Document:

ex4_1.htm

Exhibit 4.1

AMENDMENT

 

This Amendment (this “Amendment”), dated and effective as of June 19, 2012 (the “Effective Time”), is made and entered into by and between MGIC Investment Corporation, a Wisconsin corporation (the “Company”), and Wells Fargo Bank, N.A., a national banking association, as rights agent (the “Rights Agent”), under that certain Amended and Restated Rights Agreement, dated as of July 7, 2009, as amended through and including December 29, 2009 (the “Rights Agreement”).

RECITALS:

WHEREAS, pursuant to Section 27 of the Rights Agreement, under circumstances set forth therein, the Company may supplement or amend any provision of the Rights Agreement; and

WHEREAS, the Company desires to amend the Rights Agreement as set forth herein and directs the Rights Agent to execute this Amendment.

AGREEMENT:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

1.      Amendment of Section 1 of the Rights Agreement. Section 1 of the Rights Agreement is amended to read in its entirety as follows as of the Effective Time:

Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated:

(a)    “Acquiring Person” means any Person that is or has become, by itself or together with its Affiliates and Associates, a Beneficial Owner of 5.0% or more of the Common Shares then outstanding, but shall not include:

(i)     any Related Person;

(ii)    any Grandfathered Person, provided that if the Percentage Stock Ownership of any Person that had qualified as a Grandfathered Person ceases to be at least 5.0%, then such Person shall not be deemed to be an Acquiring Person until such later time (if any) as the Percentage Stock Ownership of such Person is 5.0% or more, and then only if such Person does not qualify (A) as an Exempt Person, (B) for the exception in subsection (iv) of this Section 1(a), (C) as a Grandfathered Person pursuant to subsection (o) (ii) of this Section 1, or (D) in the case of any Person who was a Grandfathered Person pursuant to subsection (o)(i) of this Section 1, as a Grandfathered Person pursuant to subsection (o)(ii) of this Section 1, which shall be applied to such Person as if the Percentage Stock Ownership of such Person at the Amendment Effective Time had been less than 5.0%;

 

  

  

  

 

(iii)   any Exempt Person; and

(iv)   any Person that the Board determines, in its sole discretion, has, at or after the Amendment Effective Time, by itself or together with its Affiliates and Associates, inadvertently become a Beneficial Owner of 5.0% or more of the Common Shares then outstanding (or has inadvertently failed to continue to qualify as a Grandfathered Person or Exempt Person); provided that such Person promptly enters into, and delivers to the Company, an irrevocable commitment promptly to divest or cause its Affiliates and Associates to divest, and thereafter such Person or its Affiliates and Associates promptly divest (without exercising or retaining any power, including voting power, with respect to such Common Shares (or other securities the beneficial ownership of which by a Person also results in such Person beneficially owning Common Shares)), sufficient Common Shares (or other securities the beneficial ownership of which by a Person also results in such Person beneficially owning Common Shares) so that such Person’s Percentage Stock Ownership is less than 5.0% (or, in the case of any Person who or which has inadvertently failed to continue to qualify as a Grandfathered Person or Exempt Person, Common Shares (or other securities the beneficial ownership of which by a Person also results in such Person beneficially owning Common Shares) in an amount sufficient to reduce such Person’s beneficial ownership of Common Shares by the number of Common Shares that caused such Person to so fail to qualify as a Grandfathered Person or Exempt Person, as the case may be); provided further that any such Person shall cease to qualify for the exclusion from the definition of “Acquiring Person” contained in this subsection (iv) from and after such time (if any) as the Person, together with its Affiliates and Associates, subsequently becomes a Beneficial Owner of 5.0% or more of the Common Shares then outstanding (or fails to continue to qualify as a Grandfathered Person or Exempt Person), unless the Person independently meets the conditions set forth in this subsection (iv) with respect to the circumstances relating to the Person, together with its Affiliates and Associates, subsequently becoming a Beneficial Owner of 5.0% or more of the Common Shares then outstanding (or failing to continue to qualify as a Grandfathered Person or Exempt Person).

(v)    any Person that has, by itself or together with its Affiliates and Associates, become a Beneficial Owner of 5.0% or more of the Common Shares then outstanding (or has failed to continue to qualify as a Grandfathered Person or Exempt Person) as a result of one or more transactions that are determined to be Exempt Transactions, unless and until such time as such Person or transaction(s) no longer satisfy the terms or conditions, if any, that the Board prescribed in its determination under subsection (l) of this Section 1 with respect to such transaction(s); provided that if the Percentage Stock Ownership of any Person that had qualified for the exemption under this subsection (v) ceases to be at least 5.0%, then such Person shall not be deemed to be an Acquiring Person until such later time (if any) as the Percentage Stock Ownership of such Person is 5.0% or more, and then only if such Person does not qualify (I) as an Exempt Person, (II) for the exception in subsection (iv) of this Section 1(a), (III) as a Grandfathered Person pursuant to subsection (o)(ii) of this Section 1, or (IV) for an additional exception under this subsection (v).

