Document:

Unassociated Document

    

     

    ALLONGE
TO NOTE

     

    THIS
ALLONGE TO NOTE ("Allonge") is made and entered into as of the 29th day of
December 2009, by SteelCloud, Inc., a Virginia corporation
("Borrower") and Caledonia Capital Corporation, a Delaware Corporation
("Lender").

     

    WITNESSETH

    WHEREAS,
Borrower made that certain Promissory Note (the "Note") dated July 1, 2009, in
the original principal amount of $250,000.00 to which this Allonge is
attached;

    

    WHEREAS,
the Borrower and Lender wish to amend the Note, as set forth
herein;

    

    NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree to amend the terms of the
Note as follows:

    

    1. REPRESENTATION
AND WARRANTY.  Lender represents and warrants that it is the holder of
the Note and the Note has not been transferred.  Lender further
warrants that this Allonge will be attached to the Note as part
thereof.

    

    2. MATURITY
DATE.  Section 1.1 of the Note is amended by changing the Maturity
Date to March 31, 2010.

    

    3. INTEREST.
The following is added to the end of Section 2.1 of the Note:

    

    Notwithstanding
the foregoing, effective January 1, 2010, (a) the unpaid principal amount
hereunder shall thereafter accrue interest at a rate of interest equal to twenty
percent per annum (20%) which shall thereafter be the Contract Rate, and (b)
accrued interest under this Note shall be payable in monthly installments
commencing February 1, 2010, and continuing on the first business day of each
successive month.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    4. EXTENSION
FEE.  Borrower will pay Lender $25,000 upon execution of this
agreement.

    

    5. MISCELLANOUS.
The terms of the Note except as specifically set forth herein, shall not be
deemed modified or changed.  It is specifically agreed that the Note
has not been satisfied hereby. It is the express agreement of the parties that
this Allonge is not either: (1) a novation of the loan evidenced by the Note, or
(ii) a substitution of any new debt or liability to Lender for any existing debt
or liability.

    

    WITNESS
the following signatures and seals made as of the day and year first above
written.

     

    
      	 
      	
              BORROWER:

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              /s/ Brian Hajost

            
	 
      	
              SteelCloud,
      Inc. by Brian Hajost, its President

            
	 
      	 
      
	 
      	 
      
	 
      	
              LENDER:

            
	 
      	 
      
	 
      	
              /s/ Edward M. Murchie

            
	 
      	
              Caledonia
      Capital Corporation by Edward M. Murchie, its
  PresidentUnassociated Document

    THIS AGREEMENT (the “Agreement”), dated as
of December 29, 2009, is entered into by and among SteelCloud, Inc. (the “Company”) and
Westminster Securities, a division of Hudson Securities Inc. (the “Placement
Agent”).   Defined terms not otherwise defined herein
shall have the meanings set forth in the Engagement Agreement (as defined
below).

    

    WHEREAS,
pursuant to an engagement agreement dated September 3, 2009, as amended to date
(the “Engagement
Agreement”) the Company engaged the Placement Agent as its placement
agent in connection with a proposed placement of registered securities of the
Company; and

     

    WHEREAS,
the Company and the Placement Agent desire to amend the Engagement Agreement as
set forth hereunder.

     

    NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agrees as follows:

     

    
      	
               
      

            	
              1.

            	
              Amendments.

            

    

    

    a.           Section
3 of the Engagement Agreement is hereby amended and replaced in its entirety
with the following:

    

    “Promptly following the final
closing, if the Financing involved equity or securities convertible or
exchangeable for equity, the Company shall issue to Westminster, or its
designee, warrants (“Agent Warrants”) to purchase 5% of the total common stock
issued in the Financing but excluding all common stock issued and issuable to
the individuals listed in section 2(i), 2(ii) and 2(iii) above.  The
Agent Warrants shall have the same terms as the warrants (if any) issued to the
investors in the Financing except that the exercise price shall be 125% of the
public offering price per share and shall have a term of exercise expiring no
later than 5 years from the effective date of the registration statement filed
in connection with the Financing.  The Agent Warrants shall not have
antidilution protections or be transferable for six months from the date of the
Financing except as permitted by Financial Industry Regulatory Authority
(“FINRA”) Rule 5110, in that such warrants
may be transferred during the restriction period: (i)  by operation of law or by reason of
reorganization of the Company; (ii) to any FINRA member firm participating in
the offering and the officers or partners thereof, if all securities so
transferred remain subject to the lock-up restriction set forth in Rule 5110 for
the remainder of the time period;  (iii) if the aggregate amount of
securities of the Company held by the holder of the warrant or related person do
not exceed 1% of the securities being offered; (iv) to the extent of a transfer
of a security that is beneficially owned on a pro-rata basis by all equity
owners of an investment fund, provided that no participating member manages or
otherwise directs investments by the fund, and participating members in the
aggregate do not own more than 10% of the equity in the fund;  or (v)
in connection with the exercise or conversion of any security, if all securities
received remain subject to the lock-up restriction in this Section for the
remainder of the time period.”

