FUNDING WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS
(I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND
IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT
AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND,
IF THE COMPANY REQUESTS, AN OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT
HAS BEEN RENDERED BY COUNSEL.

 

Warrant Certificate No.: [NUMBER]

Original Issue Date: [DATE]1

 

FOR VALUE RECEIVED, CynergisTek, Inc., a Delaware corporation (the “Company”),
hereby certifies that Horton Capital Management, LLC, a Delaware limited
liability company, or its designees (as defined in the Purchase Agreement)
(collectively, the “Holder”) is entitled to purchase from the Company [______]
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock at a purchase price per share equal to the Exercise Price, subject to the
terms, conditions and adjustments set forth below in this Warrant. Certain
capitalized terms used herein are defined in Section 1 hereof. Other capitalized
terms used in this Warrant which are not defined herein shall have the meanings
ascribed to them in the Purchase Agreement.

This Warrant has been issued pursuant to the terms of the Securities Purchase
Agreement, dated as of [April __, 2020] (the “Purchase Agreement”), between the
Company and the Holder.

1.Certain Definitions. As used in this Warrant, the following terms have the
respective meanings set forth below: 

“Aggregate Exercise Price” means an amount equal to the product of (a) the
number of Warrant Shares in respect of which this Warrant is then being
exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price in
effect as of the Exercise Date in accordance with the terms of this Warrant.

“Base Price” is a per-share amount equal to the Purchase Price (as defined in
the Purchase Agreement).

“Board” means the board of directors of the Company.

“Business Day” means any day, except a Saturday, Sunday or legal holiday on
which banking institutions in New York City are authorized or obligated by law
or executive order to close.

“Common Stock” means the common stock of the Company, par value $0.001 per
share.

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

1 NTD: to be the Funding Date.

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

4820-9034-3863

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

“Common Stock Deemed Outstanding” means, at any given time, the sum of (a) the
number of shares of Common Stock issued and actually outstanding at such time,
plus (b) the number of shares of Common Stock reserved for issuance at such time
under any stock option or other equity incentive plans approved by the Board,
regardless of whether the shares of Common Stock are actually subject to
outstanding Options at such time or whether any outstanding Options are actually
exercisable at such time, plus (c) the number of shares of Common Stock issuable
upon exercise of any other Options (other than Options described in clause (b)
above) actually outstanding at such time, plus (d) the number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities
actually outstanding at such time (treating as actually outstanding any
Convertible Securities issuable upon exercise of Options actually outstanding at
such time), in each case, regardless of whether the Options or Convertible
Securities are actually exercisable at such time.

“Company” has the meaning set forth in the preamble.

“Convertible Securities” means any securities (directly or indirectly)
convertible into or exchangeable for Common Stock, but excluding Options.

“Excluded Issuances” means any issuance or sale (or deemed issuance or sale in
accordance with Section 4(d)) by the Company after the Original Issue Date of:
(a) shares of Common Stock issued upon the exercise of this Warrant; (b) shares
of Common Stock (as such number of shares is equitably adjusted for subsequent
stock splits, stock combinations, stock dividends and recapitalizations) issued
directly or upon the exercise of Options to directors, officers, employees, or
consultants of the Company in connection with their service as directors of the
Company, their employment by the Company or their retention as consultants by
the Company, in each case authorized by the Board and issued pursuant to any
stock option or other equity incentive plans approved by the Board (including
all such shares of Common Stock and Options (including restricted stock units)
outstanding prior to the Original Issue Date); (c) shares of Common Stock issued
upon the conversion or exercise of Options (other than Options covered by clause
(b) above) or Convertible Securities issued prior to the Original Issue Date,
provided that such securities are not amended after the date hereof to increase
the number of shares of Common Stock issuable thereunder or to lower the
exercise, settlement or conversion price thereof;   or (d) shares of Common
Stock in connection with the Purchase Agreement.

“Exercise Agreement” has the meaning set forth in Section 3(a)(i).

“Exercise Date” means, for any given exercise of this Warrant, the date on which
the conditions to such exercise as set forth in Section 3 shall have been
satisfied at or prior to 5:00 p.m., Austin, Texas time, on a Business Day,
including, without limitation, the receipt by the Company of the Warrant and the
Aggregate Exercise Price.

“Exercise Period” has the meaning set forth in Section 2.

“Exercise Price” means 125% of the Base Price.