 

  

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(b)    “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as in effect on the date of this Agreement and, to the extent not included within the foregoing provisions of this Section 1(b), shall also include, with respect to any Person, any other Person whose Common Shares are treated, for purposes of Section 382 of the Code and the Treasury Regulations thereunder, as being (i) owned by such first Person (or by a Person or group of Persons to which the Common Shares owned by such first Person are attributed pursuant to Treasury Regulation Section 1.382-2T(h)), or (ii) owned by the same “entity” (as defined in the second sentence of Treasury Regulation Section 1.382-3(a)(1)(i)) as is deemed to own the Common Shares owned by such first Person; provided, however, that a Person shall not be deemed to be an Affiliate or Associate of another Person solely because either or both Persons are or were directors or officers of the Company.

(c)    “Amendment Effective Time” means the close of business on July 7, 2009.

(d)    A Person shall be deemed a “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

(i)      which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly;

(ii)     which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, warrants, options, or other rights (in each case, other than upon exercise or exchange of the Rights); provided, however, that a Person shall not be deemed a Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange;

(iii)    which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has or shares the right to vote or dispose of, or has “beneficial ownership” (as defined under Rule 13d-3 of the General Rules and Regulations under the Exchange Act) of, including pursuant to any agreement, arrangement or understanding (whether or not in writing); or

 

(iv)    with respect to which any other Person is a Beneficial Owner, if the Person referred to in the introductory clause of this Section 1(d) or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) with such other Person (or any of such other Person’s Affiliates or Associates) with respect to acquiring, holding, voting or disposing of any securities of the Company;

 

  

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provided, however, that the preceding provisions of this Section 1(d) shall not be applied to cause a Person to be deemed a “Beneficial Owner” of, or to “beneficially own,” any security (A) solely because such Person has the right to vote such security pursuant to an agreement, arrangement or understanding (whether or not in writing) which (1) arises solely from a revocable proxy given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act, and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report), or (B) if such beneficial ownership arises solely as a result of such Person’s status as a “clearing agency,” as defined in Section 3(a)(23) of the Exchange Act; provided further, however, that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities or member of a selling to group to be a Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in an underwriting syndicate until the expiration of 40 calendar days after the date of such acquisition, or such later date as the directors of the Company may determine in any specific case; provided further that the transfer of beneficial ownership of Common Shares to any Person without any consideration for such transfer being given by such Person shall not result in such Person becoming a Beneficial Owner of any additional Common Shares until the Person accepts such transfer. Notwithstanding anything herein to the contrary, to the extent not within the foregoing provisions of this Section 1(d), a Person shall be deemed a “Beneficial Owner” of, and shall be deemed to “beneficially own” or have “beneficial ownership” of, any securities that are owned by another Person and that are treated, for purposes of Section 382 of the Code and the Treasury Regulations thereunder, as being (x) owned by such first Person (or by a Person or group of Persons to which the securities owned by such first Person are attributed pursuant to Treasury Regulation Section 1.382-2T(h)), or (y) owned by the same “entity” (as defined in the second sentence of Treasury Regulation Section 1.382-3(a)(1)(i)) as is deemed to own the securities owned by such first Person.

(e)    “Board” means the Board of Directors of the Company.

(f)     “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close.

(g)    “close of business” on any given date shall mean 5:00 P.M., Milwaukee, Wisconsin time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Milwaukee, Wisconsin time, on the next succeeding Business Day.

(h)    “Common Shares” means the shares of common stock, par value $1.00, of the Company.

(i)     “Distribution Date” has the meaning set forth in Section 3(a) hereof.

(j)     “Exchange Act” has the meaning set forth in subsection (b) of this Section 1.

(k)    “Exempt Person” means any Person (i) who (A) delivers to the Company a letter that, as determined by the Company in its sole discretion, is substantially in the form attached hereto as Exhibit C, or (B) is an Affiliate or Associate of another Person who delivers to the Company a letter as described in clause (i)(A) above, and (ii) whose beneficial ownership of 5% or more of the outstanding Common Shares would not, as determined (prior to such Person becoming the Beneficial Owner of 5% or more of the Common Shares then outstanding) by the Company in its sole discretion, jeopardize or endanger the availability to the Company of the Tax Benefits;

 

  

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provided that such Person shall not be an Exempt Person unless and until it, or its Affiliate or Associate who delivers a letter as described in clause (i) above, has received written notice of such determination by the Company;

provided further that such Person shall cease to be an Exempt Person from and after the earlier of such time (if any) as (I) in respect of the letter that such Person, or its Affiliate or Associate, delivered pursuant to clause (i) above, a representation or warranty of such Person, or its Affiliate or Associate, in such letter was not true and correct when made, a representation or warranty of such Person, or its Affiliate or Associate, in such letter that was to remain true and correct after the date of the letter as contemplated therein ceases to remain true and correct or such Person, or its Affiliate or Associate, ceases to comply with a covenant contained in such letter, or (II) such Person becomes the Beneficial Owner of 10% or more of the Common Shares then outstanding, other than any increase that is a result of (x) an acquisition of Common Shares by the Company and/or (y) such Person becoming the Beneficial Owner of additional Common Shares due solely to the occurrence of one or more 2063 Debenture Adjustment Events (as such term is defined at the end of this Section 1(k)) during the period in which the Company’s 9% Convertible Junior Subordinated Debentures due 2063 (the “2063 Debentures”) are beneficially owned by such Person.

