EXHIBIT 99.7
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
WARRANT NO. 2
THIS CERTIFIES THAT, for value received FKA DISTRIBUTING CO., d/b/a
HOMEDICS, INC., a Michigan corporation or its assigns ("HOMEDICS" or "Holder")
is entitled to, upon the occurrence of the events and within the time frame set
forth in Section 2 below, but not thereafter, to subscribe for, purchase and
receive up to six million seven hundred forty-six thousand one hundred
seventy-one (6,746,171) fully paid and non-assessable shares of the common stock
(the "COMMON STOCK") of KRONOS ADVANCED TECHNOLOGIES, INC., a Nevada corporation
(the "COMPANY"), at a purchase price per share (the "EXERCISE PRICE") as set
forth in Section 1 below, upon the terms and subject to the conditions set forth
in this Warrant. Such number of shares, type of security and Exercise Price are
subject to adjustment as provided herein, and all references to "Common Stock"
and "Exercise Price" herein shall be deemed to include any such adjustment or
series of adjustments. This Warrant is issued by the Company pursuant to the
terms of a Master Loan and Investment Agreement between the Company and HoMedics
dated May 9, 2003 (the "LOAN AGREEMENT").
1. EXERCISE PRICE.
Subject to adjustments as provided herein, the Exercise Price per
share of Common Stock subject to this Warrant shall be equal to $0.10 per share.
2. EXERCISE OF WARRANT.
(a) EVENTS TRIGGERING EXERCISE OF WARRANT. This Warrant shall
become exercisable if and only if: (i) the Company does not pay the $2.4 Million
and $1.0 Million Secured Promissory Notes issued under the Loan Agreement in
full on or before November 8, 2005; (ii) the Company is in default under any of
the Investment Documents (as defined in the Loan Agreement) or (iii) the Company
does not earn, during the period from the date of the Loan Agreement to November
8, 2005, Revenues in an aggregate amount equal to or greater than $3,500,000.
For purposes of this Warrant, "Revenues" means the gross cash receipts of any
contractual relationship representing a license or sale of the Kronos technology
to any third party or parties (other than proceeds from the License Agreement,
without taking into account any amendment thereof). Revenues shall not include
revenues which the Company earns from research and development contracts.
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(b) EXPIRATION DATE; PROCEDURE FOR EXERCISE. If this Warrant becomes
exercisable in accordance with Section 2(a), the Holder may exercise the
Warrant, in whole or in part, from the date it becomes exercisable to May 9,
2013 (the "EXPIRATION DATE"). The Holder may exercise this Warrant by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 464 Common Street, Suite 301, Belmont,
MA 02478-2570 (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), and upon payment of the Exercise Price for the shares
thereby purchased (by cashier's check or wire transfer in an amount equal to the
purchase price of the shares thereby purchased or in accordance with the
cashless exercise provision set forth in Section 2(c)); whereupon the Holder
shall be entitled to receive from the Company a stock certificate representing
the number of shares of Common Stock so purchased, and a new Warrant in
substantially identical form and dated as of such exercise for the purchase of
that number of shares of Common Stock equal to the difference, if any, between
the number of shares of Common Stock subject hereto and the number of shares of
Common Stock as to which this Warrant has been exercised.
(c) CASHLESS EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value (as defined in Section 3 hereof) of one
share of the Company's Common Stock is greater than the Exercise Price (at the
date of calculation as set forth below), in lieu of exercising this Warrant for
cash, the Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by surrender of
this Warrant at the principal office of the Company (together with the properly
endorsed Notice of Exercise) in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following formula:
X= Y (A-B)
--------
A
Where X = the number of shares of Common
Stock to be issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if
only a portion of the Warrant is
being exercised, the portion of the
Warrant being canceled (at the date
of such calculation)
A = the fair market value of one share of
the Company's Common Stock (at the
date of such calculation)
B = Exercise Price (as adjusted to the
date of such calculation)
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3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES.
Certificates for shares purchased hereunder shall be delivered to
the Holder hereof within a reasonable time (in no event exceeding ten (10)
business days) after the date on which this Warrant shall have been exercised in
accordance with the terms hereof. The Company agrees that the shares so issued
shall be, and shall for all purposes be deemed to have been, issued to the
Holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been exercised or converted in accordance
with the terms hereof. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon the exercise of this Warrant, an amount
equal to such fraction multiplied by the fair market value of a share of Common
Stock on the date of exercise shall be paid in cash or check to the holder of
this Warrant (fair market value shall be the average closing price of a share of
Common Stock on the OTC BB, or any other quotation system or stock exchange on
which the Common Stock is quoted or listed at the time of exercise as reported
in "The Wall Street Journal" over the five consecutive business days immediately
prior to surrender of this Warrant pursuant to Section 2 above).
4. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
(a) NO LIENS. The Company hereby represents and warrants that all
shares of Common Stock which may be issued upon the exercise of this Warrant
will, upon such exercise, be duly and validly authorized and issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
Holder) and not subject to preemptive or any similar rights of the stockholders
of the Company.
(b) RESERVATION OF STOCK. As soon as practicable after execution
of this Warrant, the Company will reserve sufficient authorized but unissued
Common Stock to enable it to satisfy its obligations on exercise of this Warrant
and will, if necessary, reserve additional shares of Common Stock during the
period in which this Warrant may be exercised to satisfy its obligations
hereunder. If at any time the Company's authorized Common Stock shall not be
sufficient to allow the exercise of this Warrant, the Company shall take such
corporate action as may be necessary to increase its authorized but unissued
Common Stock to be sufficient for such purpose.
(c) FURNISH INFORMATION. The Company agrees to promptly deliver to
the Holder copies of all financial statements, reports and proxy statements
which the Company shall have sent to its stockholders generally.
(d) RULE 144. In order to permit the Holder to sell the Common
Stock issuable upon exercise of the Warrant pursuant to Rule 144 under the 1933
Act (or any successors to such rules), the Company will comply with all rules
and regulations of the Commission applicable in connection with use of each of
Rule 144 (or any successor thereto), including the timely filing of all reports
with the Commission in order to enable the Holder, if it so elects, to utilize
Rule 144.
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5. NO RIGHTS AS SHAREHOLDERS.
This Warrant does not entitle the Holder to any voting rights or
other rights as a stockholder of the Company prior to the exercise hereof.
6. TRANSFERABILITY.
(a) RESTRICTIONS ON WARRANT. This Warrant shall only be
transferable if the Holder complies with applicable exemptions under the
Securities Act of 1933, as amended (the "1933 ACT") and applicable state
securities laws.
(b) RESTRICTIONS ON COMMON STOCK ISSUABLE UPON EXERCISE. In no
event will the Holder make a disposition of the Common Stock issuable upon
exercise of this Warrant unless and until (i) it shall have notified the Company
of the proposed disposition, and (ii) if requested by the Company, it shall have
furnished the Company with an opinion of counsel satisfactory to the Company and
its counsel to the effect that (A) appropriate action necessary for compliance
with the 1933 Act provisions relating to sale of an unregistered security has
been taken, or (B) an exemption from the registration requirements of the 1933
Act is available. Notwithstanding the foregoing, the restrictions imposed upon
the transferability of the Common Stock issuable on the exercise of this Warrant
shall terminate as to any particular share of Common Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the 1933 Act, or (2) a letter shall have been issued to the Holder at its
request by the staff of the Securities and Exchange Commission or a ruling shall
have been issued to the Holder at its request by such Commission stating that no
action shall be recommended by such staff or taken by such Commission, as the
case may be, if such security is transferred without registration under the 1933
Act in accordance with the conditions set forth in such letter or ruling and
such letter or ruling specifies that no subsequent restrictions on transfer are
required, or (3) such security shall have been registered under the 1933 Act and
sold by the Holder thereof in accordance with such registration.
(c) RESTRICTIVE LEGEND. The Company may place a legend describing,
in whole or in part, the restrictions imposed by sub-sections (a) and (b) to
this Section 6 on this Warrant, any replacement Warrant and on any certificate
representing the Common Stock issuable upon exercise of this Warrant. Whenever
such restrictions shall terminate, the Holder of a share of Common Stock issued
upon exercise of this Warrant as to which such restrictions have terminated
shall be entitled to receive from the Company one or more new certificates for
such shares of Common Stock not bearing the restrictive legend.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, the
Company will execute and deliver to the Holder, in lieu thereof, a new warrant
in substantially identical form, dated as of the date of such cancellation and
reissuance.
8. SATURDAYS, SUNDAYS AND HOLIDAYS.
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If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding business day.