“Fair Market Value” means, as of any particular date: (a) the volume weighted
average of the closing sales prices of the Common Stock averaged over twenty
(20) consecutive Business Days prior to such particular date on all domestic
securities exchanges on which the Common Stock may at the time be listed; or (b)
if the Common Stock is not listed on a domestic securities exchange or if there
have been no sales of the Common Stock on the OTC Bulletin Board, the Pink OTC
Markets or similar quotation system or association on such day, the average of
the highest bid and lowest asked prices for the Common Stock quoted on the OTC
Bulletin Board, the Pink OTC Markets or similar quotation system or association
at the end of such day; in each case, averaged over twenty (20) consecutive
Business Days

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

2

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

ending on the Business Day immediately prior to the day as of which “Fair Market
Value” is being determined; provided, that if the Common Stock is listed on any
domestic securities exchange, the term “Business Day” as used in this sentence
means Business Days on which such exchange is open for trading. If at any time
the Common Stock is not listed on any domestic securities exchange or quoted on
the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or
association, the “Fair Market Value” of the Common Stock shall be the fair
market value per share as determined by the Board in good faith.

“Holder” has the meaning set forth in the preamble.

“Options” means any warrants or other rights or options to subscribe for or
purchase Common Stock or Convertible Securities, including, specifically,
restricted stock units (RSUs).

“Original Issue Date” means the date on which the Warrant was issued by the
Company as first set forth above.

“OTC Bulletin Board” means the Financial Industry Regulatory Authority OTC
Bulletin Board electronic inter-dealer quotation system.

“Person” means any individual, sole proprietorship, partnership, limited
liability company, corporation, joint venture, trust, incorporated organization
or government or department or agency thereof.

“Pink OTC Markets” means the OTC Markets Group Inc. electronic inter-dealer
quotation system, including OTCQX, OTCQB and OTC Pink.

“Purchase Agreement” has the meaning set forth in the preamble.

“Registration Rights Agreement” means that certain Registration Rights Agreement
dated [April ___, 2020], by and between the Company and the Holder.

“Warrant” means this Warrant and all warrants issued upon division or
combination of, or in substitution for, this Warrant.

“Warrant Shares” means the shares of Common Stock or other capital stock of the
Company then purchasable upon exercise of this Warrant in accordance with the
terms of this Warrant.

2.Term of Warrant. Subject to the terms and conditions hereof, at any time or
from time to time after the date hereof and prior to 5:00 p.m., Austin, Texas
time, on the tenth (10th) anniversary of the date hereof or, if such day is not
a Business Day, on the next Business Day (the “Exercise Period”), the Holder of
this Warrant may exercise this Warrant for all or any part of the Warrant Shares
purchasable hereunder (subject to adjustment as provided herein). 

3.Exercise of Warrant.  

(a)Exercise Procedure. This Warrant may be exercised from time to time on any
Business Day during the Exercise Period, for all or any part of the unexercised
Warrant Shares, upon: 

(i)surrender of this Warrant to the Company at its then principal executive
offices (or such other office or agency of the Company as it may designate by
notice in  

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

3

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

writing to the Holder) (or an indemnification undertaking with respect to this
Warrant in the case of its loss, theft or destruction), together with an
Exercise Agreement in the form attached hereto as Exhibit A (each, an “Exercise
Agreement”), duly completed (including specifying the number of Warrant Shares
to be purchased) and executed; and

(ii)payment to the Company of the Aggregate Exercise Price in accordance with
Section 3(b). 

(b)Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise
Price shall be made (i) by delivery to the Company of a certified or official
bank check payable to the order of the Company or by wire transfer of
immediately available funds to an account designated in writing by the Company,
in the amount of such Aggregate Exercise Price or (ii) by means of a “cashless
exercise” in which the Holder may request the Company to issue Warrant Shares
then issuable upon exercise of all or any part of this Warrant on a net basis
such that, without payment of any cash consideration or other immediately
available funds, the Holder shall surrender all or a portion of this Warrant at
the principal executive offices (or such other office or agency of the Company
as it may designate by notice in writing to the Holder) of the Company and shall
be entitled to receive a number of shares of Common Stock calculated using the
following formula: 

X = Y(A – B) ÷ A

Where:

X = the number of Warrant Shares to be issued to the Holder. 

Y = the total number of Warrant Shares for which Holder has elected to exercise
this Warrant on the Exercise Date pursuant to Section 3(a). 

A = the Fair Market Value of one Warrant Share as of the applicable Exercise
Date. 

B = the Exercise Price in effect under this Warrant as of the applicable
Exercise Date. 