Notwithstanding the foregoing, a Grandfathered Person shall not be precluded from becoming an Exempt Person (as defined in the preceding sentence, giving effect to this sentence) prior to the time at which such Grandfathered Person would otherwise become an Acquiring Person; provided that any Grandfathered Person that is or was a Grandfathered Person pursuant to subsection (o)(iv) of this Section 1 may only become an Exempt Person if such Grandfathered Person (1) reduced its Percentage Stock Ownership to less than 5% through one or more dispositions of Common Shares, with the disposition that resulted in its Percentage Stock Ownership being reduced to less than 5% involving as few shares as practicable without the need for an odd lot transaction (such disposition(s), the “reduction below 5%”), and (2) publicly reports in an amendment to a Schedule 13G the number of Common Shares beneficially owned as a result of the reduction below 5%.

If any Person that had qualified as an Exempt Person ceases to so qualify, then for purposes of Section 1(a) such Person shall be deemed to have become, as of the time the Person ceased to qualify as an Exempt Person, a Beneficial Owner of the Common Shares that such Person and such Person’s Affiliates and Associates then beneficially own. For the avoidance of doubt, it is understood that the qualifications and exceptions in this Section 1(k) with respect to 2063 Debenture Adjustment Events do not apply to Common Shares attributable to 2063 Debenture Adjustment Events that are delivered and beneficially owned on conversion of 2063 Debentures. “2063 Debenture Adjustment Events” means each of (a) effective as of each date on which the interest so deferred would have been due and payable in the absence of such deferral, the Company deferring the payment of interest on the 2063 Debentures, (b) effective as of each date on which such compounded interest accrues, compounded interest on account of such a deferral, and (c) an increase pursuant to the terms of the 2063 Debentures in the number of Common Shares that are deliverable on conversion of the 2063 Debentures. Changes in the average price per Common Share that affect the number of Common Shares deliverable on conversion of the 2063 Debentures shall be considered adjustments under the immediately preceding clause (c).

 

  

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Notwithstanding the foregoing, the determination required by Section 1(k)(ii) may be made after a Person becomes the Beneficial Owner of 5% or more of the Common Shares of the Company, provided such beneficial ownership was reported on a Schedule 13F-HR filed on May 7, 2012 and the Board determined that such Person (by itself or together with its Affiliates and Associates) had inadvertently become a Beneficial Owner of 5% or more of the Common Shares of the Company (“inadvertence determination”). If a Person is determined to be an Exempt Person by taking account of the immediately preceding sentence, for purposes of Section 1(a)(iv), such Person shall not be deemed to have failed promptly to enter into a commitment to divest or to divest promptly any Common Shares acquired prior to the later of the inadvertence determination and the time such Person is determined to be an Exempt Person.

 (l)    “Exempt Transaction” means any transaction that the Board determines, in its sole discretion and on such terms and conditions as the Board may in its sole discretion prescribe, should have the consequences of an Exempt Transaction under this Agreement.

(m)   “Expiration Date” means earliest of (i) Final Expiration Date; (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the “Redemption Date”); (iii) the time at which the Rights are exchanged as provided in Section 24 hereof; (iv) the repeal of Section 382 of the Code if the Board determines that this Agreement is no longer necessary for the preservation of the Tax Benefits; and (v) the beginning of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward.

(n)    “Final Expiration Date” means the close of business on August 17, 2012, subject to extension.

(o)    “Grandfathered Person” means:

(i)     any Person who does not qualify as an “Acquiring Person” (as defined in the Original Rights Agreement) immediately prior to the Amendment Effective Time and who at the Amendment Effective Time is a Beneficial Owner of 5.0% or more of the Common Shares outstanding at the Amendment Effective Time; provided that any such Person shall cease to be a Grandfathered Person from and after such time (if any) as the Person’s Percentage Stock Ownership shall be increased from such Person’s lowest Percentage Stock Ownership at or after the Amendment Effective Time, other than any increase pursuant to or as a result of (A) an acquisition of Common Shares by the Company and/or (B) such Person becoming the Beneficial Owner of additional Common Shares due solely to (x) such Person beneficially owning 2063 Debentures immediately prior to the Amendment Effective Time and (y) during the period thereafter in which the 2063 Debentures then beneficially owned continue to be beneficially owned by such Person, the occurrence of one or more 2063 Debenture Adjustment Events;

 

  

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(ii)    any Person who (x) at the Amendment Effective Time is not a Beneficial Owner of 5.0% or more of the Common Shares outstanding at the Amendment Effective Time and (y) if the definition of Acquiring Person did not include an exclusion for any Grandfathered Person, would qualify as an Acquiring Person after the Amendment Effective Time as a result of (I) an acquisition of Common Shares by the Company and/or (II) such Person becoming the Beneficial Owner of additional Common Shares due solely to the occurrence of one or more 2063 Debenture Adjustment Events during the period in which 2063 Debentures are beneficially owned by such Person; provided that any such Person shall cease to be a Grandfathered Person from and after such time (if any) as the Person’s Percentage Stock Ownership shall be increased from such Person’s lowest Percentage Stock Ownership on or after the date of the first occurrence of any event described in clause (I) or (II), other than any increase pursuant to or as a result of (A) an acquisition of Common Shares by the Company and/or (B) such Person becoming the Beneficial Owner of additional Common Shares due solely to the occurrence of one or more 2063 Debenture Adjustment Events during the period in which 2063 Debentures are beneficially owned by such Person;

