COMMON STOCK PURCHASE
WARRANT
To Purchase
Shares of Common Stock of
THIS COMMON STOCK
PURCHASE WARRANT (the “ Warrant ”) certifies
that, for value received,
[ ]
(the “ Holder ”), is entitled, upon the terms
and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the
“ Initial Exercise Date ”) and on or prior to
the close of business on the five year anniversary of the issuance
of this Warrant (the “ Termination Date ”) but
not thereafter, to subscribe for and purchase from EpiCept
Corporation, a Delaware corporation (the “ Company
”), up to
[ ]
shares (the “ Warrant Shares ”) of Common Stock,
par value $0.0001 per share, of the Company (the “ Common
Stock ”). The purchase price of one share of Common Stock
under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section 1 . Definitions . Capitalized terms used
and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “
Purchase Agreement ”), dated August 1, 2008,
among the Company and the purchasers signatory thereto.
(a)
Exercise of Warrant . Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at
any time or times on or after the Initial Exercise Date and on or
before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed
hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company), and,
within three (3) Trading Days of the date said Notice of
Exercise is delivered to the Company, the Company shall have
received payment of the aggregate Exercise Price for the shares
thereby purchased under the cashless exercise provisions set forth
in Section 2(c) below. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of
the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this
Warrant to the Company for cancellation within three
(3) Trading Days of the date the final Notice of Exercise is
delivered to the Company. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases.
The Company shall deliver any objection to any Notice of Exercise
Form within 1 Business Day of receipt of such notice. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph,
following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on
the face hereof.
(b)
Exercise Price . The exercise price per share of the Common
Stock under this Warrant shall be $0.48, subject to adjustment
hereunder (the “ Exercise Price ”).
(c)
Cashless Exercise . If at any time after the Initial
Exercise Date there is no effective Registration Statement
registering, or no current prospectus available for, the issuance
of the Warrant Shares to the Holder (it being understood that the
Company is under no obligation to file, have declared effective or
maintain the effectiveness of such a Registration Statement or
current prospectus and shall have no liability to the Holder in the
event that there is no effective Registration Statement or current
prospectus), then this Warrant may only be exercised at such time
by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B)
(X)] by (A), where:
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(A)
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the VWAP on the Trading Day immediately preceding the date of such
election;
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(B)
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=
the Exercise Price of this Warrant, as adjusted; and
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(X)
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=
the number of Warrant Shares issuable upon exercise of this Warrant
in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.
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“
VWAP ” means, for any date, the price determined by
the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the
daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which
the Common Stock is then listed or quoted for trading as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time); (b) if
the OTC Bulletin Board is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the “Pink
Sheets” published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to
the Company.
“
Trading Day ” means a day on which the Common Stock is
traded on a Trading Market.
“
Trading Market ” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the American Stock Exchange, the New York
Stock Exchange, The Nasdaq Global Market, The Nasdaq Capital Market
or the OTC Bulletin Board.
Notwithstanding
anything herein to the contrary, on the Termination Date, this
Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
(d)
Exercise Limitations . The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2(c) or
otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise,
such Holder (together with such Holder’s Affiliates, and any
other person or entity acting as a group together with such Holder
or any of such Holder’s Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such
Holder or any of its
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Affiliates and
(B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by such Holder or any of its affiliates. Except
as set forth in the preceding sentence, for purposes of this
Section 2(d)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder, it being acknowledged by a
Holder that the Company is not representing to such Holder that
such calculation is in compliance with Section 13(d) of the
Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the
extent that the limitation contained in this Section 2(d) applies,
the determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with any
Affiliates) and of which a portion of this Warrant is exercisable
shall be in the sole discretion of a Holder, and the submission of
a Notice of Exercise shall be deemed to be each Holder’s
determination of whether this Warrant is exercisable (in relation
to other securities owned by such Holder together with any
Affiliates) and of which portion of this Warrant is exercisable, in
each case subject to such aggregate percentage limitation, and the
Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company’s most recent Form 10-Q
or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two (2) Trading
Days confirm orally and in writing to such Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock
was reported. The “ Beneficial Ownership Limitation
” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant. The
Beneficial Ownership Limitation provisions of this
Section 2(d)(i) may be waived by such Holder, at the election
of such Holder, upon not less than 61 days’ prior notice
to the Company to change the Beneficial Ownership Limitation to
9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common
Stock upon exercise of this Warrant, and the provisions of this
Section 2(d) shall continue to apply. Upon such a change by a
Holder of the Beneficial Ownership Limitation from such 4.99%
limitation to such 9.99% limitation, the Beneficial Ownership
Limitation may not be further waived by such Holder. The provisions
of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this
Section 2(d)(i) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to
such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Warrant.
(e)
Mechanics of Exercise .
(i)
Authorization of Warrant Shares . The Warrant Shares are
reserved for issuance, the Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens
and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring
contemporaneously with such issue).
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(ii) Delivery
of Certificates Upon Exercise . Certificates for shares
purchased hereunder shall be transmitted by the transfer agent of
the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission (“
DWAC ”) system if the Company is a participant in such
system, and otherwise by physical delivery to the address specified
by the Holder in the Notice of Exercise within three
(3) Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant (if required)
and payment of the aggregate Exercise Price as set forth above
(“ Warrant Share Delivery Date ”). This Warrant
shall be deemed to have been exercised on the date the Exercise
Price is received by the Company. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date
the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all
taxes required to be paid by the Holder, if any, pursuant to
Section 2(e)(vii) prior to the issuance of such shares, have been
paid. If the Company fails for any reason to deliver to the Holder
certificates evidencing the Warrant Shares subject to a Notice of
Exercise by the Warrant Share Delivery Date, the Company shall pay
to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of Warrant Shares subject to such exercise (based
on the VWAP of the Common Stock on the date of the applicable
Notice of Exercise), $2 per Trading Day (increasing to $4 per
Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such Warrant Share
Delivery Date until such certificates are delivered.
(iii) Delivery
of New Warrants Upon Exercise . If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
(iv) Rescission
Rights . If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing
the Warrant Shares pursuant to this Section 2(e)(iv) by the
Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.
(v)
Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise . In addition to any other rights
available to the Holder, if the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the
Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a “
Buy-In” ), then the Company shall (1) pay in cash
to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares that
the Company was required to deliver to the Holder in connection
with the exercise at issue times (B) the price at which the
sell order giving rise to such purchase obligation was executed,
and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery
obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted exercise of shares
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of Common Stock
with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing
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