number of
shares of Common Stock issuable at any point in time while this Warrant is
exercisable that does not exceed 5% of the then issued and outstanding shares of
Common Stock; provided, in each such case, that the exercise or purchase price
for any such share shall not be less than the Minimum Price, and (ii) such
additional number of shares of Common Stock as may become issuable pursuant to
the terms of any such warrants by reason of adjustments required pursuant to
anti-dilution provisions applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by reclassification or otherwise, or
any dividend on Common Stock payable in Common Stock and anti-dilution
adjustments that do not adjust the exercise price below the Minimum Price.

                  "Expiration Date" means 5:00 p.m. New York City time on the
fifth anniversary of the Issue Date.

                  "Fair Value" means, on any date specified herein (i) in the
case of cash, the dollar amount thereof, (ii) in the case of a security admitted
for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other cases
as determined in good faith jointly by the Company and the Holder; provided,
however, that if such parties are unable to reach agreement within 30 days, the
Fair Value shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the Holder or, if that
selection cannot be made within ten days, by an independent investment banking
firm selected by the American Arbitration Association in accordance with its
rules; and provided further that the Company shall pay all of the fees and
expenses of any third parties incurred in connection with determining the Fair
Value.

                  "Issue Date" means June 25, 2003.

                  "Options" means any rights, options or warrants to subscribe
for, purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.

                  "Other Securities" means any stock (other than Common Stock)
and other securities of the Company or any other Person (corporate or otherwise)
which the holder of this Warrant at any time shall be entitled to receive, or
shall have received, upon the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 7 or otherwise.

                  "Outstanding" or "outstanding" means, when used with reference
to Common Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or held
by or for the account of the Company or any subsidiary of the Company, and shall
include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.

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                  "Person" means any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).

                  "Purchase Price" means the purchase price set forth in the
initial paragraph hereof, as adjusted from time to time pursuant to the
provisions of Section 6 hereof.

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

                  "Trading Day" means a day on which the Nasdaq Stock Market is
open for the transaction of business.

                  "Warrant" means this warrant and any warrant issued in
exchange, division, substitution, transfer or replacement hereof.

                  "Warrant Shares" means the shares of Common Stock purchased or
purchasable by the Holder of this Warrant upon the exercise hereof pursuant to
Section 2 hereof.

         SECTION 2.        Exercise of Warrant.

                  (a)      This Warrant may be exercised at any time, in whole
or in part, for all or any part of the number of shares of Common Stock
purchasable hereunder, prior to the Expiration Date. To exercise this Warrant,
in whole or in part, the Holder shall complete the notice of exercise attached
hereto (the "Notice of Exercise"), and deliver this Warrant and, except as
otherwise provided in this Section 2, cash in an amount equal to the aggregate
Purchase Price of the shares of Common Stock being purchased, together with the
Notice of Exercise, to the Company at its office referred to in Section 9. Upon
receipt thereof, the Company shall, as promptly as practicable and in any event
within ten (10) business days thereafter, execute or cause to be executed and
deliver or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock specified in
the Notice of Exercise, together with cash in lieu of any fraction of a share,
as hereinafter provided. The stock certificate or certificates so delivered
shall be, to the extent possible, in such denomination or denominations as the
Holder shall request in the Notice of Exercise and shall be registered in the
name of the Holder or such other name as shall be designated in the Notice of
Exercise, subject to compliance with applicable securities laws. This Warrant
shall be deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and the Holder or any other person or
entity 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 Notice of
Exercise, together with the cash, if any, and this Warrant, are received by the
Company as described above. If this Warrant shall have been exercised in part,
the Company shall, 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 shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant. All shares of Common Stock issuable upon the

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exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of stock certificates pursuant to this
Section, unless such tax or charge is imposed by law upon the Holder, in which
case such taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.

                  (b)      In lieu of payment of the Purchase Price in cash, the
Holder may make such payment, by way of cashless exercise, as follows:

                  (c)      by delivery of shares of Common Stock with an
aggregate Current Market Price on the date of exercise equal to the Purchase
Price, subject, however, to the provisions of Section 16(b) of the Exchange Act;
or

                  (d)      through the written election of the Holder to have
withheld by the Company from the shares of Common Stock otherwise deliverable
upon exercise, Common Stock having an aggregate Current Market Price on the date
of exercise equal to the Purchase Price.

         SECTION 3.        Fractional Shares. The Company shall not be required
to issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which the Holder of this Warrant would otherwise be
entitled to purchase upon exercise, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the Fair
Value per share of Common Stock on the date of exercise.

         SECTION 4.        Ownership of this Warrant.

                  (a)      The Company shall deem and treat the Holder as the
holder and owner of this Warrant (notwithstanding any notations of ownership or
writing hereon made by anyone other than the Company) for all purposes and shall
not be required to give effect to any notice to the contrary, until presentation
of this Warrant for registration of transfer as provided in this Section 4.

                  (b)      Subject to Section 5, this Warrant is exchangeable,
upon the surrender hereof by the Holder to the Company at its office referred to
in Section 9, for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares of Common Stock purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of shares of Common Stock as shall be designated by the Holder at the
time of such surrender. Subject to compliance with applicable securities laws,
this Warrant and all rights hereunder are transferable in whole or in part upon
the books of the Company by the Holder hereof in person or by a duly authorized
attorney, and a new Warrant shall be executed and delivered by the Company of
the like tenor and date as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant duly endorsed, at said office or
agency of

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the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in case
of loss, theft or destruction, of an agreement of unsecured indemnity and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and date, in lieu of this Warrant. This
Warrant shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall
prepare, issue and deliver at its own expense (other than transfer taxes) the
new Warrant or Warrants under this Section 4.

         SECTION 5.        Restrictions. This Warrant and the Warrant Shares may
not be sold, transferred, or otherwise disposed of without registration under
the Securities Act or pursuant to an exemption therefrom.

         SECTION 6.        Anti-Dilution Provisions; Adjustments.

                  6.1      Adjustment of Number of Shares -- Issuance of
Additional Shares of Common Stock. Upon each adjustment of the Purchase Price as
a result of the calculations made in Section 6.2, this Warrant shall thereafter
evidence the right to receive, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one-hundredth of a share)
obtained by dividing (i) the product of the aggregate number of shares covered
by this Warrant immediately prior to such adjustment and the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price by (ii) the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.