(iii)   any Person who (x) at all times on or prior to November 30, 2009 is not and was not a Beneficial Owner of 5.0% or more of the Common Shares then outstanding and (y) if the definition of Acquiring Person did not include an exclusion for any Grandfathered Person, would qualify as an Acquiring Person on or after December 1, 2009 as a direct result of an acquisition or merger involving all or part of the asset management business of a financial institution headquartered in the United Kingdom that closes or is effective on or after December 1, 2009 but no later than December 15, 2009 and has a transaction value in excess of $10 billion; provided that any such Person shall cease to be a Grandfathered Person from and after the earlier to occur of (x) such time (if any) as the Person’s Percentage Stock Ownership shall be increased above 10.0%, other than any increase pursuant to or as a result of (A) an acquisition of Common Shares by the Company and/or (B) such Person becoming the Beneficial Owner of additional Common Shares due solely to the occurrence of one or more 2063 Debenture Adjustment Events during the period in which 2063 Debentures are beneficially owned by such Person or (y) February 16, 2010; and

(iv)   Any Person (and any Affiliate or Associate of such Person) who on November 30, 2009 became the Beneficial Owner of more than 5.0% of the Common Shares then outstanding, which beneficial ownership was reported on a Schedule 13G on December 10, 2009; provided that such Persons shall cease to be a Grandfathered Person from and after the earlier to occur of (x) such time (if any) as such Persons become the Beneficial Owner of a number of Common Shares that is more than the number of Common Shares that such Persons beneficially owned at the close of business on December 3, 2009 or (y) February 16, 2010.

If any Person that had qualified as a Grandfathered Person ceases to so qualify, then for purposes of Section 1(a) such Person and such Person’s Affiliates and Associates shall be deemed to have become, as of the time the Person ceased to qualify as a Grandfathered Person, a Beneficial Owner of the Common Shares that such Person and such Person’s Affiliates and Associates then beneficially own. For the avoidance of doubt, it is understood that the qualifications and exceptions in subsections (o) (i), (ii) and (iii) of this Section 1 with respect to 2063 Debenture Adjustment Events do not apply to Common Shares attributable to 2063 Debenture Adjustment Events that are delivered and beneficially owned on conversion of 2063 Debentures.

 

  

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(p)    “Percentage Stock Ownership” of a Person means the percentage calculated by dividing (i) the number of Common Shares as to which the Person, together with its Affiliates and Associates, is a Beneficial Owner, divided by (ii) the number of Common Shares then outstanding.

(q)    “Person” means any individual, firm, corporation, partnership, trust, association, limited liability company, limited liability partnership, governmental entity, or other entity, or any group of any one or more of the foregoing making a “coordinated acquisition” of shares or otherwise treated as an entity within the meaning of Treasury Regulation Section 1.382-3(a)(1)(i) and shall include any successor (by merger or otherwise) of any such entity.

(r)     “Redemption Date” has the meaning set forth in subsection (m) of this Section 1.

(s)    “Related Person” means the Company, any Subsidiary of the Company (in each case including, without limitation, in any fiduciary capacity), any employee benefit plan or compensation arrangement of the Company or any Subsidiary of the Company, or any entity or trustee holding Common Shares to the extent organized, appointed or established by the Company or any Subsidiary of the Company for or pursuant to the terms of any such employee benefit plan or compensation arrangement.

(t)     “Securities Act” means the Securities Act of 1933, as amended.

(u)    “Shares Acquisition Date” means the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed or amended pursuant to Section 13(d) under the Exchange Act), by the Company or a Person or an Affiliate of the Person, (i) that the Person has become an Acquiring Person or (ii) of information that leads the Board to conclude that the Person has become an Acquiring Person.

(v)    “Subsidiary” of any Person means any other Person of which securities or other ownership interests having ordinary voting power, in the absence of contingencies, to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such first Person.

(w)   “Tax Benefits” means the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative minimum tax credit carryovers and foreign tax credit carryovers, as well as any loss or deduction attributable to a “net unrealized built-in loss” within the meaning of Section 382 of the Code, of the Company or any of its Subsidiaries.

(x)     “Treasury Regulation” means a final, proposed or temporary regulation of the U.S. Department of Treasury promulgated under the Code.

2.      No Further Amendment. Except as specifically supplemented and amended, changed or modified in Section 1 above, the Rights Agreement shall be unaffected by this Amendment and shall remain in full force and effect.

 

  

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3.      Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Wisconsin and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State.

4.      Counterparts. This Amendment may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

5.      Descriptive Headings. Descriptive headings of the Sections of this Amendment are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Amendment.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered, all as of the day and year first above written.

 

	
MGIC INVESTMENT CORPORATION

	 	
WELLS FARGO BANK, N.A., as Rights Agent

	 	 	 	 	 
	
By: 

	
/s/ J. Michael Lauer

	 	
By: 

	
/s/ Jennifer L. Leno

	 	 	 	 	 
	 	Name :    J. Michael Lauer	 	 	
Name:  Jennifer L. Leno

	 	 	 	 	 
	 	Title :      Executive Vice President and CFO	 	 	Title :   Vice President

 

 

9Form of Representative’s Option
Agreement

 

THE REGISTERED HOLDER OF THIS PURCHASE
OPTION BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN PROVIDED
AND THE REGISTERED HOLDER OF THIS PURCHASE OPTION AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE
OPTION FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) AEGIS CAPITAL
CORP. OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF AEGIS CAPITAL
CORP. OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.

