THIS
WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED.
This
Warrant is issued to Monarch Capital Group, LLC. (“Holder”) by CNS Response,
Inc., a Delaware corporation (the “Company”), in connection with
its services under the placement agent agreement dated September 30, 2010 by and
between the Company and the Holder in connection with the Company’s private
placement of a secured convertible note in the principal amount of $100,000,
convertible into 333,333 shares of the Company’s common stock, par value $0.001
per share (“Note”), to
an accredited investor.
1.
Purchase
of Shares. Subject to the terms and conditions hereinafter set
forth, the holder of this Warrant is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to 33,333
fully paid and nonassessable Shares (as defined below) at the Exercise Price (as
defined below).
2.
Definitions.
(a) Exercise
Price. The exercise price for the Shares initially shall be
$0.33 per share (such price, as adjusted from time to time, is herein referred
to as the “Exercise
Price”).
(b) Exercise
Period. This Warrant shall be exercisable, in whole or in
part, during the term commencing on the date hereof and ending on the expiration
of this Warrant pursuant to Section 14 hereof.
(c) The
Shares. The term “Shares” shall mean shares of
the Company’s common stock, par value $0.001 per share.
3.
Method of
Exercise. While this Warrant remains outstanding and
exercisable in accordance with the terms hereof, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise
shall be effected by:
(i) the
surrender of the Warrant, together with a notice of exercise in substantially
the form attached hereto as Exhibit A to the
Secretary of the Company at its principal offices; and
(ii) the
payment to the Company of an amount equal to the aggregate Exercise Price for
the number of Shares being purchased, either in cash (through a check payable to
the Company or by wire transfer to an account designated by the Company) or as
provided in Section 4 below.
4.
Net Exercise.
In lieu of making a cash payment upon the exercise of this Warrant, the holder
of this Warrant may, at such holder’s option. elect to receive shares equal to
the value of this Warrant (or the portion thereof being exercised) by surrender
of this Warrant at the principal office of the Company together with notice of
such election, in which event the Company shall issue to the holder hereof a
number of Shares computed using the following formula:
Y (A -
B)
X
= A
Where
X
--
The
number of Shares to be issued to the holder of this
Warrant.
Y
--
The
number of Shares purchasable under this
Warrant.
A
--
The
fair market value of one Share.
B
--
The
Exercise Price (as adjusted to the date of such
calculations).
For
purposes of this Section 4, the fair market value of a Share shall mean the
closing price of the Shares quoted in the over-the-counter market or any
exchange on which the Shares are listed, whichever is applicable, as published
in The Wall Street
Journal on the date of determination of fair market value. If
the Shares are not traded on the over-the-counter market or on an exchange, the
fair market value shall be the price per Share that the Company could obtain
from a willing buyer for Shares sold by the Company from authorized but unissued
Shares, as such prices shall be determined in good faith by the Company’s board
of directors.
5.
Certificates for
Shares. Upon the exercise of the purchase rights evidenced by
this Warrant, one or more certificates for the number of Shares so purchased
shall be issued as soon as practicable thereafter, and in any event within
thirty (30) days of the delivery of the subscription notice.
6. Issuance of
Shares. The Company covenants that the Shares, when issued
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
7. Adjustment of Exercise Price
and Number of Shares. The number of and kind of securities
purchasable upon exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations
and Other Issuances. If the Company shall at any time prior to
the expiration of this Warrant subdivide the Shares, by split-up or otherwise,
or combine its Shares, or issue additional shares of its Shares as a dividend,
the number of Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the purchase price payable per share, but the
aggregate purchase price payable for the total number of Shares purchasable
under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification,
Reorganization and Consolidation. In case of any
reclassification, capital reorganization, or change in the capital stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 7(a) above), then the Company shall make
appropriate provision so that the holder of this Warrant shall have the right at
any time prior to the expiration of this Warrant to purchase, at a total price
equal to that payable upon the exercise of this Warrant, the kind and amount of
shares of stock and other securities and property receivable in connection with
such reclassification, reorganization, or change by a holder of the same number
of Shares as were purchasable by the holder of this Warrant immediately prior to
such reclassification, reorganization, or change. In any such case
appropriate provisions shall be made with respect to the rights and interest of
the holder of this Warrant so that the provisions hereof, including Sections
7(a), shall thereafter be applicable with respect to any shares of stock or
other securities and property deliverable upon exercise hereof, and appropriate
adjustments shall be made to the purchase price per share payable hereunder,
provided the aggregate purchase price shall remain the same.
(c) Ratchet. In the
event the Company shall issue Shares, or securities convertible, exchangeable or
exercisable into Shares (excluding in each case shares issued (i) in any of the
transactions described in Subsections (a) and (b) above, (ii) upon exercise of
options granted to the Company’s employees, directors, consultants or officers
under a plan or plans or individual compensation arrangements adopted by the
Company’s board of directors, if such shares would otherwise be included in this
Subsection (c), (iii) upon conversion of shares or exercise of options and
warrants outstanding as of the date hereof, or (iv) to shareholders of any
Company which merges into the Company in proportion to their stock holdings of
such Company immediately prior to such merger, upon such merger), for
consideration per share, exercise price per share, conversion price per share or
exchange price per share (as the case may be)(“Offering Price”) less than the
then applicable Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal such Offering Price and the number of shares
issuable upon exercise of this Warrant shall be proportionately increased
immediately thereafter. Such adjustments shall be made successively
whenever any such issuance is made.