                  6.2      Issuance of Additional Shares of Common Stock. In
case the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 6.4 or Section 6.5 but
excluding Additional Shares of Common Stock purchasable upon exercise of Rights
referred to in Section 6.10), without consideration or for a consideration per
share less than the Current Market Price, immediately prior to such issue or
sale, then, and in each such case, subject to Section 6.8, the Purchase Price
shall be reduced, concurrently with such issue or sale, to a price (calculated
to the nearest .001 of a cent), determined by multiplying such Purchase Price by
a fraction

                  (a)      the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale and (ii) the number of shares of Common Stock which the gross consideration
received by the Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the Current Market Price, and

                  (b)      the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 6.2, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 6.4 or Section 6.5, such Additional Shares of Common Stock shall be
deemed to be outstanding, and (y) treasury shares shall not be deemed to be
outstanding.

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                  6.3      Dividends and Distributions. In case the Company at
any time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution on the Common Stock of (i) cash, (ii) any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever (including, without limitation, any
distribution of other or additional stock or Convertible Securities, Options or
other securities or property, by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) or (iii) any warrants or
other rights to subscribe for or purchase any evidences of its indebtedness, any
shares of its stock or any other securities or property of any nature
whatsoever, then

                  (a)      the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment by a fraction (1) the numerator
of which shall be the Current Market Price at the date of taking such record and
(2) the denominator of which shall be such Current Market Price minus the amount
allocable to one share of Common Stock of (x) any such cash so distributable and
(y) the Fair Value of any and all such evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights so distributable, and

                  (b)      the Purchase Price shall be adjusted to equal (1) the
Purchase Price immediately prior to the adjustment multiplied by the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to the adjustment divided by (2) the number of shares for which this Warrant is
exercisable immediately after such adjustment.

                  A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 6.3 and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 6.5.

                  6.4      Treatment of Options and Convertible Securities. In
case the Company at any time or from time to time after the date hereof shall
issue, sell, grant or assume, or shall fix a record date for the determination
of holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue, sale, grant or assumption or, in case such a record date
shall have been fixed, as of the close of business on such record date (or, if
the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
Common Stock shall not be deemed to have been issued unless (i) the
consideration per share (determined pursuant to Section 6.6) of such shares
would be less than

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their Fair Value on the date of and immediately prior to such issue, sale, grant
or assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be, and (ii) such
Additional Shares of Common Stock are not purchasable pursuant to Rights
referred to in Section 6.10, and provided, further, that

                  (a)      whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued, no
further adjustment of the Purchase Price shall be made upon the subsequent issue
or sale of Convertible Securities or shares of Common Stock upon the exercise of
such Options or the conversion or exchange of such Convertible Securities;

                  (b)      if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or for any decrease or
increase in the number of Additional Shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof (by change of rate or otherwise), the
Purchase Price computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options, or the rights of conversion or exchange
under such Convertible Securities, which are outstanding at such time;

                  (c)      upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under any
such Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion or
exchange under which) shall not have been exercised, the Purchase Price computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such cancellation or
retirement, as the case may be), be recomputed as if:

                           (i)      in the case of Options for Common Stock or
                  Convertible Securities, the only Additional Shares of Common
                  Stock issued or sold were the Additional Shares of Common
                  Stock, if any, actually issued or sold upon the exercise of
                  such Options or the conversion or exchange of such Convertible
                  Securities and the consideration received therefor was the
                  consideration actually received by the Company for the issue,
                  sale, grant or assumption of all such Options, whether or not
                  exercised, plus the consideration actually received by the
                  Company upon such exercise, or for the issue or sale of all
                  such Convertible Securities which were actually converted or
                  exchanged, plus the additional consideration, if any, actually
                  received by the Company upon such conversion or exchange, and

                           (ii)     in the case of Options for Convertible
                  Securities, only the Convertible Securities, if any, actually
                  issued or sold upon the exercise of such

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                  Options were issued at the time of the issue or sale, grant or
                  assumption of such Options, and the consideration received by
                  the Company for the Additional Shares of Common Stock deemed
                  to have then been issued was the consideration actually
                  received by the Company for the issue, sale, grant or
                  assumption of all such Options, whether or not exercised, plus
                  the consideration deemed to have been received by the Company
                  (pursuant to Section 6.6) upon the issue or sale of such
                  Convertible Securities with respect to which such Options were
                  actually exercised;

                  (d)      no readjustment pursuant to subdivision (b) or (c)
above shall have the effect of increasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities; and

                  (e)      in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Purchase Price shall be made until the expiration
or exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in subdivision (c) above.

                  6.5      Treatment of Stock Dividends, Stock Splits, etc. If
at any time the Company shall:

                  (a)      take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,

                  (b)      subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or

                  (c)      combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, by a reverse stock split or otherwise,

                  then (i) the number of shares of Common Stock for which this
Warrant is exercisable immediately after the occurrence of any such event shall
be adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Purchase
Price shall be adjusted to equal (A) the Purchase Price multiplied by the number
of shares of Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares for which this
Warrant is exercisable immediately after such adjustment.

                  6.6      Computation of Consideration. For the purposes of
this Section 6,

                  (a)      the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,

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                           (i)      insofar as it consists of cash, be computed
                  at the amount of cash received by the Company, without
                  deducting any expenses paid or incurred by the Company or any
                  commissions or compensations paid or concessions or discounts
                  allowed to underwriters, dealers or others performing similar
                  services in connection with such issue or sale,

                           (ii)     insofar as it consists of property
                  (including securities) other than cash, be computed at the
                  Fair Value thereof at the time of such issue or sale, and

                           (iii)    in the case where Additional Shares of
                  Common Stock are issued or sold together with other stock or
                  securities or other assets of the Company for a consideration
                  which covers both, be the portion of such consideration so
                  received, computed as provided in clauses (i) and (ii) above,
                  allocable to such Additional Shares of Common Stock, such
                  allocation to be determined in the same manner that the Fair
                  Value of property not consisting of cash or securities is to
                  be determined as provided in the definition of "Fair Value"
                  herein;

                  (b)      Additional Shares of Common Stock deemed to have been
issued pursuant to Section 6.4, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share determined by
dividing

                           (i)      the total amount, if any, received and
                  receivable by the Company as consideration for the issue,
                  sale, grant or assumption of the Options or Convertible
                  Securities in question, plus the minimum aggregate amount of
                  additional consideration (as set forth in the instruments
                  relating thereto, without regard to any provision contained
                  therein for a subsequent adjustment of such consideration to
                  protect against dilution) payable to the Company upon the
                  exercise in full of such Options or the conversion or exchange
                  of such Convertible Securities or, in the case of Options for
                  Convertible Securities, the exercise of such Options for
                  Convertible Securities and the conversion or exchange of such
                  Convertible Securities, in each case computing such
                  consideration as provided in the foregoing subdivision (a),

                  by

                           (ii)     the maximum number of shares of Common Stock
                  (as set forth in the instruments relating thereto, without
                  regard to any provision contained therein for a subsequent
                  adjustment of such number to protect against dilution)
                  issuable upon the exercise of such Options or the conversion
                  or exchange of such Convertible Securities; and

                  (c)      Additional Shares of Common Stock deemed to have been
issued pursuant to Section 6.5, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.