 

THIS PURCHASE OPTION IS NOT EXERCISABLE
PRIOR TO _________2013, [DATE THAT IS ONE YEAR AFTER DATE OF PROSPECTUS]. VOID AFTER 5:00 P.M., EASTERN TIME, ______________, 2017
[DATE THAT IS FIVE YEARS AFTER DATE OF PROSPECTUS].

 

PURCHASE OPTION

 

For the Purchase of

[_______] Shares of Common Stock

 

and/or

[______] Common Stock Purchase Warrants

 

Of

 

CNS RESPONSE, INC.

 

1.         Purchase
Option. THIS CERTIFIES THAT, in consideration of $[____] duly paid by or on behalf of Aegis Capital Corp. (“Holder
”), as registered owner of this Purchase Option, CNS Response, Inc. (the “Company ”), Holder is entitled,
at any time or from time to time from ______________, 2013 [DATE THAT IS ONE YEAR AFTER DATE OF PROSPECTUS] (the “Commencement
Date”), and at or before 5:00     p.m., Eastern time, _______________, 2017 [DATE THAT IS FIVE
YEARS AFTER DATE OF PROSPECTUS] (the  “Expiration Date ”), but not thereafter, to subscribe for, purchase
and receive, in whole or in part, up to [ ] ([ ]) shares of Common Stock of the Company, $0.001 par value ("Common Stock")
and/or [ ] ([ ]) Common Stock Purchase Warrants, each to purchase one share of Common Stock ("Warrants"), (representing
5% of the shares of Common Stock included in the Firm Securities, not including the Common Stock underlying the Warrants and excluding
the shares of Common Stock included in the over-allotment, as such terms are defined in the Underwriting Agreement) subject to
adjustment as provided in Section 6 hereof. Each Warrant is the same as the Common Stock Purchase Warrants ("Public
Warrants") that have been registered by the Company for sale to the public pursuant to the Registration Statement on Form
S-1 (No.333-173934) ("Registration Statement"), which was declared effective on _________ ____, 2012 ("Effective
Date"). The shares of Common Stock and Warrants are sometimes collectively referred to herein as the "Securities."
The Holder can purchase, upon exercise of the Purchase Option, either shares of Common Stock or Warrants or both. If the Expiration
Date is a day on which banking institutions are authorized by law to close, then this Purchase Option may be exercised on the next
succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the
Company agrees not to take any action that would terminate the Purchase Option. This Purchase Option is initially exercisable at
$[ ] per share of Common Stock and $[ ] per Warrant purchased (equal to [125]% of the exercise price of the Public Warrant and
purchase price of the Common Stock, as such terms are defined in the Underwriting Agreement); provided, however, that upon the
occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Option, including the exercise
price and the number of shares of Common Stock and Warrants to be received upon such exercise, shall be adjusted as therein specified.
The term "Exercise Price" shall mean the initial exercise price or the adjusted exercise price, depending on the context
of a share of Common Stock or a Warrant.

 

    	 

    	 

    

 

2.           Exercise.

 

2.1         Exercise
Form. In order to exercise this Purchase Option, the exercise form attached hereto must be duly executed and completed and
delivered to the Company, together with this Purchase Option and payment of the Exercise Price for the Shares being purchased payable
in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official
bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration
Date, this Purchase Option shall become and be void without further force or effect, and all rights represented hereby shall cease
and expire.

  

2.2         Legend.
Each certificate for the securities purchased under this Purchase Option shall bear a legend as follows unless such securities
have been registered under the Securities Act of 1933, as amended (the “Act”):

 

“The securities represented
by this certificate have not been registered under the Securities Act of 1933, as amended (the Act ”), or applicable
state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant
to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable
state law which, in the opinion of counsel to the Company, is available.”

 

2.3         Conversion
Right.

 

2.3.1 Determination
of Amount. In lieu of the payment of the Exercise Price in the manner required by Section 2.1, the Holder shall have the right
(but not the obligation) to convert any exercisable but unexercised portion of this Purchase Option into Common Stock and/or Warrants
("Conversion Right") as provided in this Section 2 below.

 

2.3.2 Common
Stock. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any
of the Exercise Price in cash) that number of shares of Common Stock equal to the quotient obtained by dividing (x) the "Stock
Value" (as defined below), at the close of trading on the next to last trading day immediately preceding the exercise of the
Conversion Right, of the portion of the Purchase Option being converted by (y) the Market Price at that same time. The "Stock
Value" of the portion of the Purchase Option being converted shall equal the remainder derived from subtracting (a) the
Exercise Price multiplied by the number of shares of Common Stock underlying that portion of the Purchase Option being converted
from (b) the Market Price of the Common Stock multiplied by the number of shares of Common Stock underlying that portion of the
Purchase Option being converted. As used in this Section 2.3.2, the term "Market Price" at any date shall be deemed to
be the closing price on such exchange prior on the day prior to such date, as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading, or, if the Company’s common stock is actively traded over-the-counter,
the value shall be deemed to be the closing bid on the day prior to such date, or if the Common Stock is not listed or admitted
to trading on any of the foregoing markets, or similar organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.