(d) Notice of
Adjustment. When any adjustment is required to be made in the
number or kind of shares purchasable upon exercise of the Warrant, or in the
Exercise Price, the Company shall promptly notify the holder of such event and
of the number of Shares or other securities or property thereafter purchasable
upon exercise of this Warrant.
8. No Fractional Shares or
Scrip. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but in lieu of such
fractional shares the Company shall make a cash payment therefor on the basis of
the Exercise Price then in effect.
9. Representations of the
Company. The Company represents and warrants to Holder that
the representations and warranties made by the Company in Section 2 of the
Agreement are true, correct and complete as of the date hereof. In addition, the
Company represents that the Shares necessary for a cash exercise of this Warrant
are duly reserved.
10. Representations and
Warranties by the Holder. The Holder represents and warrants
to the Company that the representations and warranties made by the Holder in
Section 3 of the Agreement are true, correct and complete as of the date
hereof.
11. Restrictive
Legend.
The Shares (unless registered under the
Securities Act of 1933, as amended (the “Act”)) shall be stamped or
imprinted with a legend in substantially the following form:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. COPIES OF THE AGREEMENT COVERING THE PURCHASE
OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
THE SALE
OF SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED
UNLESS THE SALE IS SO EXEMPT.
12. Warrants
Transferable. Subject to compliance with the terms and
conditions of this Section 12, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed or
accompanied by written instructions of transfer. With respect to any
offer, sale or other disposition of this Warrant or any Shares acquired pursuant
to the exercise of this Warrant prior to registration of such Warrant or Shares,
the holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence, if requested by the Company, to the effect
that such offer, sale or other disposition may be effected without registration
or qualification (under the Act as then in effect or any federal or state
securities law then in effect) of this Warrant or the Shares and indicating
whether or not under the Act certificates for this Warrant or the Shares to be
sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such
law. Upon receiving such written notice and reasonably satisfactory
opinion or other evidence, if so requested, the Company, as promptly as
practicable, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such Shares, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made
pursuant to this Section 12 that the opinion of counsel for the holder or other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly with details thereof after such determination has
been made. Each certificate representing this Warrant or the Shares
transferred in accordance with this Section 12 shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its
transfer agent in connection with such
restrictions. Notwithstanding the foregoing, Holder may assign
this Warrant or the Shares into which such Warrant may be converted to an
affiliated entity without the prior written consent of the Company so long as
such assignment complies with applicable law.
13. Rights of
Stockholders. No holder of this Warrant shall be entitled, as
a Warrant holder, to vote or receive dividends or be deemed the holder of the
Shares or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein.
14. Amendments and
Waivers. Any provision of this Warrant may be amended, waived
or modified upon the written consent of the Company and the Majority
Holders. Any such amendment, waiver or modification effected in
accordance with this paragraph shall be binding upon the Company and
Holder, it being understood and agreed that such written consent will affect all
Warrants and be binding on all holders thereof regardless of whether any
particular holder executed such consent.
15. Notices. All
notices and other communications given or made hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be
notified, (b) when sent by confirmed electronic mail or facsimile if sent during
normal business hours of the recipient, and if not so confirmed, then on the
next business day, with a copy to be sent by United States first class mail,
postage prepaid, (c) five (5) days after being sent by registered or certified
mail, return receipt required, postage prepaid, or (d) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be
sent to the respective parties at their address or fax number as set forth on
the signature page to the Note or to such electronic mail address, facsimile
number or address as subsequently modified by written notice given in according
with this Section 14.
16. Governing
Law. This Warrant and all actions arising out of or in
connection with this Warrant shall be governed by and construed in accordance
with the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
17. Rights and Obligations
Survive Exercise of Warrant. Unless otherwise provided herein,
the rights and obligations of the Company, of the holder of this Warrant and of
the holder of the Shares issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
The
undersigned hereby elects to purchase __________ Shares of _____________
pursuant to the terms of the attached
Warrant.
2.
Method
of Exercise (Please initial the applicable
blank):
___
The
undersigned elects to exercise the attached Warrant by means of a cash
payment, and tenders herewith payment in full for the purchase price of
the shares being purchased, together with all applicable transfer taxes,
if any.
___
The
undersigned elects to exercise the attached Warrant by means of the net
exercise provisions of Section 4 of the
Warrant.
3.
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)
4.
The undersigned hereby represents and warrants 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 and all representations and warranties of the undersigned set forth
in Section 10 of the attached Warrant are true and correct as of the date
hereof.
(Signature)
(Address)
(Date)
(Title)
FORM
OF TRANSFER
(To be
signed only upon transfer of Warrant)
FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________ the right represented by the
attached Warrant to purchase ____________ shares
of ________________________ of CNS Response, Inc. to which the
attached Warrant relates, and appoints ______________ Attorney to transfer such
right on the books of __________, with full power of substitution in the
premises.
Dated:
(Signature
must conform in all respects to name of Holder as specified on the face of
the Warrant)
Address:
Signed in the
presence of:
Dates Referenced Herein and Documents Incorporated by Reference