                  6.7      Dilution in Case of Other Securities. In case any
Other Securities shall be issued or sold or shall become subject to issue or
sale upon the conversion or exchange of any stock (or Other Securities) of the
Company or to subscription, purchase or other acquisition

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pursuant to any Options issued or granted by the Company (or any such other
issuer or Person) for a consideration such as to dilute, on a basis consistent
with the standards established in the other provisions of this Section 6, the
purchase rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 6 with
respect to the Purchase Price and the number of shares purchasable upon Warrant
exercise shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrants, so as to protect the holders of the Warrants
against the effect of such dilution.

                  6.8      De Minimis Adjustments. If the amount of any
adjustment of the Purchase Price per share required pursuant to this Section 6
would be less than $.01, such amount shall be carried forward and the adjustment
with respect thereto made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate a change in the Purchase Price of at least $.01
per share. All calculations under this Warrant shall be made to the nearest .001
of a cent or to the nearest one-hundredth of a share, as the case may be.

                  6.9      Abandoned Dividend or Distribution. If the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution (which results in an
adjustment to the Purchase Price under the terms of this Warrant) and shall,
thereafter, and before such dividend or distribution is paid or delivered to
shareholders entitled thereto, legally abandon its plan to pay or deliver such
dividend or distribution, then any adjustment made to the Purchase Price and
number of shares of Common Stock purchasable upon Warrant exercise by reason of
the taking of such record shall be reversed, and any subsequent adjustments,
based thereon, shall be recomputed.

                  6.10     Shareholder Rights Plan. Notwithstanding the
foregoing, in the event that the Company shall distribute "poison pill" rights
pursuant to a "poison pill" shareholder rights plan (the "Rights"), the Company
shall, in lieu of making any adjustment pursuant to Section 6.2 or Section 6.3
hereof, make proper provision so that each Holder who exercises a Warrant after
the record date for such distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such exercise, in addition to
the shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.

                  6.11     Other Action Affecting Common Stock. In case at any
time or from time to time the Company shall take any action in respect of its
Common Stock, other than any action described in this Section 6 for which a
specific adjustment is provided, then, unless such action will not have a
materially adverse effect upon the rights of the Holder, the number of shares of

                                       11

<PAGE>

Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.

                  6.12     Adjustment of Purchase Price Only. The Purchase
Price, but not the number of Warrant Shares, shall be subject to adjustment as
provided in Paragraph 1.3 of the Registration Rights set forth in Exhibit A
hereto.

         SECTION 7.        Consolidation, Merger, Etc.

                  7.1      Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company after the date hereof shall (a)
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) permit any
other Person to consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Stock or Other Securities shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (c) transfer all or substantially all of its properties or assets
to any other Person in one or more related transactions, or (d) effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 6.2 or Section 6.3), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a shareholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Section 6.

                  7.2      Assumption of Obligations. Notwithstanding anything
contained in this Warrant, the Company shall not effect any of the transactions
described in clauses (a) through (d) of Section 7.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be required
to deliver any stock, securities, cash or property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to, and
reasonably satisfactory to, the Holder of this Warrant, (a) the obligations of
the Company under this Warrant (and if the Company shall survive the
consummation of such transaction, such assumption shall be in addition to, and
shall not release the Company from, any continuing obligations of the Company
under this Warrant, including Exhibit A hereto), (b) the obligation to deliver
to the Holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 7, the Holder may be
entitled to receive.

         SECTION 8.        Covenants of the Company. The Company covenants and
agrees that it shall reserve and set apart and have at all times, free from
preemptive rights, the number of authorized but unissued shares of Common Stock
deliverable upon the exercise in full of this

                                       12

<PAGE>

Warrant, and it shall have at all times any other rights or privileges provided
for therein sufficient to enable it at any time to fulfill all of its
obligations hereunder. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit the exercise in full of
this Warrant, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
shareholder approval and upon such approval, the Company shall reserve and keep
available such additional shares solely for the purpose of permitting the
exercise of this Warrant. The Company covenants and agrees that all shares of
Common Stock which shall be so issuable will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable, free and clear of any
liens, claims and restrictions (other than as provided herein).

         SECTION 9.        Notification by the Company.

                  9.1      Notice of Adjustments. Whenever the number of shares
of Common Stock or the class or type of stock or other property for which this
Warrant is exercisable, or whenever the price at which a share of such Common
Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant
to Section 6, the Company shall forthwith prepare a certificate to be executed
by the chief financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Company determined the Fair Value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 6.2 or Section 6.7(a)),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and describing the number and kind of any other shares of stock or
other property for which this Warrant is exercisable, if any, and any change in
the purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to the Holder in accordance with Section 10 The Company shall keep at
its office or agency designated pursuant to Section 10 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of a
Warrant designated by the Holder.

                  9.2      Notice of Certain Corporate Action. The Holder shall
be entitled to the same rights to receive notice of corporate action as any
holder of Common Stock.

         SECTION 10.       Notices. Any notice or other document required or
permitted to be given or delivered to the Holder shall be hand delivered or
delivered by nationally recognized overnight courier at, or sent by certified or
registered mail postage prepaid and return receipt requested to the Holder at
the last address shown on the books of the Company. Any notice or other document
required or permitted to be given or delivered to the Company shall be delivered
at, or sent by certified or registered mail to, the principal office of the
Company, at 8340 154th Avenue N.E., Redmond, Washington 98052, Attn: Chief
Executive Officer, or such other address as shall have been furnished to the
Holder by the Company. All such communications

                                       13

<PAGE>

shall be deemed to have been given or made when so delivered by hand, or one
business day after being sent by overnight delivery or five business days after
being so mailed.