 

2.3.3 Warrants.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any of the Exercise
Price in cash) that number of Warrants equal to the quotient obtained by dividing (x) the "Warrant Value" (as defined
below), at the close of trading on the next to last trading day immediately preceding the exercise of the Conversion Right, of
the portion of the Purchase Option being converted by (y) the Market Price at that same time. The "Warrant Value" of
the portion of the Purchase Option being converted shall equal the remainder derived from subtracting (a) the Exercise Price multiplied
by the number of Warrants underlying that portion of the Purchase Option being converted from (b) the Market Price of the Warrants
multiplied by the number of Warrants underlying that portion of the Purchase Option being converted. As used in this Section 2.3.3,
the term "Market Price" at any date shall be deemed to be the last reported closing sale price of the Warrants on the
day prior to such date, as officially reported by the principal securities exchange on which the Warrants are listed or admitted
to trading, or, if the Warrants are , if the Warrants are actively traded over-the-counter, the value shall be deemed to be the
closing bid on the day prior to such date, or if the Warrants are not then traded on any of the foregoing markets, or similar organization,
then the "Market Price" shall equal the remainder derived from subtracting (a) the exercise price of the underlying Warrant
from (b) the "Market Price" of the Common Stock as determined in Section 2.3.2.

 

2.3.4 Mechanics
of Conversion. The Conversion Right may be exercised by the Holder on any business day on or after the Commencement Date and
not later than the Expiration Date by delivering the Purchase Option with a duly executed exercise form attached hereto with the
conversion right section completed to the Company, exercising the Conversion Right and specifying the total number of shares of
Common Stock and/or Warrants that the Holder will purchase pursuant to such Conversion Right.

 

    	- 2 -

    	 

    

 

3.           Transfer.

 

3.1        General
Restrictions. The registered Holder of this Purchase Option agrees by his, her or its acceptance hereof, that such Holder will
not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Option for a period of one hundred eighty (180) days following
the Effective Date to anyone other than: (i) Aegis Capital Corp. (“Aegis”) or an underwriter or a selected dealer
participating in the Offering, or (ii) a bona fide officer or partner of AEGIS or of any such underwriter or selected dealer, in
each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Option or the securities issuable hereunder
to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition
of this Purchase Option or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after the one hundred
eighty (180) days of the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable
securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with the Purchase Option and payment of all transfer taxes, if any, payable in connection
therewith. The Company shall within five (5) Business Days transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to the appropriate assignee(s) expressly evidencing
the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated
by any such assignment.

 

3.2        Restrictions
Imposed by the Act. The securities evidenced by this Purchase Option shall not be transferred unless and until: (i) the Company
has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration
under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of
the Company (the Company hereby agreeing that the opinion of Gersten Savage LLP shall be deemed satisfactory evidence of the availability
of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the
offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission
(the “Commission”) and compliance with applicable state securities law has been established.

 

4.          Registration
Rights.

 

4.1         Demand
Registration.

 

4.1.1      Grant
of Right. The Company, upon written demand (a “Demand Notice”) of the Holder(s) of at least 51% of the Purchase
Options and/or the underlying Shares of Common Stock and Warrants (“Majority Holders”), agrees to register,
on one occasion, all or any portion of the Shares underlying the Purchase Options including the Common Stock, the Warrants and
the Common Stock underlying the Warrants (collectively, the “Registrable Securities”). On such occasion, the
Company will file a registration statement with the SEC covering the Registrable Securities within sixty (60) days after receipt
of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter,
subject to compliance with review by the SEC;  provided ,  however , that the Company shall not be required to comply
with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback
registration rights pursuant to  Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering
covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities
of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such
offering is consummated. The demand for registration may be made at any time during a period of four (4) years beginning one (1)
year after the Closing Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any
Holder(s) to all other registered Holders of the Purchase Options and/or the Registrable Securities within ten (10) days after
the date of the receipt of any such Demand Notice.

 

    	- 3 -

    	 

    

 

4.1.2     Terms.
The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to  Section
4.1.1 , but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best
efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities
in such States as are reasonably requested by the Holder(s);  provided , however , that in no event shall the Company
be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated
to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal
shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any
registration statement filed pursuant to the demand right granted under  Section 4.1.1 to remain effective for a period
of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration
statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided
by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished
by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission.

 

4.2         “Piggy-Back”
Registration.

 

4.2.1      Grant
of Right. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the
right, for a period of four (4) years commencing one (1) year after the Closing Date, to include the Registrable Securities as
part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by
Rule 145 (a) promulgated under the Act or pursuant to Form S-8 or any equivalent form);  provided , however , that
if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s)
thereof shall, in its reasonable discretion, impose a limitation on the number of shares of Common Stock which may be included
in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is
necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter
shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable
Securities in proportion to the number of Registrable Securities sought to be included by such Holders;  provided , however
, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities,
the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro
rata inclusion with the Registrable Securities.

 

4.2.2      Terms.
The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to  Section 4.2.1
hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders
to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the
Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice
prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for
each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder.
The holders of the Registrable Securities shall exercise the piggy-back” rights provided for herein by giving written notice,
within ten (10) days of the receipt of the Company's notice of its intention to file a registration statement.

 

    	- 4 -

    	 

    

 

4.3         General
Terms.

 

4.3.1      Indemnification.
The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder
and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20 (a) of the Securities
Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including
all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in  Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated
as of June [__], 2012. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished
by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement
to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant
to which the Underwriters have agreed to indemnify the Company.

 

4.3.2      Exercise
of Purchase Options. Nothing contained in this Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options prior to or after the initial filing of any registration statement or the effectiveness thereof.