     

    (b)           Section
10 of the Engagement Agreement is hereby amended and replaced in its entirety
with the following:

     

    
      	
               
      

            	
              2.

            	
              “Expenses.  Subject to
      compliance with FINRA Rule 5110(f)(2)(D), the Company also agrees to
      reimburse Westminster’s reasonable expenses (with supporting
      invoices/receipts) up to a maximum of 2% of the aggregate gross proceeds
      raised in the Financing (excluding
      the investments made by investors listed in Section 2(i), 2(ii) and
      2(iii)), but in
      no event more than $35,000.  Westminster shall obtain the
      Company’s prior written consent for expenses over $20,000. Upon execution
      of this Agreement, the Company shall pay $20,000 as an advance of such
      reasonable expenses to Westminster, which amounts shall be non-refundable
      to the extent Westminster provides the Company with supporting
      invoices/receipts of actual expenses
  incurred.”

            

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              3.

            	
              Miscellaneous.

            

    

    

    (a)           Except
as expressly set forth above, all of the terms and conditions of the Engagement
Agreement shall continue in full force and effect after the execution of this
Agreement and shall not be in any way changed, modified or superseded by the
terms set forth herein.

    

     (b)           This
Agreement may be executed in two or more counterparts and by facsimile signature
or otherwise, and each of such counterparts shall be deemed an original and all
of such counterparts together shall constitute one and the same
agreement.

    
 

    IN WITNESS WHEREOF, this Agreement is
executed as of the date first set forth above.

    

    
      
        
          
            
              	
                      STEELCLOUD,
      INC.

                    	 
      
	 
      	 
      
	
                      By:

                    	/s/
      Brian Hajost	 
      
	 
      	
                      Name:
      Brian Hajost

                    	 
      
	 
      	
                      Title:
      President

                    	 
      
	 
      	 
      
	
                      HUDSON
      SECURITIES, INC.

                    	 
      
	 
      	 
      
	
                      By:

                    	 
      	 
      
	 
      	
                      Name:

                    	 
      
	 
      	
                      Title:

                    	 
      

            

          

        

      

    

     

    
      
         

      

      
        2CNS
RESPONSE, INC.

    

    SUBSCRIPTION
AGREEMENT

    

    The
undersigned (hereinafter “Subscriber”) hereby
confirms his/her/its subscription for the purchase of Units, each Unit to
consist of:  (i) 180,000 shares of the Company’s Common Stock (“Shares”), and (ii) a
five year non-callable Investor Warrant to purchase 90,000 shares of the
Company’s Common Stock, at an exercise price of $0.30 per share (each, an “Investor Warrant”
and, collectively, the “Investor Warrants”),
on the terms described below:

     

    Capitalized
terms used and not otherwise defined herein shall have the respective meanings
set forth in the Private Placement Memorandum of the Company, dated as of August
20, 2009, and its attachments thereto (the “Memorandum”).  The
Units are sometimes referred to herein as the “Securities.”

    

    In
connection with this subscription, Subscriber and the Company agree as
follows:

    

    1.           Purchase and Sale of the
Units.

    

    (a)           The
Company hereby agrees to issue and to sell to Subscriber, and Subscriber hereby
agrees to purchase from the Company, such number of Units at a price of $54,000
per Unit (the “Unit
Price”) and for the aggregate subscription amount set forth on the
signature page hereto.  The Subscriber understands that this
subscription is not binding upon the Company until the Company accepts
it.  The Subscriber acknowledges and understands that acceptance of
this Subscription will be made only by a duly authorized representative of the
Company executing and mailing or otherwise delivering to the Subscriber at the
Subscriber’s address set forth herein, a counterpart copy of the signature page
to this Subscription Agreement indicating the Company’s acceptance of this
Subscription.  The Company reserve the right, in its sole discretion
for any reason whatsoever, to accept or reject this subscription in whole or in
part.  Following the acceptance of this Subscription Agreement by the
Company, and the receipt and acceptance by the Company of subscriptions to the
Minimum Offering (defined below), the Company shall instruct its transfer agent
to issue and deliver to Subscriber (i) a share certificate evidencing the
applicable number of Shares subscribed for hereunder against payment in U.S.
Dollars of the Purchase Price (as defined below), and (ii) a Common Stock
purchase warrant exercisable at $0.30 per share.  If this subscription
is rejected, the Company and the Subscriber shall thereafter have no further
rights or obligations to each other under or in connection with this
Subscription Agreement.  If this subscription is not accepted by the
Company on or before the last day of the Offering Period, this subscription
shall be deemed rejected.