(c)Delivery of Stock Certificates; Book Entry. Upon receipt by the Company of
the Exercise Agreement, surrender of this Warrant and payment of the Aggregate
Exercise Price (in accordance with Section 3(a) hereof), the Company shall, as
promptly as practicable, and in any event within ten (10) Business Days
thereafter (the “Warrant Share Delivery Date”), execute (or cause to be
executed) and deliver (or cause to be delivered) to the Holder the Warrant
Shares (registered in the name of Holder (or its designee) by book entry or
certificate or otherwise as may be agreed to by the Company and Holder) issuable
upon such exercise, together with cash in lieu of any fraction of a share, as
provided in Section 3(d) hereof. If the Company fails for any reason, other than
a force majeure, to deliver to the Holder the Warrant Shares by the Warrant
Share Delivery Date, the Company agrees to pay to the Holder, in cash, as
liquidated damages and not as a penalty, $1000 per Business Day for each
Business Day after such Warrant Share Delivery Date until such Warrant Shares
are delivered or Holder rescinds such exercise. A stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as the exercising Holder shall reasonably request in the
Exercise Agreement. This Warrant shall be deemed to have been exercised and such
book entry, certificate or certificates of Warrant Shares shall be deemed to
have been issued, and the Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such Warrant Shares
for all purposes, as of the Exercise Date. 

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

4

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

(d)Fractional Shares. The Company shall not be required to issue a fractional
Warrant Share upon exercise of any Warrant. As to any fraction of a Warrant
Share that the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay to such Holder an amount in cash (by delivery of
a certified or official bank check or by wire transfer of immediately available
funds) equal to the product of (i) such fraction multiplied by (ii) the Fair
Market Value of one Warrant Share on the Exercise Date. 

(e)Delivery of New Warrant. Unless the purchase rights represented by this
Warrant shall have expired or shall have been fully exercised, the Company
shall, at the time of book entry or delivery of the certificate or certificates
representing the Warrant Shares being issued in accordance with Section 3(c)
hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder
to purchase the unexpired and unexercised Warrant Shares called for by this
Warrant. Such new Warrant shall in all other respects be identical to this
Warrant.  

(f)Valid Issuance of Warrant and Warrant Shares; Payment of Taxes. With respect
to the exercise of this Warrant, the Company hereby represents, covenants and
agrees: 

(i)This Warrant is, and any Warrant issued in substitution for or replacement of
this Warrant shall be, upon issuance, duly authorized and validly issued. 

(ii)All Warrant Shares issuable upon the exercise of this Warrant pursuant to
the terms hereof shall be, upon issuance, and the Company shall take
commercially reasonable actions as may be reasonably necessary or appropriate in
order that such Warrant Shares are, validly issued, fully paid and
non-assessable, issued free and clear of all taxes, liens and charges. 

(iii)The Company shall pay all expenses in connection with, and all taxes and
other governmental charges that may be imposed with respect to, the issuance or
delivery of Warrant Shares upon exercise of this Warrant; provided, that the
Company shall not be required to pay any tax or governmental charge that may be
imposed with respect to any applicable withholding or the issuance or delivery
of the Warrant Shares to any Person other than the Holder, and no such issuance
or delivery shall be made unless and until the Person requesting such issuance
has paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid. 

(g)Reservation of Shares. During the Exercise Period, the Company shall at all
times reserve and keep available out of its authorized but unissued Common Stock
or other securities constituting Warrant Shares, solely for the purpose of
issuance upon the exercise of this Warrant, the maximum number of Warrant Shares
issuable upon the exercise of this Warrant, and the par value per Warrant Share
shall at all times be less than or equal to the applicable Base Price. 

(h)Holder’s Exercise Limitations.  The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to this Section 3 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Exercise Agreement, the Holder (together with the Holder’s affiliates, and any
other Persons acting as a group together with the Holder or any of the Holder’s
affiliates) would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable  

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

5

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

upon exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (i) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its affiliates and (ii)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or
any of its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 3(h), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 3(h) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of
an Exercise Agreement shall be deemed to be the Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. 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 3(h), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in (A) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public announcement by the
Company or (C) a more recent written notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding. Upon the written
or oral request of a Holder, the Company shall within two (2) Business Days
confirm orally and in writing to the 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 the Holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99%
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 provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this Section 3(h)
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. The Holder, upon not less than sixty-one (61)
days’ prior notice to the Company, may increase, decrease or eliminate the
Beneficial Ownership Limitation provisions of this Section 3(h). Any such
increase, decrease or elimination will not be effective until the 61st day after
such notice is delivered to the Company.

4.Adjustment to Base Price and Number of Warrant Shares. In order to prevent
dilution of the purchase rights granted under this Warrant, the Base Price and
the number of Warrant Shares issuable upon exercise of this Warrant shall be
subject to adjustment from time to time as provided in this Section 4 (in each
case, after taking into consideration any prior adjustments pursuant to this
Section 4). 

(a)Adjustment to Base Price Upon Issuance of Common Stock. Except as provided in
Section 4(c) and except in the case of an event described in either Section 4(e)
or Section 4(f),  

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

6

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

if the Company shall, at any time or from time to time after the Original Issue
Date, issue or sell or, in accordance with Section 4(d), is deemed to have
issued or sold, any shares of Common Stock without consideration or for
consideration per share less than the Base Price in effect immediately prior to
such issuance or sale (or deemed issuance or sale), the Base Price shall be
reduced (and in no event increased) to a Base Price as is computed using the
following formula:

X = ((A x B) + C) ÷ (A + D)

Where:

X = the reduced Base Price.