9. CERTAIN ADJUSTMENTS.
The Exercise Price and number of shares issuable upon exercise of
this Warrant are subject to adjustment from time to time as set forth in this
Section 9. Upon each such adjustment of the Exercise Price pursuant to this
Section 9, the Holder shall thereafter prior to the Expiration Date be entitled
to purchase, at the Exercise Price resulting from such adjustment, the number of
shares obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(a) STOCK SPLITS AND DIVIDENDS. If the Company, at any time while
this Warrant is outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or on any other
class of capital stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect on
the record date for such event by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding after
such event. Any adjustment made pursuant to this Section 9(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) RECLASSIFICATIONS AND SHARE EXCHANGES. In case of any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities, cash or property,
then the Holder shall have the right thereafter to exercise this Warrant only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification or
share exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property equal to the amount of shares such Holder would
have been entitled to receive had such Holder exercised this Warrant immediately
prior to such reclassification or share exchange. The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 9(b) upon any exercise following any such reclassification or share
exchange.
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(c) DISTRIBUTIONS OF EVIDENCES OF INDEBTEDNESS, ASSETS OR RIGHTS.
If the Company, at any time while this Warrant is outstanding, shall distribute
to all holders of Common Stock (and not to the Holder of this Warrant) evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Sections 9(a), (b) and (d)), then
in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly audits the
financial statements of the Company (an "APPRAISER").
(d) MERGERS AND CONSOLIDATIONS. In case of any (1) merger or
consolidation of the Company with or into another Person, or (2) sale by the
Company of more than one-half of the assets of the Company (on a book value
basis) in one or a series of related transactions, the Holder shall have the
right thereafter to exercise this Warrant for the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and the Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the Common Stock for which this Warrant
could have been exercised immediately prior to such merger, consolidation or
sale would have been entitled. The terms of any such merger, sale or
consolidation shall include such terms so as continue to give the Holder the
right to receive the securities, cash and property set forth in this Section
upon any conversion or exercise following such event. This provision shall
similarly apply to successive such events.
(e) DILUTION. If the Company shall issue, at any time after the
date hereof and before the exercise by Holder of this Warrant, and any warrants
issued pursuant to this Section 9(e), any security of the Company (outright or
convertible) in a capital raising transaction in which the Common Stock is
issued or valued at a price less than $0.20 per share, and following such
securities issuance the shares of Common Stock issuable to Holder under this
Warrant and any warrants issued pursuant to this Section 9(e) in the aggregate,
represents less than seven and one-half percent (7.5%) of the Common Stock that
is issued and outstanding as of the date of such securities issuance, on a fully
diluted basis assuming the conversion or exchange of all outstanding convertible
securities of the Company and the exercise of all outstanding options, warrants
or similar rights to acquire Common Stock, the Company shall issue to Holder
(without the payment of additional consideration) additional warrants, in the
same form as this Warrant No. 2, so that the number of shares of Common Stock
that Holder may acquire pursuant to this Warrant and any warrants issued
pursuant to this Section 9(e), in the aggregate, shall equal seven and one-half
percent (7.5%) of Common Stock, on a fully diluted basis. In the event the
Company shall issue any security of the Company (outright or convertible) in a
capital raising transaction in which the Common Stock is issued or valued at a
price greater than $0.20 per share, Holder shall not be entitled to any
additional warrants.
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(f) RECORD DATE; TREASURY SHARES. For the purposes of this Section
9, the following clauses shall also be applicable:
(i) RECORD DATE. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B)
to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Common Stock.
(g) CALCULATIONS; ROUNDING. All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(h) NOTICE TO HOLDER OF EVENTS TRIGGERING ADJUSTMENTS OF THE
EXERCISE PRICE. If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company;
then the Company shall cause to be mailed to the Holder, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
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not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up.
(i) CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment in
the Exercise Price or number and type of securities issuable on the exercise of
this Warrant, the Company will promptly give written notice thereof to the
Holder in the form of a certificate, certified and confirmed by an officer of
the Company, setting forth such adjustment and showing in reasonable detail the
facts upon which adjustment is based.
10. REPRESENTATIONS AND COVENANTS OF HOMEDICS.
This Warrant has been granted by the Company in reliance upon the
following representations and covenants of HoMedics:
(a) INVESTMENT PURPOSE. This Warrant and the Common Stock issuable
upon exercise of HoMedics' rights contained herein will be acquired for
investment for HoMedics' own account, and not as a nominee or agent and not with
a view to the distribution of any part thereof. HoMedics further represents that
it does not 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 this Warrant.