    

    (b)           Subscriber
has hereby delivered and paid concurrently herewith the aggregate purchase price
for the Units set forth on the signature page hereof in an amount required to
purchase and pay for the Units subscribed for hereunder (the “Purchase Price”),
which amount has been paid in U.S. Dollars by wire transfer or check, subject to
collection, to “American Stock Transfer & Trust Co. LLC, as Agent for CNS
Response, Inc.”, if delivered by wire transfer, or to the order of “Maxim Group
LLC, as Agent for CNS Response, Inc.”, if delivered by
check.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    (c)           Subscriber
understands and acknowledges that this subscription is part of a private
placement by the Company of up to $6,426,000 of Units, which offering is being
made on an “all or none” basis with respect to $1,512,000 (the “Minimum Amount”) and
on a “best efforts” basis with respect to the Maximum Amount, for a minimum of
approximately 28 Units (the “Minimum Offering”)
and a maximum of approximately 119 Units (the “Maximum
Offering”).  Subscriber understands that payments hereunder as
to the Minimum Offering will be held in a non-interest bearing escrow account
established by the Company with American Stock Transfer & Trust Co. LLC, as
escrow agent, and will be released to the Company if subscriptions for the
Minimum Offering are received and accepted by the Company within the Offering
Period (as described in the Memorandum), including any extended
period.  If subscriptions for the Minimum Offering are not received
and accepted by the Company within the Offering Period (including any extended
period), the funds held in such escrow account will be promptly returned to the
subscribers in full without interest or deduction.  If the Company
rejects all or a portion of any subscription, a check will be promptly mailed to
the subscriber for all, or the appropriate portion of, the amount submitted with
such subscriber’s subscription, without interest or deduction. All subscriptions
received after subscriptions for the Minimum Offering have been received and
accepted by the Company and the Placement Agent will be deposited in such escrow
account until accepted by the Company and the Placement Agent, whereupon such
subscription proceeds will be released by the escrow agent to the
Company.

    

    2.           Representations and
Warranties of Subscriber.  Subscriber represents and warrants
to the Company and the Placement Agent as follows:

    

    (a)           Subscriber
is an “accredited investor” as defined by Rule 501 under the Securities Act of
1933, as amended (the “Act”), and Subscriber
is capable of evaluating the merits and risks of Subscriber’s investment in the
Units and has the ability and capacity to protect Subscriber’s
interests.

    

    (b)           Subscriber
understands that the Securities are not presently registered, but Subscriber is
entitled to certain rights with respect to the registration of the common stock
underlying the Units (see Section 5 below).  Subscriber understands
that the Securities will not be registered under the Act on the ground that the
issuance thereof is exempt under Section 4(2) of the Act as a transaction by an
issuer not involving any public offering and that, in the view of the United
States Securities and Exchange Commission (the “SEC”) the statutory
basis for the exemption claimed would not be present if any of the
representations and warranties of Subscriber contained in this Subscription
Agreement or those of other purchasers of the Securities are untrue or,
notwithstanding the Subscriber’s representations and warranties, the Subscriber
currently has in mind acquiring any of the Securities for resale upon the
occurrence or non-occurrence of some predetermined event.

    

    (c)           Subscriber
is purchasing the Securities subscribed for hereby for investment purposes and
not with a view to distribution or resale, nor with the intention of selling,
transferring or otherwise disposing of all or any part thereof for any
particular price, or at any particular time, or upon the happening of any
particular event or circumstance, except selling, transferring, or disposing the
Securities made in full compliance with all applicable provisions of the Act,
the rules and regulations promulgated by the SEC thereunder, and applicable
state securities laws; and that an investment in the Securities is not a liquid
investment.

    

    (d)           Subscriber
acknowledges that there exists no public market for the Securities, that no such
public market may develop in the future and as a result, Subscriber acknowledges
that the Securities must be held indefinitely unless subsequently registered
under the Act or unless an exemption from such registration is
available.  Subscriber is aware of the provisions of Rule 144
promulgated under the Act which permit resales of common stock purchased in a
private placement subject to certain limitations and to the satisfaction of
certain conditions provided for thereunder, including, among other things, the
existence of a public market for the common stock, the availability of certain
current public information about the Company, the resale occurring not less than
one year after a party has purchased and paid for the security to be sold, the
sale being effected through a “broker’s transaction” or in transactions directly
with a “market maker” and the number of shares of common stock being sold during
any three-month period not exceeding specified limitations.