 

4.3.3      Documents
Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each
underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of
counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a cold comfort”
letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering,
a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting
firm which has issued a report on the Company's financial statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case
of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer’s counsel and in accountants' letters delivered to underwriters in underwritten public offerings of
securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence
and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the SEC and the Company,
its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained
in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules
of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such
Holder shall reasonably request.

 

    	- 5 -

    	 

    

 

4.3.4      Underwriting
Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any
Holders whose Registrable Securities are being registered pursuant to this Section 4 , which managing underwriter shall
be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company,
each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option,
require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters
shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties
to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended
methods of distribution.

 

4.3.5      Documents
to be Delivered by Holder(s). Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company
a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

 

4.3.6      Damages.
Should the registration or the effectiveness thereof required by Section 4.1 and Section 4.2 hereof be delayed by
the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal
or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive)
relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving
actual damages and without the necessity of posting bond or other security.

 

5.                        New
Purchase Options to be Issued.

 

5.1          Partial
Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Option may be exercised or assigned
in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Option for
cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or
transfer tax if exercised pursuant to  Section 2.1 hereto, the Company shall cause to be delivered to the Holder without
charge a new Purchase Option of like tenor to this Purchase Option in the name of the Holder evidencing the right of the Holder
to purchase the number of Shares purchasable hereunder as to which this Purchase Option has not been exercised or assigned.

 

5.2        Lost
Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver
a new Purchase Option of like tenor and date. Any such new Purchase Option executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

6.          Adjustments.

 

6.1        Adjustments
to Exercise Price and Number of Securities. The Exercise Price and the number of Shares underlying the Purchase Option and
underlying the Warrants shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1      Share
Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding
Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective
date thereof, the number of shares of Common Stock issuable on exercise of the Purchase Option and the Warrants underlying the
Purchase Option shall be increased in proportion to such increase in outstanding shares shall be proportionately increased.

 

    	- 6 -

    	 

    

 

6.1.2      Aggregation
of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding
Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective
date thereof, the number shares of Common Stock issuable on exercise of the Purchase Option and the Warrants underlying the Purchase
Option shall be decreased in proportion to such decrease in outstanding shares.

 

6.1.3      Adjustments
in Exercise Price. Whenever the number of shares of Common Stock purchasable upon the exercise of this Purchase Option is adjusted,
as provided in this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by multiplying such Exercise Price
immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise of this Purchase Option immediately prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter. If it is determined that such Exercise Price and number of shares
of Common Stock must be adjusted, then the Exercise Price of the Purchase Option with respect to the underlying Warrants and the
number of Warrants purchasable hereunder shall also be similarly adjusted.     

 

6.1.4 Replacement
of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than
a change covered by  Section 6.1.1 or  Section 6.1.2 hereof or that solely affects the par value of such Shares,
or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other
than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not
result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another
corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the
Company is dissolved, the Holder of this Purchase Option shall have the right thereafter (until the expiration of the right of
exercise of this Purchase Option) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable
upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following
any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Option
immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1
or Section 6.1.2 , then such adjustment shall be made pursuant to Section 6.1.1 , Section 6.1.2 and this Section
6.1.3 . The provisions of this  Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations,
share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

6.1.4      Changes
in Form of Purchase Option. This form of Purchase Option need not be changed because of any change pursuant to this Section
6.1 , and Purchase Options issued after such change may state the same Exercise Price and the same number of shares of Common
Stock and Warrants as are stated in the Purchase Options initially issued pursuant to this Agreement. The acceptance by any Holder
of the issuance of new Purchase Options reflecting a required or permissive change shall not be deemed to waive any rights to an
adjustment occurring after the Commencement Date or the computation thereof.

 

6.2         Substitute
Purchase Option. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with
or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification
or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall
execute and deliver to the Holder a supplemental Purchase Option providing that the holder of each Purchase Option then outstanding
or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Option) to receive, upon exercise
of such Purchase Option, the kind and amount of shares of stock and other securities and property receivable upon such consolidation
or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Option might
have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental
Purchase Option shall provide for adjustments which shall be identical to the adjustments provided for in this  Section 6
.. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

6.3        Elimination
of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common
Stock or Warrants upon the exercise of the Purchase Option, nor shall it be required to issue scrip or pay cash in lieu of any
fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction
up or down, as the case may be, to the nearest whole number of Warrants, shares of Common Stock or other securities, properties
or rights.

 

    	- 7 -

    	 

    

 

7.           Reservation
and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose
of issuance upon exercise of the Purchase Options or the Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase
Options and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable
upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any
shareholder. The Company further covenants and agrees that upon exercise of the Purchase Options and payment of the exercise price
therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable
and not subject to preemptive rights of any shareholder. As long as the Purchase Options shall be outstanding, the Company shall
use its commercially reasonable efforts to cause all shares of Common Stock issuable upon exercise of the Purchase Options and
the Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on
the OTC Bulletin Board or any successor trading market) on which the Common Stock or the Public Warrants issued to the public in

connection herewith are then listed and/or
quoted.

 

8.           Certain
Notice Requirements.

 

8.1         Holder's
Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to
receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder
of the Company. If, however, at any time prior to the expiration of the Purchase Options and their exercise, any of the events
described in  Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such
event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of
the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder
a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is
given to the shareholders.

 

8.2         Events
Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the
following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained
earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company
shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution,
liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation)
or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3         Notice
of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to
 Section 6 hereof, send notice to the Holders of such event and change ( Price Notice ”). The Price Notice
shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate
by the Company's Chief Financial Officer.