A = the Common Stock Deemed Outstanding immediately prior to such issuance or
sale (or deemed issuance or sale).

B = the Base Price then in effect immediately prior to such issuance or sale (or
deemed issuance or sale).

C = the aggregate consideration, if any, received by the Company upon such
issuance or sale (or deemed issuance or sale).

D = the aggregate number of shares of Common Stock issued or sold (or deemed
issued or sold) by the Company in such issuance or sale (or deemed issuance or
sale).

(b)Adjustment to Number of Warrant Shares Upon Adjustment to Base Price. Upon
any and each adjustment of the Base Price as provided in Section 4(a), the
number of Warrant Shares issuable upon the exercise of this Warrant immediately
prior to any such adjustment shall be increased to a number of Warrant Shares as
is computed using the following formula: 

X1 = X(Y ÷ Y1)

Where: 

X1 = the adjusted total number of Warrant Shares issuable upon exercise of the
Warrant immediately following the adjustment of the Base Price.

X = the total number of Warrant Shares previously issuable upon exercise of the
Warrant immediately prior to the adjustment of the Base Price.

Y = the Base Price immediately prior to the adjustment.

Y1 = the adjusted Base Price pursuant to Section 4(a).

(c)Exceptions To Adjustment Upon Issuance of Common Stock. Anything herein to
the contrary notwithstanding, there shall be no adjustment to the Base Price or
the number of Warrant Shares issuable upon exercise of this Warrant with respect
to any Excluded Issuance. 

(d)Effect of Certain Events on Adjustment to Base Price. For purposes of
determining the adjusted Base Price under Section 4(a) hereof, the following
shall be applicable: 

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

7

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

(i)Issuance of Options. If the Company shall, at any time or from time to time
after the Original Issue Date, in any manner grant or sell (whether directly or
by assumption in a merger or otherwise) any Options, whether or not such Options
or the right to convert or exchange any Convertible Securities issuable upon the
exercise of such Options are immediately exercisable, and the price per share
(determined as provided in this paragraph and in Section 4(d)(v)) for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon the exercise of
such Options is less than the Base Price in effect immediately prior to the time
of the granting or sale of such Options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued as of the date of
granting or sale of such Options (and thereafter shall be deemed to be
outstanding for purposes of adjusting the Base Price under Section 4(a)), at a
price per share equal to the quotient obtained by dividing (A) the sum (which
sum shall constitute the applicable consideration received for purposes of
Section 4(a)) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting or sale of all such Options, plus (y)
the minimum aggregate amount of additional consideration payable to the Company
upon the exercise of all such Options, plus (z), in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of all such Convertible Securities and the conversion or exchange of all
such Convertible Securities, by (B) the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon the conversion or
exchange of all Convertible Securities issuable upon the exercise of all such
Options. Except as otherwise provided in Section 4(d)(iii), no further
adjustment of the Base Price shall be made upon the actual issuance of Common
Stock or of Convertible Securities upon exercise of such Options or upon the
actual issuance of Common Stock upon conversion or exchange of Convertible
Securities issuable upon exercise of such Options. 

(ii)Issuance of Convertible Securities. If the Company shall, at any time or
from time to time after the Original Issue Date, in any manner grant or sell
(whether directly or by assumption in a merger or otherwise) any Convertible
Securities, whether or not the right to convert or exchange any such Convertible
Securities is immediately exercisable, and the price per share (determined as
provided in this paragraph and in Section 4(d)(v) ) for which Common Stock is
issuable upon the conversion or exchange of such Convertible Securities is less
than the Base Price in effect immediately prior to the time of the granting or
sale of such Convertible Securities, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of the total maximum amount of
such Convertible Securities shall be deemed to have been issued as of the date
of granting or sale of such Convertible Securities (and thereafter shall be
deemed to be outstanding for purposes of adjusting the Base Price pursuant to
Section 4(a)), at a price per share equal to the quotient obtained by dividing
(A) the sum (which sum shall constitute the applicable consideration received
for purposes of Section 4(a)) of (x) the total amount, if any, received or
receivable by the Company as consideration for the granting or sale of such
Convertible Securities, plus (y) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
all such Convertible Securities, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. Except as otherwise provided in Section 4(d)(iii), no further
adjustment of the Base Price shall be made upon the actual issuance of Common
Stock  

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

8

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

upon conversion or exchange of such Convertible Securities or the issue or sale
of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Base Price have been made
pursuant to the other provisions of this Section 4(d).