    
      
         

      

      
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    (e)           Subscriber
acknowledges that Subscriber has had the opportunity to ask questions of, and
receive answers from the Company, or any authorized person acting on behalf of
the Company concerning the Company and its business and to obtain any additional
information, to the extent possessed by the Company (or to the extent it could
have been acquired by the Company without unreasonable effort or expense)
necessary to verify the accuracy of the information received by
Subscriber.  In connection therewith, Subscriber acknowledges that
Subscriber has had the opportunity to discuss the Company’s business, management
and financial affairs with such entity’s management or any authorized person
acting on its behalf.  Subscriber has received and reviewed the
Memorandum and all the information concerning the Company and the Units, both
written and oral, that Subscriber desires.  Without limiting the
generality of the foregoing, Subscriber has been furnished with or has had the
opportunity to acquire, and to review: (i) copies if all of the Company’s
publicly available documents and the Memorandum, and (ii) all information, both
written and oral, that Subscriber desires with respect to the Company’s
business, management, financial affairs and prospects.  In determining
whether to make this investment, Subscriber has relied solely on (i)
Subscriber’s own knowledge and understanding of the Company and the business of
the Company based upon Subscriber’s own due diligence investigations and the
information furnished pursuant to this paragraph, and (ii) the information
described in subparagraph 2(g) below.  Subscriber understands that no
person has been authorized to give any information or to make any
representations which were not contained in the Memorandum and Subscriber has
not relied on any other representations or information.

    

    (f)           Subscriber
has all requisite legal and other power and authority to execute and deliver
this Subscription Agreement and to carry out and perform Subscriber’s
obligations under the terms of this Subscription Agreement.  This
Subscription Agreement constitutes a valid and legally binding obligation of
Subscriber, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other general
principals of equity, whether such enforcement is considered in a proceeding in
equity or law.

    

    (g)           Subscriber
has carefully considered and has discussed with the Subscriber’s legal, tax,
accounting and financial advisors, to the extent the Subscriber has deemed
necessary, the suitability of this investment and the transactions contemplated
by this Subscription Agreement for the Subscriber’s particular federal, state,
local and foreign tax and financial situation and has independently determined
that this investment and the transactions contemplated by this Subscription
Agreement are a suitable investment for the Subscriber.  Subscriber
has relied solely on such advisors and not on any statements or representations
of the Company or any of its agents.  Subscriber understands that
Subscriber (and not the Company) shall be responsible for Subscriber’s own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Subscription Agreement.

    

    (h)           This
Subscription Agreement and the Confidential Purchaser Questionnaire accompanying
this Subscription Agreement do not contain any untrue statement of a material
fact or omit any material fact concerning Subscriber.

    

    (i)           There
are no actions, suits, proceedings or investigations pending against Subscriber
or Subscriber’s assets before any court or governmental agency (nor, to
Subscriber’s knowledge, is there any threat thereof) which would impair in any
way Subscriber’s ability to enter into and fully perform Subscriber’s
commitments and obligations under this Subscription Agreement or the
transactions contemplated hereby.

    

    (j)           The
execution, delivery and performance of and compliance with this Subscription
Agreement and the issuance of the Securities will not result in any violation
of, or conflict with, or constitute a default under, any of Subscriber’s
articles of incorporation or by-laws, if applicable, or any agreement to which
Subscriber is a party or by which it is bound, nor result in the creation of any
mortgage, pledge, lien, encumbrance or charge against any of the assets or
properties of Subscriber or the Securities.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (k)           Subscriber
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk and that Subscriber can bear the economic risk of the
purchase of the Securities, including a total loss of his/her/its
investment.

    

    (l)       
    Subscriber acknowledges that he/she/it has carefully
reviewed and considered the risk factors discussed in the “Risk Factors” section
of the Memorandum.

    

    (m)          Subscriber
recognizes that no federal, state or foreign agency has recommended or endorsed
the purchase of the Securities.

    

    (n)           Subscriber
is aware that the Securities are and will be, when issued, “restricted
securities” as that term is defined in Rule 144 of the general rules and
regulations under the Act.

    

    (o)           Subscriber
understands that any and all certificates representing the Securities and any
and all securities issued in replacement thereof or in exchange therefor shall
bear the following legend or one substantially similar thereto, which Subscriber
has read and understands:

    

    “THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THIS CORPORATION, IS
AVAILABLE.”

    

    (p)           In
addition, Subscriber understands that the certificates representing the
Securities, and any and all securities issued in replacement thereof or in
exchange therefor, shall bear such legend as may be required by the securities
laws of the jurisdiction in which Subscriber resides.