(b) PRIVATE ISSUE. HoMedics understands (i) that the Warrant and
the Common Stock issuable upon exercise of this Warrant are not registered under
the 1933 Act, or qualified under applicable state securities laws on the ground
that the issuance of this Warrant will be exempt from the registration and
qualification requirements thereof, and (ii) that the Company's reliance on such
exemption is predicated on the representations set forth in this Section 10.
(c) SALES OF COMMON STOCK. HoMedics acknowledges that in the event
the applicable requirements of Rule 144 are not met, registration under the 1933
Act or compliance with another exemption from registration will be required for
any disposition of the Common Stock issuable upon exercise of this Warrant.
(d) FINANCIAL RISK. HoMedics has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) ACCREDITED INVESTOR. HoMedics is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the 1933 Act.
11. REGISTRATION RIGHTS AGREEMENT.
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The shares issuable upon exercise of this Warrant are subject to a
Registration Rights Agreement between the Company and HoMedics dated as of the
date of issuance of this Warrant (the "REGISTRATION RIGHTS AGREEMENT").
12. GOVERNING LAW.
This Warrant shall be governed by and construed in accordance with
the laws of the State of Michigan applicable to contracts made and to be
performed wholly within such state. Any action or proceeding arising under or
pursuant to this Warrant shall be brought in the appropriate court in the State
of Michigan.
13. COMPLETE AGREEMENT AND MODIFICATIONS.
This Warrant No. 2, Warrant No. 1, the Loan Agreement, all documents
that appear as Exhibits to the Loan Agreement and the Registration Rights
Agreement constitute the Company's and HoMedics' entire agreement with respect
to the subject matter hereof and supersede all agreements, representations,
warranties, statements, promises and understandings, whether oral or written,
with respect to the subject matter hereof. This Warrant may not be amended,
altered or modified except by a writing signed by the Company and the Holder.
14. NOTICES.
Except as otherwise provided herein, all notices under this Warrant
shall be in writing and shall be delivered by personal service, facsimile,
courier service promising overnight delivery or certified mail (if such service
is not available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to the Holder
of this Warrant: HoMedics, Inc.
3000 N. Pontiac Trail
Commerce Township, MI 48390-2720
Attention: Ron Ferber
Facsimile: 248-863-3199
With a copy to: Seyburn, Kahn, Ginn, Bess and Serlin, P.C.
2000 Town Center
Suite 1500
Southfield, Michigan 48075-1195
Attention: Alan M. Stillman, Esq.
Facsimile: 248-353-3727
If to the Company: Kronos Advanced Technologies, Inc.
464 Common Street, Suite 301
Belmont, MA 02478-2570
Attention: Daniel Dwight
Facsimile: 617-993-9985
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With a copy to: Kirkpatrick & Lockhart, LLP
201 South Biscayne Boulevard, Suite 2000
Miami, FL 33131
Attention: Clayton E. Parker, Esq.
Facsimile: (305) 358-7095
15. WAIVERS STRICTLY CONSTRUED.
With regard to any power, remedy or right provided herein or
otherwise available to any party hereunder (i) no waiver or extension of time
shall be effective unless expressly contained in a writing signed by the waiving
party; and (ii) no alteration, modification or impairment shall be implied by
reason of any previous waiver, extension of time, delay or omission in exercise,
or other indulgence.
16. SEVERABILITY.
The validity, legality or enforceability of the remainder of this
Warrant shall not be affected even if one or more of its provisions shall be
held to be invalid, illegal or unenforceable in any respect.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: May 9, 2003
KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/ Daniel R. Dwight
--------------------------------
Name: Daniel R. Dwight
Title: President and CEO
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NOTICE OF EXERCISE
To: KRONOS ADVANCED TECHNOLOGIES, INC.
(1) |_| The undersigned hereby elects to purchase __________ shares of
Common Stock of Kronos Advanced Technologies, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full.
|_| The undersigned hereby elects to purchase __________ shares of
Common Stock of Kronos Advanced Technologies, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith as a "cashless exercise" the attached
Warrant to purchase _________ shares of Common Stock.
(2) Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
_____________________________________
(Name)
_____________________________________
(Address)
(3) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable federal and state securities laws.
HOMEDICS, INC.
________________________________ __________________________________
(Date) Name:
Title:
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