(iii)Change in Terms of Options or Convertible Securities. Upon any change in
any of (A) the total amount received or receivable by the Company as
consideration for the granting or sale of any Options or Convertible Securities
referred to in Section 4(d)(i)or Section 4(d)(ii) hereof, (B) the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of any Options or upon the issuance, conversion or exchange of
any Convertible Securities referred to in Section 4(d)(i) or Section 4(d)(ii)
hereof, (C) the rate at which Convertible Securities referred to in Section
4(d)(i) or Section 4(d)(ii) hereof are convertible into or exchangeable for
Common Stock, or (D) the maximum number of shares of Common Stock issuable in
connection with any Options referred to in Section 4(d)(i) hereof or any
Convertible Securities referred to in Section 4(d)(ii) hereof (in each case,
other than in connection with an Excluded Issuance), then (whether or not the
original issuance or sale of such Options or Convertible Securities resulted in
an adjustment to the Base Price pursuant to this Section 4) the Base Price in
effect at the time of such change shall be adjusted or readjusted, as
applicable, to the Base Price which would have been in effect at such time
pursuant to the provisions of this Section 4 had such Options or Convertible
Securities still outstanding provided for such changed consideration, conversion
rate or maximum number of shares, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such adjustment or
readjustment the Base Price then in effect is reduced, and the number of Warrant
Shares issuable upon the exercise of this Warrant immediately prior to any such
adjustment or readjustment shall be correspondingly adjusted or readjusted
pursuant to the provisions of Section 4(b).  

(iv)Treatment of Expired or Terminated Options or Convertible Securities. Upon
the expiration or termination of any unexercised Option (or portion thereof) or
any unconverted or unexchanged Convertible Security (or portion thereof) for
which any adjustment (either upon its original issuance or upon a revision of
its terms) was made pursuant to this Section 4 (including without limitation
upon the redemption or purchase for consideration of all or any portion of such
Option or Convertible Security by the Company), the Base Price then in effect
hereunder shall forthwith be changed pursuant to the provisions of this Section
4 to the Base Price which would have been in effect at the time of such
expiration or termination had such unexercised Option (or portion thereof) or
unconverted or unexchanged Convertible Security (or portion thereof), to the
extent outstanding immediately prior to such expiration or termination, never
been issued. 

(v)Calculation of Consideration Received. If the Company shall, at any time or
from time to time after the Original Issue Date, issue or sell, or is deemed to
have issued or sold in accordance with Section 4(d), any shares of Common Stock,
Options or Convertible Securities: (A) for cash, the consideration received
therefor shall be deemed to be the net amount received by the Company therefor;
(B) for consideration other than cash, the amount of the consideration other
than cash received by the Company shall be the fair value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
(as reflected on any securities exchange, quotation system or association or
similar pricing system covering such security) for such securities as of the end
of business on the date of receipt of such securities; (C) for no specifically  

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

9

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

allocated consideration in connection with an issuance or sale of other
securities of the Company, together comprising one integrated transaction, the
amount of the consideration therefor shall be deemed to be the fair value of
such portion of the aggregate consideration received by the Company in such
transaction as is attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be, issued in such transaction; or (D)
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such shares of Common
Stock, Options or Convertible Securities, as the case may be, issued to such
owners. The net amount of any cash consideration and the fair value of any
consideration other than cash or marketable securities shall be determined by
the Board in good faith.

(vi)Record Date. For purposes of any adjustment to the Base Price or the number
of Warrant Shares in accordance with this Section 4, 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,
Options or Convertible Securities or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, 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; provided, that if before the distribution to its
holders of Common Stock the Company legally abandons its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled. 

(vii)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 or any of its wholly-owned subsidiaries, and the disposition of any such
shares (other than the cancellation or retirement thereof or the transfer of
such shares among the Company and its wholly-owned subsidiaries) shall be
considered an issue or sale of Common Stock for the purpose of this Section 4.  

(e)Adjustment to Base Price and Warrant Shares Upon Dividend, Subdivision or
Combination of Common Stock. If the Company shall, at any time or from time to
time after the Original Issue Date, (i) pay a dividend or make any other
distribution upon the Common Stock or any other capital stock of the Company
payable in shares of Common Stock or in Options or Convertible Securities, or
(ii) subdivide (by any stock split, recapitalization or otherwise) its
outstanding shares of Common Stock into a greater number of shares, the Base
Price in effect immediately prior to any such dividend, distribution or
subdivision shall be proportionately reduced and the number of Warrant Shares
issuable upon exercise of this Warrant shall be proportionately increased. If
the Company at any time combines (by combination, reverse stock split or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, the Base Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant shall be proportionately decreased. Any adjustment
under this Section 4(e) shall become effective at the close of business on the
date the dividend, subdivision or combination becomes effective.  