    

    (q)           Because
of the legal restrictions imposed on resale, Subscriber understands that the
Company shall have the right to note stop-transfer instructions in its stock
transfer records, and Subscriber has been informed of the Company’s intention to
do so.  Any sales, transfers, or other dispositions of the Securities
by Subscriber, if any, will be made in compliance with the Act and all
applicable rules and regulations promulgated thereunder.

    

    (r)           Subscriber
acknowledges that Subscriber has such knowledge and experience in financial and
business matters that Subscriber is capable of evaluating the merits and risks
of an investment in the Securities and of making an informed investment decision
with respect thereto.

    

    (s)           Subscriber
represents that: (i) Subscriber is able to bear the economic risks of an
investment in the Securities and to afford a complete loss of the investment,
and (ii) (A) Subscriber could be reasonably assumed to have the ability and
capacity to protect his/her/its interests in connection with this subscription;
or (B) Subscriber has a pre-existing personal or business relationship with
either the Company or any affiliate thereof of such duration and nature as would
enable a reasonably prudent purchaser to be aware of the character, business
acumen and general business and financial circumstances of the Company or such
affiliate and is otherwise personally qualified to evaluate and assess the
risks, nature and other aspects of this subscription.

    
      
         

      

      
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    (t)           Subscriber
further represents that the address of Subscriber set forth below is his/her
principal residence (or, if Subscriber is a company, partnership or other
entity, the address of its principal place of business); that Subscriber is
purchasing the Securities for Subscriber’s own account and not, in whole or in
part, for the account of any other person; Subscriber is purchasing the
Securities for investment and not with a view to the resale or distribution
thereof; and that Subscriber has not formed any entity, and is not an entity
formed, for the purpose of purchasing the Securities.

    

    (u)           Subscriber
understands that the Company and the Placement Agent shall have the
unconditional right to accept or reject this subscription, in whole or in part,
for any reason or without a specific reason, in the sole and absolute discretion
of the Company (even after receipt and clearance of Subscriber’s
funds).  This Subscription Agreement is not binding upon the Company
until accepted in writing by an authorized officer of the Company.  In
the event that this subscription is rejected, then Subscriber’s subscription
funds (to the extent of such rejection) will be promptly returned in full
without interest thereon or deduction therefrom.

    

    (v)           Subscriber
has not been furnished with any oral representation or oral information in
connection with the offering of the Securities that is not contained in, or is
in any way contrary to or inconsistent with, statements made in the Memorandum
and this Subscription Agreement.

    

    (w)          Subscriber
represents that Subscriber is not subscribing for the Securities as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over the
Internet, television or radio or presented at any seminar or meeting or any
public announcement or filing of or by the Company.

     

    (x)           Subscriber
has carefully read this Subscription Agreement and the Memorandum, and
Subscriber has accurately completed the Confidential Purchaser Questionnaire
which accompanies this Subscription Agreement.

    

    (y)           No
representations or warranties have been made to Subscriber by the Company, or
any officer, employee, agent, affiliate or subsidiary of the Company, other than
the representations of the Company contained herein, and in subscribing for the
Securities the Subscriber is not relying upon any representations other than
those contained in the Memorandum or in this Subscription
Agreement.

    

    (z)           Subscriber
represents and warrants, to the best of Subscriber’s knowledge, that other than
the Placement Agent, no finder, broker, agent, financial advisor or other
intermediary, nor any purchaser representative or any broker-dealer acting as a
broker, is entitled to any compensation in connection with the transactions
contemplated by this Subscription Agreement.

    

    (aa)         Subscriber
represents and warrants that Subscriber has:  (i) not distributed or
reproduced the Memorandum, in whole or in part, at any time, without the prior
written consent of the Company and the Placement Agent, (ii) kept confidential
and non-public the existence of the Memorandum and the information contained
therein or made available in connection with any further investigation of the
Company, and Subscriber has not used such information for the Subscriber’s
personal benefit (other than in connection with this subscription), nor has
disclosed such information to any third party for any reason, notwithstanding
that the Subscriber’s subscription may not be accepted by the Company, and (iii)
refrained and shall refrain from trading in the publicly-traded securities of
the Company for so long as such recipient has been in possession of the material
non-public information contained in the Memorandum.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (bb)         If
the Subscriber is a corporation, partnership, limited liability company, trust,
or other entity, the person executing this Subscription Agreement hereby
represents and warrants that the above representations and warranties shall be
deemed to have been made on behalf of such entity and the Subscriber has made
the same after due inquiry to determine the truthfulness of such representations
and warranties.