         SECTION 11.       No Rights as Shareholders; Limitation of Liability.
This Warrant shall not entitle the Holder to any of the rights of a shareholder
of the Company except as expressly set forth herein. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant or purchase
shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability upon the Holder for
the Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

         SECTION 12.       Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without giving effect to the conflict of law provisions thereof.

         SECTION 13.       Miscellaneous. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.

         SECTION 14.       Registration Rights. This Warrant is subject to the
Registration Rights provisions contained in Exhibit A hereto. By accepting this
Warrant or receiving any benefits hereunder, the Holder, and each successor
Holder, hereby agrees to the provisions set forth in Exhibit A hereto.

                  [Remainder of page left intentionally blank.]

                                       14

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officer as of the 25th day of June, 2003.

                                            SCOLR INC.

                                            By:_________________________________
                                               Name:  Steven H. Moger
                                               Title: Chief Financial Officer

                                       15

<PAGE>

NOTICE OF EXERCISE

         The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
_________________ of the Company's Warrant Shares provided for therein and
requests that certificates for such Warrant Shares be issued in the name of*:

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print name, address, and social security number or employer
identification number)

and, if said number of Warrant Shares shall not be all the shares of Common
Stock purchasable thereunder, that a new Warrant certificate for the balance
remaining of the shares of Common Stock purchasable under the within Warrant be
registered in the name of the undersigned Warrantholder or his assignee as below
indicated and delivered to the address stated below.

         In order to induce the Company to give instructions to its transfer
agent to issue the shares of Common Stock being purchased upon exercise of the
Warrant, the undersigned hereby represents and warrants that undersigned is an
"accredited investor" as that term is defined in Regulation D under the
Securities Act of 1933, as amended.

Dated:   ________________, 20___

Name of Warrant holder or Assignee:

____________________________________
(please print)

Address:
____________________________________
____________________________________
____________________________________

Signature:__________________________________

Signature Guaranteed:  NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME
                       AS WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY
                       PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY
                       CHANGE WHATEVER, UNLESS THE WITHIN WARRANT HAS BEEN
                       ASSIGNED.

--------------------

* If other than the Holder specified on the within Warrant delivered with this
Notice of Exercise, the transfer is subject to compliance with applicable
securities laws and the payment by the Holder of any applicable transfer or
similar taxes.

                                       16

<PAGE>

                       IF WARRANT SHARES ARE TO BE ISSUED IN ANY NAME OTHER THAN
                       THAT OF THE REGISTERED HOLDER OF THE WITHIN WARRANT, THE
                       REGISTERED HOLDER'S SIGNATURE SHALL BE GUARANTEED BY A
                       COMMERCIAL BANK OR TRUST COMPANY OR BY A MEMBER FIRM OF
                       THE NEW YORK STOCK EXCHANGE.

                  [Remainder of page left intentionally blank.]

                                       17

<PAGE>

  FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(name and address of assignee must be printed or typewritten)

the within Warrant, hereby irrevocably constituting and appointing attorney to
transfer said Warrant on the books of the Company with full power of
substitution in the premises.

Dated: _________________________

Name of Warrantholder or Assignee:

___________________________
(please print)

Address:

___________________________

___________________________

___________________________

Signature: _______________________________
            SIGNATURE OF REGISTERED HOLDER

Signature Guaranteed:  NOTE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND
                       WITH THE NAME AS IT APPEARS UPON THE FACE OF THE WITHIN
                       WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR
                       ENLARGEMENT OR ANY CHANGE WHATEVER. SUCH SIGNATURE SHALL
                       BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR BY
                       A MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE.

                                       18

<PAGE>

                                                            EXHIBIT A TO WARRANT

                               REGISTRATION RIGHTS

                  The following provisions are a part of the Warrant (the
"Warrant") to purchase shares of Common Stock of SCOLR, Inc. that was initially
issued to _____________________ in June 2003, and any warrant, in substantially
the same form as the Warrant, that is issued to any Person who or which becomes
a Holder as permitted by the Warrant. References to the "Warrant" include each
such subsequently issued Warrant. As used below, the "Issuer" means SCOLR, Inc.
All capitalized terms below shall have the same meanings as in the Warrant,
unless otherwise defined. Paragraph references below are to the paragraphs of
this Exhibit A.

                              REGISTRATION RIGHTS.

(a)      As soon as possible after the Final Closing Date (as defined in the
Issuer's Confidential Private Placement Memorandum dated June 13, 2003 in
connection with which the Warrant was issued (the "Memorandum")), but in no
event later than sixty (60) days after the Final Closing Date, the Issuer shall,
at its sole cost and expense, file a registration statement on the appropriate
form under the Securities Act with the Commission covering the resale of all of
the Warrant Shares (collectively, the "Registrable Securities"), time being of
the essence. The Issuer will use its best efforts to have such registration
statement declared effective as soon as possible thereafter, and shall keep such
registration statement current and effective for at least three (3) years from
the Final Closing Date (as defined in the Memorandum), subject to extension for
the number of days by which the filing or effectiveness of the registration
statement is delayed beyond the 60 and 150-day periods contemplated in this
subsection (a), or until such earlier date as all of the Registrable Securities
registered pursuant to such registration statement shall have been sold or
otherwise transferred. If the registration statement is not filed within such
sixty (60) days, the Purchase Price shall be reduced (and concomitantly, the
number of Warrant Shares shall increase) by the percentage resulting from
multiplying three percent (3%) by the number of thirty (30) day periods, or any
part thereof, beyond such sixty (60) day period until the registration statement
covering the Registrable Securities is filed with the Commission.
Notwithstanding anything to the contrary contained herein, and in addition to
the adjustments set forth in the preceding sentence, if the registration
statement shall not be declared effective within 150 days after the Final
Closing Date, then the Purchase Price shall be reduced (and concomitantly the
number of shares of Common Stock issuable upon the exercise of the Warrant shall
increase) by the percentage resulting from multiplying two percent (2%) by the
number of thirty (30) day periods, or any part thereof, beyond the 150-day
period until the registration statement described herein covering the
Registrable Securities is declared effective. Notwithstanding the foregoing, the
Purchase Price shall not be reduced pursuant to this subsection (a) by more than
thirty-six percent (36%) in the aggregate.