 

8.4         Transmittal
of Notices. All notices, requests, consents and other communications under this Purchase Option shall be in writing and shall
be deemed to have been duly made when hand delivered, or mailed by express mail or private courier service: (i) if to the registered
Holder of the Purchase Option, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to
following address or to such other address as the Company may designate by notice to the Holders:

 

    	- 8 -

    	 

    

 

If to the Holder:

Aegis Capital Corp.

810 Seventh Avenue, 11th
Floor

New York, New York 10019

Attn: Mr. David Bocchi, Managing Director of

                            Investment
Banking

Fax No.: (212) 813-1047

 

With a copy (which shall not constitute notice) to:

 

Gersten Savage LLP

600 Lexington Avenue, 9th
Floor

New York, New York 10022

Attn: David Danovitch, Esq.

Fax No: (212) 980-5192

 

If to the Company:

 

CNS Response, Inc.

85 Enterprise, Suite 410

Aliso Viejo, CA 9265

Attention: Chief Executive Officer and Chief Financial
Officer

Fax No: (866) 294-2611

 

With a copy (which shall not constitute notice) to:

 

SNR Denton, LLP,

Two World Financial Center

New York, New York 10281

Attn: Jeffrey Baumel, Esq.

Fax No: (212) 202-7735

 

9.           Miscellaneous.

 

9.1         Amendments.
The Company and Aegis may from time to time supplement or amend this Purchase Option without the approval of any of the Holders
in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with
any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company
and Aegis may deem necessary or desirable and that the Company and Aegis deem shall not adversely affect the interest of the Holders.
All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement
of the modification or amendment is sought.

 

9.2         Headings.
The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Purchase Option.

 

    	- 9 -

    	 

    

 

9.3.        Entire
Agreement. This Purchase Option (together with the other agreements and documents being delivered pursuant to or in connection
with this Purchase Option) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4         Binding
Effect. This Purchase Option shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and
their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Option or any provisions
herein contained.

 

9.5         Governing
Law; Submission to Jurisdiction. This Purchase Option shall be governed by and construed and enforced in accordance with the
laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any
action, proceeding or claim against it arising out of, or relating in any way to this Purchase Option shall be brought and enforced
in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to
such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the
Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in  Section 8 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies)
in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating
to such action or proceeding and/or incurred in connection with the preparation therefor.

 

9.6         Waiver,
etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Option shall not
be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Option or any
provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Option.
No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Option shall be effective
unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.

 

9.7         Execution
in Counterparts. This Purchase Option may be executed in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

 

9.8         Exchange
Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Option, Holder agrees that, at any
time prior to the complete exercise of this Purchase Option by Holder, if the Company and Aegis enter into an agreement (“Exchange
Agreement”) pursuant to which they agree that all outstanding Purchase Options will be exchanged for securities or cash
or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

 

[Remainder of page
intentionally left blank]

 

    	- 10 -

    	 

    

 

IN WITNESS WHEREOF,
the Company has caused this Purchase Option to be signed by its duly authorized officer as of the ____ day of _______, 2012.

 

	CNS Response, Inc.
	 	 	 
	By:	 	 
	 	Name:	 
	 	Title:	 

 

    	- 11 -

    	 

    

 

[Form to be used to exercise Purchase Option:]

 

Date: __________,
20___

 

The undersigned hereby
elects irrevocably to exercise the Purchase Option for ______ shares of Common Stock and/or Warrants to purchase shares of Common
Stock of CNS Response, Inc. (the “Company ”) and hereby makes payment of $____ (at the rate of $____ per Share
and $__ per Warrant) in payment of the Exercise Price pursuant thereto. Please issue the Common Stock and the Warrants as to which
this Purchase Option is exercised in accordance with the instructions given below and, if applicable, a new Purchase Option representing
the number of shares of Common Stock and Warrants for which this Purchase Option has not been exercised.

 

or

 The undersigned hereby elects irrevocably
to exercise the within Purchase Option and to purchase _________ shares of Common Stock by surrender of the unexercised portion
of the within Purchase Option (with a "Stock Value" of $_______ based on a "Market Price" of $__________.
Please issue the Common Stock as to which this Purchase Option is exercised in accordance with the instructions given below.

  

Signature

 

 

Signature Guaranteed

 

    	 

    	 

    

 

INSTRUCTIONS FOR REGISTRATION
OF SECURITIES

 

Name:

(Print in Block Letters)

Address:

 

NOTICE: The signature
to this form must correspond with the name as written upon the face of the Purchase Option without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership
on a registered national securities exchange.

 

    	 

    	 

    

 

Form to be used to assign Purchase Option:

 

ASSIGNMENT

 

(To be executed by the registered Holder
to effect a transfer of the within Purchase Option):

 

FOR VALUE RECEIVED, __________________
does hereby sell, assign and transfer unto the right to purchase shares of Common Stock and/or Warrants to purchase _____ shares
of Common Stock of CNS Response, Inc. (the “Company”) evidenced by the Purchase Option and does hereby authorize
the Company to transfer such right on the books of the Company.

 

Dated: __________, 20__

 

 

Signature

 

 

Signature Guaranteed

 

NOTICE: The signature
to this form must correspond with the name as written upon the face of the within Purchase Option without alteration or enlargement
or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.

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