    

    (cc)         If
the Subscriber is a corporation, partnership, limited liability company, trust,
or other entity, it represents that: (i) it is duly organized, validly existing
and in good standing in its jurisdiction of incorporation or organization and
has all requisite power and authority to execute and deliver this Subscription
Agreement and purchase the Shares as provided herein; (ii) its purchase of the
Shares will not result in any violation of, or conflict with, any term or
provision of the charter, By-Laws or other organizational documents of
Subscriber or any other instrument or agreement to which the Subscriber is a
party or is subject; (iii) the execution and delivery of this Subscription
Agreement and Subscriber’s purchase of the Shares has been duly authorized by
all necessary action on behalf of the Subscriber; and (iv) all of the documents
relating to the Subscriber’s subscription to the Shares have been duly executed
and delivered on behalf of the Subscriber and constitute a legal, valid and
binding agreement of the Subscriber.

    

    (dd)        The
Subscriber acknowledges that if he or she is a registered representative of a
FINRA member firm, he or she must give such firm the notice required by the
FINRA Rules of Fair Practice, receipt of which must be acknowledged by such
firm.

    

    (ee)         The
Subscriber understands that all information regarding the Offering is
confidential and represents that it will not be used for any purpose other than
in connection with his, her or its consideration of a purchase of the Securities
and agrees to treat it in a confidential manner.  The Subscriber has
not, during the last thirty (30) days prior to the date hereof, directly or
indirectly, nor has any party acting on behalf of or pursuant to any
understanding with such Subscriber, effected or agreed to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16(a)-1(h) under the Exchange Act) with respect to any security
of the Company, granted any other right (including, without limitation, any put
or call option) with respect to any security of the Company or with respect to
any security that includes, relates to, or derives any significant part of its
value from any security of the Company or otherwise sought to hedge its
positioning of the Company’s Securities.  For purposes of this Section
2(ee), short sales and hedging activities include, without limitation, all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, short sales, swaps, and similar arrangements (including on a total return
basis), and sales and other transactions through non-U.S. broker-dealers or
foreign regulated brokers having the effect of hedging the securities or
investment made under this Agreement.  The Subscriber acknowledges and
agrees that in order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to any shares Preferred Stock or the
common stock underlying such shares or any other securities exchangeable,
convertible or exercisable for shares of Preferred Stock.

    

    
      (ff)     
    Subscriber
represents and warrants that he/she/it will have no open position in the
Company’s
common stock at the time a Registration Statement is filed with the SEC to
register the Securities (the “Registration
Statement”) and is aware of the following Telephone Interpretation in the
SEC Manual of Publicly Available Telephone Interpretations (July
1997):

    

    

    A.65.
Section 5

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    An issuer filed a Form S-3 registration
statement for a secondary offering of common stock which is not yet
effective.  One of the selling shareholders wanted to do a short sale
of common stock “against the box” and cover the short sale with registered
shares after the effective date.  The issuer was advised that the
short sale could not be made before the registration statement becomes
effective, because the shares underlying the short sale are deemed to be sold at
the time such sale is made.  There would, therefore, be a violation of
section 5 if the shares were effectively sold prior to the effective
date.

    

    (gg)     
  Subscriber acknowledges that it will execute and deliver to the
Company a completed selling stockholder questionnaire in connection with the
filing of the Registration Statement, prior to the filing thereof.

    

    (hh)        Subscriber
represents and warrants that he/she/it has complied with all applicable
provisions of the Act, the rules and regulations promulgated by the SEC
thereunder, including Regulation M and applicable state securities laws, and
will comply at the time of sale pursuant to the Registration
Statement

    

    (ii)           The
Subscriber acknowledges that the Placement Agent (including any of its members,
managers, employees, agents or representatives) has not made any representations
or warranties to the Subscriber concerning the Company or any subsidiary and
their respective businesses, condition (financial or otherwise) or
prospects.

    

    (jj)           The
Subscriber understands and agrees that the securities are anticipated to be sold
by the Company through the Selling Agent , a licensed broker-dealer, in an “best
efforts” offering and that the Company has engaged the Selling Agent to sell the
securities on its behalf, and will pay the Selling Agent the fees, expenses and
Selling Agent’s Warrants set forth in the Memorandum in connection with the sale
of the Securities.