                           (b)      In the event the Issuer effects any
registration under the Securities Act of any Registrable Securities pursuant to
subsection (a) above or subsection (g) below, the Issuer shall indemnify, to the
extent permitted by law, and hold harmless any Holder whose Registrable
Securities are included in such registration statement (each, a "Seller"), any
underwriter, any officer, director, employee or agent of any Seller or
underwriter, and each other

                                       A-1

<PAGE>

person, if any, who controls any Seller or underwriter within the meaning of
Section 15 of the Securities Act, against any losses, claims, damages or
liabilities, judgment, fines, penalties, costs and expenses, joint or several,
or actions in respect thereof (collectively, the "Claims"), to which each such
indemnified party becomes subject, under the Securities Act or otherwise,
insofar as such Claims arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or any amendment or supplement thereto or any document
filed under a state securities or blue sky law (collectively, the "Registration
Documents") or insofar as such Claims arise out of or are based upon the
omission or alleged omission to state in any Registration Document a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, and will reimburse any such indemnified party for any
legal or other expenses reasonably incurred by such indemnified party in
investigating or defending any such Claim; provided, however, that the Issuer
shall not be liable in any such case to the extent such Claim is based upon an
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission of a material fact made in any Registration Document in
reliance upon and in conformity with written information furnished to the Issuer
by or on behalf of any indemnified party specifically for use in the preparation
of such Registration Document.

                           (c)      In connection with any registration
statement in which any Seller is participating, each Seller, severally and not
jointly, shall indemnify, to the extent permitted by law, and hold harmless the
Issuer, each of its directors, each of its officers who have signed the
registration statement, each other person, if any, who controls the Issuer
within the meaning of Section 15 of the Securities Act, each other Seller and
each underwriter, any officer, director, employee or agent of any such other
Seller or underwriter and each other person, if any, who controls such other
Seller or underwriter within the meaning of Section 15 of the Securities Act
against any Claims to which each such indemnified party may become subject under
the Securities Act or otherwise, insofar as such Claims (or actions in respect
thereof) are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Document, or insofar as any Claims
are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such claim; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Issuer by the Seller specifically for use in the
preparation thereof.

                           (d)      Any person entitled to indemnification under
subsection (b) or subsection (c) above shall notify promptly the indemnifying
party in writing of the commencement of any Claim if a claim for indemnification
in respect thereof is to be made against an indemnifying party under this
subsection (d), but the omission of such notice shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under subsection (b) or subsection (c) above, except to the
extent that such failure shall materially adversely affect any indemnifying
party or its rights hereunder. In case any action is brought against the
indemnified party and it shall notify the indemnifying party of the

                                       A-2

<PAGE>

commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it chooses, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; and, after notice from
the indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the Claim within twenty (20) days after receiving notice from the
indemnified party that the indemnified party believes it has failed to do so;
(ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, however, that no
indemnifying party shall be subject to any liability for any settlement of a
Claim made without its consent (which may not be unreasonably withheld, delayed
or conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party (which consent may not be unreasonably withheld, delayed
or conditioned).

                           (e)      If for any reason the indemnity provided in
subsection (b) or subsection (c) above is unavailable, or is insufficient to
hold harmless, an indemnified party, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result of
any Claim in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other from the transactions contemplated by this Note. If, however, the
allocation provided in the immediately preceding sentence is not permitted by
applicable law, or if the indemnified party failed to give the notice required
by subsection (d) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. Notwithstanding the foregoing, no
underwriter or controlling person thereof, if any, shall be required to
contribute, in respect of such underwriter's participation as an underwriter in
the offering, any amount in excess of the amount

                                       A-3

<PAGE>

by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this subsection (e) shall be several in
proportion to their respective underwriting commitments and not joint.

                           (f)      The provisions of subsections (b) through
(e) hereof shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.

                           (g)      If the registration requirements of
subsection (a) above have not been fulfilled, and the registration statement as
filed pursuant to subsection (a) above is not then effective, then the Holder
shall have certain "piggy-back" registration rights as set forth in this
subsection (g).

                                    A.      If at any time after the Initial
Closing Date (as defined in the Memorandum), the Issuer shall file with the
Commission a registration statement under the Securities Act registering any
shares of Common Stock owned by any person or entity, the Issuer shall give
written notice to the Holder thereof prior to such filing.

                                    B.      Within fifteen (15) days after such
notice from the Issuer, the Holder shall give written notice to the Issuer
whether or not the Holder desires to have all of the Holder's Registrable
Securities included in the registration statement. If the Holder fails to give
such notice within such period, the Holder shall not have the right to have such
Holder's Registrable Securities registered pursuant to such registration
statement. If the Holder gives such notice, then the Issuer shall include such
Holder's Registrable Securities in the registration statement, at the Issuer's
sole cost and expense, subject to the remaining terms of this subsection (g).

                                    C.      If the registration statement
relates to an underwritten offering, and the underwriter shall determine in
writing that the total number of shares of Common Stock to be included in the
offering, including the Registrable Securities, shall exceed the amount which
the underwriter deems to be appropriate for the offering, the number of shares
of the Registrable Securities shall be reduced in the same proportion as the
remainder of the shares in the offering and the Holder's Registrable Securities
included in such registration statement will be reduced proportionately. For
this purpose, if other securities in the registration statement are derivative
securities, their underlying shares shall be included in the computation. The
Holder shall enter into such agreements as may be reasonably required by the
underwriters and the Holder shall pay to the underwriters commissions relating
to the sale of its Registrable Securities.

                                       A-4

<PAGE>

                                    D.      The Holder shall have two (2)
opportunities to have the Registrable Securities registered under this
subsection (g).

                                    E.      The Holder shall furnish in writing
to the Issuer such information as the Issuer shall reasonably require in
connection with a registration statement.

                                    F.      The Issuer shall keep the
registration statement filed pursuant to this subsection (g) current and
effective for at least three (3) years from the Final Closing Date, subject to
extension for the number of days by which the filing or effectiveness of the
registration statement is delayed beyond the 60 and 150-day periods contemplated
in subsection (a) of this Exhibit A, or until such earlier date as all of the
Registrable Securities registered pursuant to such registration statement shall
have been sold or otherwise transferred.