(f)Adjustment to Base Price and Warrant Shares Upon Reorganization,
Reclassification, Consolidation or Merger. In the event of any (i) capital
reorganization of the  

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

10

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

Company, (ii) reclassification of the stock of the Company (other than a change
in par value or from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or combination of
shares), (iii) consolidation or merger of the Company with or into another
Person, (iv) sale of all or substantially all of the Company’s assets to another
Person or (v) other similar transaction (other than any such transaction covered
by Section 4(e)), in each case which entitles the holders of Common Stock to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock, each Warrant shall,
immediately after such reorganization, reclassification, consolidation, merger,
sale or similar transaction, remain outstanding and shall thereafter, in lieu of
or in addition to (as the case may be) the number of Warrant Shares then
exercisable under this Warrant, be exercisable for the kind and number of shares
of stock or other securities or assets of the Company or of the successor Person
resulting from such transaction to which the Holder would have been entitled
upon such reorganization, reclassification, consolidation, merger, sale or
similar transaction if the Holder had exercised this Warrant in full immediately
prior to the time of such reorganization, reclassification, consolidation,
merger, sale or similar transaction and acquired the applicable number of
Warrant Shares then issuable hereunder as a result of such exercise (without
taking into account any limitations or restrictions on the exercisability of
this Warrant); and, in such case, appropriate adjustment (in form and substance
satisfactory to the Holder) shall be made with respect to the Holder’s rights
under this Warrant to ensure that the provisions of this Section 4 hereof shall
thereafter be applicable, as nearly as possible, to this Warrant in relation to
any shares of stock, securities or assets thereafter acquirable upon exercise of
this Warrant (including, in the case of any consolidation, merger, sale or
similar transaction in which the successor or purchasing Person is other than
the Company, an immediate adjustment in the Base Price to the value per share
for the Common Stock reflected by the terms of such consolidation, merger, sale
or similar transaction, and a corresponding immediate adjustment to the number
of Warrant Shares acquirable upon exercise of this Warrant without regard to any
limitations or restrictions on exercise, if the value so reflected is less than
the Base Price in effect immediately prior to such consolidation, merger, sale
or similar transaction). The provisions of this Section 4(f) shall similarly
apply to successive reorganizations, reclassifications, consolidations, mergers,
sales or similar transactions.

5.Purchase Rights. In addition to any adjustments pursuant to Section 4 above,
if at any time the Company grants, issues or sells any shares of Common Stock,
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of Common Stock (the
“Purchase Rights”), then the Holder shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder would have acquired if the Holder had held the number of Warrant Shares
acquirable upon complete exercise of this Warrant immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights. Anything herein to the contrary notwithstanding, the Holder shall not be
entitled to the Purchase Rights granted herein with respect to any Excluded
Issuance. 

6.Transfer of Warrant. Subject to Section 9 and the transfer conditions referred
to in the legend endorsed hereon, this Warrant and all rights hereunder are
transferable, in whole or in part, by the Holder upon providing the Company with
(a) written notice thereof, including notice of the portion of the Warrant being
transferred and the name, address and taxpayer identification number of the
transferee, and (b) the surrender of this Warrant to the Company at its then
principal executive offices (or such other office or agency of the Company as it
may designate by notice in writing to the Holder), together with funds
sufficient to pay any transfer taxes described in Section 3(f)(iii) in
connection with the making of such transfer; provided, however, that any
transferee shall agree in writing with the Company to be bound by all of the
terms and conditions of this Warrant. Upon such compliance, surrender and
delivery and, if  

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

11

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

required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant, if any, not so assigned and
this Warrant shall promptly be cancelled.

7.Holder Not Deemed a Stockholder; Limitations on Liability. Except as otherwise
specifically provided herein, prior to the issuance to the Holder of the Warrant
Shares to which the Holder is then entitled to receive upon the due exercise of
this Warrant, the Holder shall not be entitled to vote or receive dividends or
be deemed the holder of shares of capital stock of the Company for any purpose,
nor shall anything contained in this Warrant be construed to confer upon the
Holder, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. 

8.Replacement on Loss; Division and Combination. 

(a)Replacement of Warrant on Loss. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it
being understood that a written indemnification agreement or affidavit of loss
of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon
surrender of such Warrant for cancellation to the Company, the Company at its
own expense shall execute and deliver to the Holder, in lieu hereof, a new
Warrant of like tenor and exercisable for an equivalent number of Warrant Shares
as the Warrant so lost, stolen, mutilated or destroyed; provided, that, in the
case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation. 