    

    (kk)         The
Subscriber should check the Office of Foreign Assets Control (“OFAC”) website at
<http://www.treas.gov/ofac> before making the following representations.
The Subscriber represents that the amounts invested by it in the Company in the
Offering were not and are not directly or indirectly derived from activities
that contravene federal, state or international laws and regulations, including
anti-money laundering laws and regulations. Federal regulations and Executive
Orders administered by OFAC prohibit, among other things, the engagement in
transactions with, and the provision of services to, certain foreign countries,
territories, entities and individuals.  The lists of OFAC prohibited
countries, territories, persons and entities can be found on the OFAC website at
<http://www.treas.gov/ofac>.  In addition, the programs
administered by OFAC (the “OFAC Programs”) prohibit dealing with
individuals  or entities in certain countries regardless of whether
such individuals or entities appear on the OFAC lists;

    

    To the best of the Subscriber’s
knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled
by the Subscriber; (3) if the Subscriber is a privately-held entity, any person
having a beneficial interest in the Subscriber; or (4) any person for whom the
Subscriber is acting as agent or nominee in connection with this investment is a
country, territory, individual or entity named on an OFAC list, or a person or
entity prohibited under the OFAC Programs.  Please be advised that the
Company may not accept any amounts from a prospective investor if such
prospective investor cannot make the representation set forth in the preceding
paragraph.  The Subscriber agrees to promptly notify the Company and
the Selling Agent should the Subscriber become aware of any change in the
information set forth in these representations.  The Subscriber
understands and acknowledges that, by law, the Company may be obligated to
“freeze the account” of the Subscriber, either by prohibiting additional
subscriptions from the Subscriber, declining any redemption requests and/or
segregating the assets in the account in compliance with governmental
regulations, and Selling Agent may also be required to report such action and to
disclose the Subscriber’s identity to OFAC. The Subscriber further acknowledges
that the Company may, by written notice to the Subscriber, suspend the
redemption rights, if any, of the Subscriber if the Company reasonably deems it
necessary to do so to comply with anti-money laundering regulations applicable
to the Company and Selling Agent or any of the Company’s other service
providers.  These individuals include specially designated nationals,
specially designated narcotics traffickers and other parties subject to OFAC
sanctions and embargo programs;

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    To the best of the Subscriber’s
knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled
by the Subscriber; (3) if the Subscriber is a privately-held entity, any person
having a beneficial interest in the Subscriber; or (4) any person for whom the
Subscriber is acting as agent or nominee in connection with this investment is a
senior foreign political figure , or any immediate family  member or
close associate of a senior foreign political figure; and

    

    If the Subscriber is affiliated with a
non-U.S. banking institution (a “Foreign Bank”), or if
the Subscriber receives deposits from, makes payments on behalf of, or handles
other financial transactions related to a Foreign Bank, the Subscriber
represents and warrants to the Company that: (1) the Foreign Bank has a fixed
address, other than solely an electronic address, in a country in which the
Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank
maintains operating records related to its banking activities; (3) the Foreign
Bank is subject to inspection by the banking authority that licensed the Foreign
Bank to conduct banking activities; and (4) the Foreign Bank does not provide
banking services to any other Foreign Bank that does not have a physical
presence in any country and that is not a regulated affiliate.

    

    3.           Representations and
Warranties of the Company.  The Company represents and warrants
to Subscriber as follows:

    

    (a)           The
Company is duly organized and validly exists as a corporation in good standing
under the laws of the State of Delaware and has the requisite power and
authority to own its properties and to carry on its business as presently
conducted.  The Company is qualified to transact business as a foreign
corporation and is in good standing under the laws of each jurisdiction where
the location of its properties or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a material and adverse effect on the business, condition
(financial or otherwise), operations, prospects or property of the Company or
any of its subsidiaries, taken as a whole (“Material Adverse
Effect”).

    

    (b)           The
Company has all such corporate power and authority to enter into, deliver and
perform this Subscription Agreement.

    

    (c)           All
necessary corporate action has been duly and validly taken by the Company to
authorize the execution, delivery and performance of this Subscription Agreement
by the Company, and the issuance and sale of the Securities to be sold by the
Company pursuant to this Subscription Agreement.  This Subscription
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and by general equitable principles.  The Company has full
corporate power and authority necessary to conduct its business as presently
conducted and to enter into and deliver the transaction documents and to perform
its obligations thereunder.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (d)           In
addition to the foregoing, Subscriber shall be entitled to rely on all of the
representations, warranties and covenants made by the Company to the Placement
Agent in that certain Placement Agency Agreement, as the same may be amended,
entered into between the Placement Agent and the Company in connection with the
Offering as if such representations, warranties and covenants were made directly
to the Subscriber.

    

    (e)           Non
Contravention.  None of the execution and delivery of, or
performance by the Company under, any of the transaction documents or the
consummation of the transactions herein or therein contemplated conflicts with
or violates, or will result in the creation or imposition of any lien, charge or
other encumbrance upon any of the assets of the Company under, any agreement or
other instrument to which the Company is a party or by which the Company or its
assets may be bound, any term of the certificate of incorporation or by-laws of
the Company, or any license, permit, judgment, decree, order, statute, rule or
regulation applicable to the Company or any of its assets, except where such
conflict, violation or creation would not have a Material Adverse
Effect.