                           (h)      If and whenever the Issuer is required by
the provisions of this Exhibit A to use its best efforts to register any
Registrable Securities under the Securities Act, the Issuer shall, as
expeditiously as possible under the circumstances:

                                    A.      Prepare and file with the Commission
a registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective as soon as
possible and remain effective.

                                    B.      Prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement current and to comply with the provisions of the
Securities Act, and any regulations promulgated thereunder, with respect to the
sale or disposition of all Registrable Securities covered by the registration
statement required to effect the distribution of the securities, but in no event
shall the Issuer be required to do so for a period of more than three (3) years
following the effective date of the registration statement.

                                    C.      Furnish to the Sellers participating
in the offering, copies (in reasonable quantities) of summary, preliminary,
final, amended or supplemented prospectuses, in conformity with the requirements
of the Securities Act and any regulations promulgated thereunder, and other
documents as reasonably may be required in order to facilitate the disposition
of the securities, but only while the Issuer is required under the provisions
hereof to keep the registration statement current.

                                    D.      Use its best efforts to register or
qualify the Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions of the United
States as the Sellers participating in the offering shall reasonably request,
and do any and all other acts and things which may be reasonably necessary to
enable each participating Seller to consummate the disposition of the
Registrable Securities in such jurisdictions.

                                    E.      Notify each Seller selling
Registrable Securities, at any time when a prospectus relating to any such
Registrable Securities covered by such registration statement is required to be
delivered under the Securities Act, of the Issuer's becoming aware that

                                      A-5

<PAGE>

the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and promptly
prepare and furnish to each such Seller selling Registrable Securities a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

                                    F.      As soon as practicable after the
effective date of the registration statement, and in any event within eighteen
(18) months thereafter, make generally available to Sellers participating in the
offering an earnings statement (which need not be audited) covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the registration statement which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act, including, at the Issuer's option, Rule
158 thereunder. To the extent that the Issuer files such information with the
Commission in satisfaction of the foregoing, the Issuer need not deliver the
above referenced earnings statement to Seller.

                                    G.      Upon request, deliver promptly to
counsel of each Seller participating in the offering copies of all
correspondence between the Commission and the Issuer, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each such Seller to do such
investigation at such Seller's sole cost and expense, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary. Each Seller agrees that
it will use its best efforts not to interfere unreasonably with the Issuer's
business when conducting any such investigation and each Seller shall keep any
such information received pursuant to this subsection (h)G confidential.

                                    H.      Provide a transfer agent and
registrar located in the United States for all such Registrable Securities
covered by such registration statement not later than the effective date of such
registration statement.

                                    I.      If required, list the Registrable
Securities covered by such registration statement on such exchanges, NASDAQ,
and/or the OTC Bulletin Board on which the Common Stock is then currently
listed.

                                    J.      Pay all Registration Expenses (as
hereinafter defined) incurred in connection with a registration of Registrable
Securities, whether or not such registration statement shall become effective.
All expenses incurred by the Issuer in complying with this Exhibit A, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Issuer
and all other Persons retained by the Issuer in connection with such
Registration Statement, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, transfer
taxes and fees of transfer agents and registrars, fees and disbursements (in
total not exceeding $10,000) of one counsel, other than the Issuer's counsel,

                                       A-6

<PAGE>

representing the Holders of all of the Registrable Shares and selected by such
Holders, and fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Shares are called "Selling Expenses". The
Issuer will pay all Registration Expenses in connection with the Registration
Statement. All Selling Expenses in connection with the Registration Statement
shall be borne by the participating sellers in proportion to the number of
shares sold by each, or by such participating sellers other than the Issuer
(except to the extent the Issuer shall be a seller) as they may agree.

                           (i)      The Issuer acknowledges that there is no
adequate remedy at law for failure by it to comply with the provisions of this
Exhibit A and that such failure would not be adequately compensable in damages,
and therefore agrees that its agreements contained in this Exhibit A may be
specifically enforced. In the event that the Issuer shall fail to file such
registration statement when required pursuant to subsection (a) above or to keep
any registration statement effective as provided in this Exhibit A or otherwise
fails to comply with its obligations and agreements in this Exhibit A, then, in
addition to any other rights or remedies the Holder may have at law or in
equity, including without limitation, the right of rescission, the Issuer shall
indemnify and hold harmless the Holder from and against any and all manner or
loss which they may incur as a result of such failure. In addition, the Issuer
shall also reimburse the Holder for any and all reasonable legal fees and
expenses incurred by the Holder in enforcing the Holder's rights pursuant to
this Exhibit A, regardless of whether any litigation was commenced.

                                       A-7<PAGE>
                                                                    EXHIBIT 10.4

                                   SCOLR, INC.

                       CONVERTIBLE NOTE PURCHASE AGREEMENT

         This Convertible Note Purchase Agreement (the "Agreement") is made as
of the 25th day of June, 2003 by and between SCOLR, INC., a Delaware corporation
(the "Company") and the investors listed on Exhibit A attached hereto (each a
"Purchaser" and together the "Purchasers"), and is being entered into in
connection with the transaction contemplated by the Company's Confidential
Private Placement Memorandum (the "Memorandum"), dated as of June 13, 2003.

         The parties hereby agree as follows:

         1.       PURCHASE AND SALE OF NOTES.

                  1.1      SALE AND ISSUANCE OF NOTES.

                           (a)      Subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase at the Closing and the Company
agrees to sell and issue to each Purchaser at the Closing a Convertible Note,
in the form attached to the Memorandum as Exhibit A, in the principal amount
set forth opposite each such Purchaser's name on Exhibit A hereto. Each
Convertible Note will be dated the date of the Closing and will be one of a
duly authorized issue of notes of the Company designated as "6.0% Convertible
Note Due June __, 2006" (with such blank being the third anniversary of the
Initial Closing Date, as defined in the Memorandum), limited in aggregate
principal amount to $5,500,000. The aggregate purchase price for each
Purchaser's respective Convertible Note is equal to the principal amount of the
Convertible Note to be issued to such Purchaser. Each Convertible Note issued
to the Purchasers pursuant to this Agreement shall be hereinafter referred to
as a "Note" and referred to collectively as the "Notes".