(b)Division and Combination of Warrant. Subject to compliance with the
applicable provisions of this Warrant and the Purchase Agreement as to any
transfer or other assignment which may be involved in such division or
combination, this Warrant may be divided or, following any such division of this
Warrant, subsequently combined with other Warrants, upon the surrender of this
Warrant or Warrants to the Company at its then principal executive offices (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder), together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the respective
Holders or their agents or attorneys. Subject to compliance with the applicable
provisions of this Warrant and the Purchase Agreement as to any transfer or
assignment which may be involved in such division or combination, the Company
shall at its own expense execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants so surrendered in accordance with such
notice. Such new Warrant or Warrants shall be of like tenor to the surrendered
Warrant or Warrants and shall be exercisable in the aggregate for an equivalent
number of Warrant Shares as the Warrant or Warrants so surrendered in accordance
with such notice.  

9.Compliance with the Securities Act. 

(a)Agreement to Comply with the Securities Act; Legend. The Holder, by
acceptance of this Warrant, agrees to comply in all respects with the provisions
of this Section 9 and the restrictive legend requirements set forth on the face
of this Warrant and further agrees that such Holder shall not offer, sell or
otherwise dispose of this Warrant or any Warrant Shares to be  

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

12

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

issued upon exercise hereof except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended (the “Securities Act”). This
Warrant and all Warrant Shares issued upon exercise of this Warrant (unless
registered under the Securities Act) shall be stamped or imprinted with a legend
in substantially the following form:

“THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS
(I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND
IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT
AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND,
IF THE COMPANY REQUESTS, AN OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT
HAS BEEN RENDERED BY COUNSEL.”

(b)Representations of the Holder. In connection with the issuance of this
Warrant, the Holder specifically represents, as of the date hereof, to the
Company by acceptance of this Warrant as follows: 

(i)The Holder is an “accredited investor” as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act. The Holder is acquiring this
Warrant and the Warrant Shares to be issued upon exercise hereof for investment
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution of this Warrant or the Warrant Shares,
except pursuant to sales registered or exempted under the Securities Act.  

(ii)The Holder understands and acknowledges that this Warrant and the Warrant
Shares to be issued upon exercise hereof are “restricted securities” under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that, under such laws and
applicable regulations, such securities may be resold without registration under
the Securities Act only in certain limited circumstances. In addition, the
Holder represents that it is familiar with Rule 144 under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. 

(iii)The Holder acknowledges that it can bear the economic and financial risk of
its investment for an indefinite period, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant and the Warrant Shares. The Holder has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Warrant and the
business, properties, prospects and financial condition of the Company. 

10.Warrant Register. The Company shall keep and properly maintain at its
principal executive offices books for the registration of the Warrant and any
transfers thereof. The Company may deem and treat the Person in whose name the
Warrant is registered on such register as the Holder thereof for all purposes,
and the Company shall not be affected by any notice to the contrary, except any
 

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

13

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

assignment, division, combination or other transfer of the Warrant effected in
accordance with the provisions of this Warrant.

11.Notices. All notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
given: (a) when delivered by hand (with written confirmation of receipt); (b)
when received by the addressee if sent by a nationally recognized overnight
courier (receipt requested); (c) on the date sent by facsimile or e-mail of a
PDF document (with confirmation of transmission) if sent during normal business
hours of the recipient, and on the next Business Day if sent after normal
business hours of the recipient; or (d) on the third day after the date mailed,
by certified or registered mail, return receipt requested, postage prepaid. Such
communications must be sent to the respective parties at the addresses indicated
below (or at such other address for a party as shall be specified in a notice
given in accordance with this Section 11).   

If to the Company:

 

CynergisTek, Inc.

11940 Jollyville Road, Suite 300-N

Austin, Texas  78759

Attention:  Paul Anthony

E-mail: Paul.Anthony@cynergistek.com

with a copy to:

Kirton McConkie

50 E. South Temple, Ste. 400

Salt Lake City, UT 84111

Attn: Alexander N. Pearson

E-mail: apearson@kmclaw.com 

If to the Holder:

Horton Capital Management

1717 Arch Street, Suite 3920

Philadelphia, PA 19103

Attention: Joseph M Manko, Jr.

E-mail: [E-MAIL ADDRESS]

12.Cumulative Remedies. Except to the extent expressly provided in Section 7 to
the contrary, the rights and remedies provided in this Warrant are cumulative
and are not exclusive of, and are in addition to and not in substitution for,
any other rights or remedies available at law, in equity or otherwise.  

13.Equitable Relief. Each of the Company and the Holder acknowledges that a
breach or threatened breach by such party of any of its obligations under this
Warrant would give rise to irreparable harm to the other party hereto for which
monetary damages would not be an adequate remedy and hereby agrees that in the
event of a breach or a threatened breach by such party of any such obligations,
the other party hereto shall, in addition to any and all other rights and
remedies that may be available to it in respect of such breach, be entitled to
equitable relief, including a restraining order, an injunction, specific
performance and any other relief that may be available from a court of competent
jurisdiction. 

14.Entire Agreement. This Warrant, together with the Registration Rights
Agreement and the Purchase Agreement, constitutes the sole and entire agreement
of the parties to this Warrant with respect to the subject matter contained
herein, and supersedes all prior and contemporaneous understandings and
agreements, both written and oral, with respect to such subject matter. In the
event of  

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

14

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

any inconsistency between the statements in the body of this Warrant, the
Registration Rights Agreement and the Purchase Agreement, the statements in the
body of the Purchase Agreement shall control.

15.Successor and Assigns. This Warrant and the rights evidenced hereby shall be
binding upon and shall inure to the benefit of the parties hereto and the
successors of the Company and the successors and permitted assigns of the
Holder. Such successors and/or permitted assigns of the Holder shall be deemed
to be a Holder for all purposes hereunder.  

16.No Third-Party Beneficiaries. This Warrant is for the sole benefit of the
Company and the Holder and their respective successors and, in the case of the
Holder, permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever, under or by reason of this Warrant. 

17.Headings. The headings in this Warrant are for reference only and shall not
affect the interpretation of this Warrant. 

18.Amendment and Modification; Waiver. Except as otherwise provided herein, this
Warrant may only be amended, modified or supplemented by an agreement in writing
signed by each party hereto. No waiver by the Company or the Holder of any of
the provisions hereof shall be effective unless explicitly set forth in writing
and signed by the party so waiving. No waiver by any party shall operate or be
construed as a waiver in respect of any failure, breach or default not expressly
identified by such written waiver, whether of a similar or different character,
and whether occurring before or after that waiver. No failure to exercise, or
delay in exercising, any rights, remedy, power or privilege arising from this
Warrant shall operate or be construed as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.  

19.Severability. If any term or provision of this Warrant is invalid, illegal or
unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other term or provision of this Warrant or
invalidate or render unenforceable such term or provision in any other
jurisdiction.  

20.Governing Law. This Warrant shall be governed by and construed in accordance
with the internal laws of the State of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Texas or
any other jurisdiction) that would cause the application of laws of any
jurisdiction other than those of the State of Delaware.  

21.Submission to Jurisdiction. Any legal suit, action or proceeding arising out
of or based upon this Warrant or the transactions contemplated hereby may be
instituted in the federal courts of the United States of America or the courts
of the State of Delaware in each case located in Kent County, and each party
irrevocably submits to the exclusive jurisdiction of such courts in any such
suit, action or proceeding. Service of process, summons, notice or other
document by certified or registered mail to such party’s address set forth
herein shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or any proceeding in such courts and irrevocably waive and agree not to plead or
claim in any such court that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. 

22.Waiver of Jury Trial. Each party acknowledges and agrees that any controversy
which may arise under this Warrant is likely to involve complicated and
difficult issues and, therefore, each such  

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

15

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

party irrevocably and unconditionally waives any right it may have to a trial by
jury in respect of any legal action arising out of or relating to this Warrant
or the transactions contemplated hereby.

23.Counterparts. This Warrant may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one
and the same agreement. A signed copy of this Warrant delivered by facsimile,
e-mail or other means of electronic transmission shall be deemed to have the
same legal effect as delivery of an original signed copy of this Warrant. 

24.No Strict Construction. This Warrant shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting an instrument or causing any instrument to be drafted.  

[signature page follows]

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

16

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

IN WITNESS WHEREOF, the Company has duly executed this Warrant on the Original
Issue Date.

 

 

CYNERGISTEK, INC., a Delaware corporation

 

 

By: ____________________________

Name:

Title:

 

Accepted and agreed,

 

HORTON CAPITAL MANAGEMENT, LLC, a Delaware limited liability company

 

 

By: ____________________________

Name:

Title:

 

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

4820-9034-3863

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

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

EXERCISE AGREEMENT

 

1.The undersigned Holder hereby exercises its right purchase shares of the
Common Stock of CynergisTek, Inc., a Delaware corporation (the “Company”) in
accordance with the attached Warrant, and tenders payment of the aggregate
Warrant Price for such shares as follows: 

[    ] Check in the amount of $ payable to order of the Company enclosed
herewith  

[    ] Wire transfer of immediately available funds to the Company’s account

[    ] Net “cashless” exercise pursuant to the provisions of Section 3(b) of the
Warrant

[    ]  Other [Describe]  

2.Please issue a certificate or certificates representing the Shares in the name
specified below: 

 

_____________________________________________

Holder’s Name

 

_____________________________________________

_____________________________________________

Holder’s Address

3.By its execution below and for the benefit of the Company, Holder hereby
restates each of the representations and warranties in Section 9(b) of the
Warrant as of the date hereof. 

 

HOLDER:

 

HORTON CAPITAL MANAGEMENT, LLC,

 

a Delaware limited liability company

 

 

By:

 

Name:

 

Title:

 

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