                           (b)      If at least $3,000,000 but less than all of
the authorized principal amount of the Notes is sold at the Closing, then,
subject to the terms and conditions of this Agreement, the Company may sell, on
or before the termination or expiration of the offering of the Notes as
provided in the Memorandum, up to the balance of the authorized principal
amount of the Notes to such persons as the officers of the Company may
determine. Any such sale shall be made upon the same terms and conditions as
those contained herein and such persons or entities shall become parties to
this Agreement. The parties hereto agree that any additional purchaser so
acquiring Notes shall be considered a "Purchaser" for purposes of this
Agreement and any Notes so acquired by such additional purchasers shall be
considered "Notes" for purposes of this Agreement and all other agreements
contemplated hereby.

                  1.2      CLOSING; DELIVERY.

                           (a)      The purchase and sale of the Notes shall
take place at the offices of Fischbein Badillo Wagner Harding, 909 Third Avenue,
New York, New York, at 10:00 a.m., on June 25, 2003, or at such other time and
place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "Closing").

<PAGE>

                           (b)      At the Closing, the Company shall deliver to
each Purchaser a fully executed Note against payment of the purchase price
therefor by check payable to the Company or by wire transfer to the Company's
bank account.

         2.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Purchaser that:

                  2.1      ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has the requisite corporate power
to own its properties and to carry on its businesses as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted by
it makes such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (i) the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, taken as a whole, or (ii) on the ability of the
Company to perform its obligations hereunder, or under the Notes.

                  2.2      CAPITALIZATION. The authorized and/or issued capital
of the Company consists, or will consist, immediately prior to the Closing, of:

                           (a)      5,000,000 shares of authorized Preferred
Stock, 30,000 shares of which have been designated Series A Junior Participating
Preferred Stock, none of which shares are issued and outstanding immediately
prior to the Closing.

                           (b)      50,000,000 authorized shares of Common
Stock. As of May 30, 2003, 21,278,114 shares of Common Stock were issued and
outstanding, which number has not changed prior to Closing other than to reflect
stock option exercises. All of the outstanding shares of Common Stock have been
duly authorized, fully paid and are nonassessable.

                           (c)      The Company has reserved 3,226,913 shares of
its Common Stock for issuance pursuant to the Company's 1995 Stock Option Plan.
As of May 30, 2003, the Company had outstanding options and warrants to purchase
3,866,254 shares of its Common Stock, which number has not changed prior to
Closing other than to reflect stock option exercises.

                           (d)      There are no other outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any shares of its capital stock.

                  2.3      NO GENERAL SOLICITATION. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act of 1933 (the "Securities Act")) in
connection with the offer or sale of any of the Notes; provided, however,

                                        2

<PAGE>

that no representation or warranty is made regarding the activities of the
Placement Agent referred to in the Memorandum.

                  2.4      AUTHORIZATION. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Notes
(collectively, the "Transaction Documents"), the performance of all obligations
of the Company hereunder and thereunder and the authorization, issuance and
delivery of the shares of Common Stock issuable upon conversion of the Notes
(the "Conversion Shares") has been taken or will be taken prior to the Closing,
and the Transaction Documents, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.

                  2.5      VALID ISSUANCE. The Notes will be issued in
compliance with all applicable federal and state securities laws. The Conversion
Shares have been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Notes, shall be duly and validly issued, fully
paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under applicable federal and state securities laws and
will be issued in compliance with all applicable federal and state securities
laws.

                  2.6      GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings, if any, required pursuant to
applicable state securities laws, which filings will be made within the required
statutory period, and the filing pursuant to Regulation D of the Securities Act,
which will be effected within fifteen (15) days following the Closing, if
required.

                  2.7      LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, arbitrator, public board,
government agency or self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or its
directors or officers, or the Company's Common Stock, wherein an unfavorable
decision, ruling or finding could individually or in the aggregate have a
Material Adverse Effect.

                  2.8      INTELLECTUAL PROPERTY. To its knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes necessary for its business without any conflict
with, or infringement of, the rights of others. Other than with respect to a
claim by Lehigh Valley Technologies, which the Company believes could be
resolved without a Material Adverse Effect, the Company has not received any
communications alleging that the Company has violated or, by conducting its
business, would violate any of the patents,

                                        3

<PAGE>

trademarks, service marks, tradenames, copyrights, trade secrets or other
proprietary rights or processes of any other person or entity.

                  2.9      COMPLIANCE WITH OTHER INSTRUMENTS.

                           (a)      The Company is not in violation or default
of any provisions of its Certificate of Incorporation or Bylaws or of any
material instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.

                           (b)      To its knowledge, the Company has avoided
every condition, and has not performed any act, the occurrence of which would
result in the Company's loss of any right granted under any material license,
distribution agreement or other agreement.

                  2.10     CERTAIN TRANSACTIONS. Except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and, other than as disclosed in the Company's filings with the
Securities and Exchange Commission ("SEC"), none of the officers, directors or
employees of the Company is presently a party to any material transaction with
the Company, including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.

                  2.11     ENVIRONMENTAL LAWS. The Company (i) is in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required under applicable Environmental Laws to conduct its
businesses and (iii) is in compliance with all terms and conditions of any such
permit, license or approval.

                  2.12     INSURANCE. The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as is prudent and customary in the businesses in which the Company is
engaged. The Company does not have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.

                                        4

<PAGE>

                  2.13     TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances except for security interests granted to Access Capital and Clyde
Berg, relating to loans up to an aggregate principal amount of $2,100,000, and
such other encumbrances and liens which arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.

                  2.14     SEC REPORTS AND MEMORANDUM. Since January 1, 2002,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC, or the
Memorandum contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). Since December
31, 2002, there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition or
results of operations of the Company.

                  2.15     EMPLOYMENT MATTERS. The Company is in compliance with
all federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or, to the Company's knowledge, threatened
against or involving the Company. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining

                                        5

<PAGE>

agreements of the Company. No material labor dispute with the employees of the
Company exists or, to the knowledge of the Company, is imminent. Except for
401(k) plans, the Company has no employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended.

                  2.16     TAX RETURNS AND PAYMENTS. The Company has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

                  2.17     LABOR AGREEMENTS AND ACTIONS. The Company is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of the Company. There
is no strike or other labor dispute involving the Company pending, or to the
knowledge of the Company threatened, which could have a material adverse effect
on the assets, properties, financial condition, operating results, or business
of the Company, nor is the Company aware of any labor organization activity
involving its employees. The employment of each officer and employee of the
Company is terminable at the will of the Company. To its knowledge, the Company
has complied in all material respects with all applicable state and federal
equal employment opportunity laws and with other laws related to employment.

                  2.18     INTERNAL AUDITING CONTROLS. The Company maintains a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

                  2.19     PERMITS. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business,
the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.

                                        6

<PAGE>

         3.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby represents and warrants to the Company that:

                  3.1      AUTHORIZATION. The Purchaser has full power and
authority to enter into this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of the Purchaser. This
Agreement, when executed and delivered by the Purchaser, will constitute valid
and legally binding obligations of the Purchaser, enforceable in accordance with
their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not result in any violation, be in conflict with or constitute a default, with
or without the passage of time and giving of notice, under any provision of the
organizational documents of such Purchaser or any material contract or agreement
to which such Purchaser is a party.

                  3.2      PURCHASE ENTIRELY FOR OWN ACCOUNT. The Note to be
acquired by the Purchaser, and the Conversion Shares, will be acquired for
investment for the Purchaser's own account, and not with a view to the resale or
distribution of any part thereof, and the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, the Purchaser further represents that the Purchaser
does not presently have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to the Note and the Conversion Shares. The Purchaser
has not been formed for the specific purpose of acquiring the Note.

                  3.3      DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs
with the Company's management and has had an opportunity to review the Company's
operations. The Purchaser understands that such discussions, as well as any
written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
The Purchaser understands that a purchase of the Note involves a high degree of
risk, and there can be no assurance that the Company's business objectives will
be obtained.

                  3.4      RESTRICTED SECURITIES. The Purchaser understands that
the Note has not been, and will not be, registered under the Securities Act, by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the accuracy of the
Purchaser's representations as expressed herein. The Purchaser understands that
the Note and the Conversion Shares constitute "restricted securities" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, the Purchaser must hold the Note, and the Conversion Shares, indefinitely
unless it is registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Note, or the Conversion
Shares, for resale except as provided in any of the Transaction Documents. The
Purchaser further acknowledges that if an

                                        7

<PAGE>

exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale and the holding period for the Note and the Conversion Shares, and on
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.

                  3.5      NO PUBLIC MARKET. The Purchaser understands that no
public market now exists for the Note, and that the Company has made no
assurances that a public market will ever exist for the Note.

                  3.6      ACCREDITED INVESTOR STATUS. The Purchaser is an
"accredited investor" as defined in Regulation D under the Securities Act and
has delivered to the Company an Investor Questionnaire, in the form included in
the subscription document booklet provided with the Memorandum, completed and
signed by the Purchaser. The answers provided by the Purchaser in such Investor
Questionnaire are true and correct.

         4.       CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

                  4.1      REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company contained in Section 2 shall be true and correct
in all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.

                  4.2      PERFORMANCE. The Company shall have performed and
complied with all covenants, agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.

                  4.3      QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Note pursuant to this Agreement shall be obtained and effective
as of the Closing.

                  4.4      NOTE. The Company shall have executed and delivered
to the Purchaser the Note in the form attached to the Memorandum as Exhibit A.

                  4.5      OPINION OF COMPANY COUNSEL. The Purchasers shall have
received from Garvey Schubert Barer, counsel for the Company, an opinion, dated
as of the Closing, in form reasonably satisfactory to counsel for the Placement
Agent.

         5.       CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

                  5.1      REPRESENTATIONS AND WARRANTIES. The representations
and warranties of each Purchaser contained in Section 3 shall be true and
correct in all material respects on and as

                                        8

<PAGE>

of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.

                  5.2      PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.

                  5.3      QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Note pursuant to this Agreement shall be obtained and effective
as of the Closing.

         6.       MISCELLANEOUS.

                  6.1      SURVIVAL OF WARRANTIES. Unless otherwise set forth in
this Agreement, the warranties, representations and covenants of the Company and
the Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of one (1)
year following the Closing.

                  6.2      TRANSFER; SUCCESSORS AND ASSIGNS. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

                  6.3      GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
law.

                  6.4      COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

                  6.5      TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

                  6.6      NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed to the party to be notified at
such party's address as set forth on the signature page or Exhibit A hereto, or
as subsequently modified by written notice, and (a) if to the Company, with a
copy to Garvey Schubert Barer, 1191 Second Avenue, 18th Floor, Seattle,
Washington 98101, Attn: Alan Mitchel, Esq. or (b) if to the Purchasers, with a
copy to Taglich Brothers, Inc., 700 New York Avenue, Huntington,

                                        9

<PAGE>

New York 11743, Attn: Michael Taglich, and a copy to Fischbein Badillo Wagner
Harding, 909 Third Avenue, New York, New York 10022, Attn: Joseph D. Alperin,
Esq.

                  6.7      FINDER'S FEE. Each party represents that, except for
certain agency fees and warrants to Taglich Brothers, Inc., it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

                  6.8      AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended or waived only with the written consent of the Company and the
holders of at least a majority of the principal amount of the Notes. Any
amendment or waiver effected in accordance with this Section 6.8 shall be
binding upon the Purchasers and each transferee of the Notes (or the Conversion
Shares), each future holder of all such securities, and the Company.

                  6.9      DELAYS OR OMISSIONS. No delay or omission to exercise
any right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.

                  6.10     ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements relating to the subject matter hereof existing between the parties
hereto are expressly canceled.

                  6.11     EXCULPATION AMONG PURCHASERS. Each Purchaser
acknowledges that it is not relying upon any person, firm or corporation, other
than the Company and its officers and directors, in making its investment or
decision to invest in the Company. Each Purchaser agrees that no Purchaser nor
the respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Notes.

                                       10

<PAGE>

The parties have executed this Note Purchase Agreement as of the date first
written above.

                                            COMPANY:

                                            SCOLR, INC.

                                            By: /s/
                                                ________________________________
                                            Name:  David T. Howard

                                            Title: President & CEO

                                            Address: 8340 154th Avenue N.E.
                                                     Redmond, Washington 98052

                                       11

<PAGE>

The parties have executed this Note Purchase Agreement as of the date first
written above.

                                            PURCHASERS:

                                            IF AN ENTITY: Name of Entity:

                                            By:_________________________________

                                            Name:_______________________________
                                                            (print)

                                            Title:______________________________

                                            Address:

                                            Taxpayer Identification Number:

                                            IF AN INDIVIDUAL:

                                            ____________________________________

                                            Signature

                                            Name:_______________________________
                                                             (print)

                                            Address:

                                            Social Security Number

                                       12

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