    

    (f)           Anti-Dilution. The
transaction contemplated hereby will not result in the application of any
anti-dilution or price protection provisions attributable to any of the
Company’s existing and outstanding securities, whether equity, debt or a hybrid
thereof.

    

    (g)           Conduct of
Business.  The conduct of business by the Company as presently
conducted is not subject to continuing oversight, supervision, regulation or
examination by any governmental official or body of the United States or any
other jurisdiction wherein the Company conducts or proposes to conduct such
business, except as such regulation as is applicable to commercial enterprises
generally.  The Company has obtained all requisite licenses, permits
and other governmental authorization necessary to conduct its business as
presently, and as proposed to be, conducted, except where the failure to obtain
such license, permit or other governmental authorization would result in a
Material Adverse Effect.

    

    (h)           No
Defaults.  No default by the Company exists in the due
performance under any material agreement to which the Company is a party or to
which any of its assets is subject (collectively, the “Company Agreements”),
except where such defaults do not, individually or in the aggregate, have a
Material Adverse Effect.  The Company Agreements are in full force and
effect in accordance with their respective terms.

    

    (i)      
     Intellectual
Property.  The Company owns all right, title and interest in,
or possesses adequate and enforceable rights to use, all patents, patent
applications, trademarks, trade names, service marks, copyrights, rights,
licenses, franchises, trade secrets, confidential information, processes,
formulations, software and source and object codes necessary for the conduct of
its business (collectively, the “Intangibles”).  To
the knowledge of the Company, it has not infringed upon the rights of others
with respect to the Intangibles and the Company has not received notice that it
has or may have infringed or is infringing upon the rights of others with
respect to the Intangibles, or any notice of conflict with the asserted rights
of others with respect to the Intangibles that could, individually or in the
aggregate, have a Material Adverse Effect.

    

    (j)          
 Anti-Terrorism.  Neither
the sale of the Units by the Company nor its use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto. Without limiting the foregoing, the Company is not (a) a
person whose property or interests in property are blocked pursuant to Section 1
of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism
(66 Fed. Reg. 49079 (2001)) or (b) a person who engages in any dealings or
transactions, or be otherwise associated, with any such person.  The
Company and its subsidiaries are in compliance, in all material respects, with
the USA Patriot Act of 2001 (signed into law October 26, 2001).

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (k)           Capitalization; Additional
Issuances.  The issued and outstanding securities of the
Company as of August 5, 2009 are as set forth in the
Memorandum.  Except as set forth in the Memorandum, as of August 5,
2009 there are no outstanding agreements or preemptive or similar rights
affecting the Company’s Common Stock and no outstanding rights, warrants or
options to acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of any Common
Stock of the Company.

    

    (l)    
       Consents.  No
consent, approval, authorization or order of any court, governmental agency or
body or arbitrator having jurisdiction over the Company, or any of its
affiliates, is required for the execution by the Company of the transaction
documents and compliance and performance by the Company of its obligations under
the transaction documents, including, without limitation, the issuance and sale
of the Securities, other than such consents, approvals and authorizations as
shall have been received by the Company as of the closing date.

    

    (m)         The
Securities.  The Securities upon issuance:

    

    (i)           are,
or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the Act and any
applicable state securities laws;

    

    (ii)          have
been, or will be, duly and validly authorized and on the date of issuance of the
Securities, such Securities will be duly and validly issued, fully paid and
non-assessable;

    

    (iii)         will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company;

    

    (iv)     
   will have been issued in reliance upon an exemption from the
registration requirements of and, assuming the representations and warranties of
the Subscriber herein is true and accurate, will have been issued in compliance
with Section 5 under the 1933 Act.

    

    (n)         Litigation.  Except
as disclosed in the Memorandum, there are no material legal proceedings, other
than routine litigation incidental to the business, pending or, to the knowledge
of the Company, threatened against or involving the Company or any of its
respective property or assets.  There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving the
Company.

    

    4.           Indemnification.  Subscriber
agrees to indemnify and hold harmless the Company, the Placement Agent, and
their respective officers, directors, employees, shareholders, agents,
attorneys, representatives and affiliates, and any person acting for or on
behalf of the Company or the Placement Agent, from and against any and all
damage, loss, liability, cost and expense (including reasonable attorneys’ fees
and disbursements) which any of them may incur by reason of the failure by
Subscriber to fulfill any of the terms and conditions of this Subscription
Agreement, or by reason of any breach of the representations and warranties made
by Subscriber herein, or in any other document provided by Subscriber to the
Company in connection with this investment.  All representations,
warranties and covenants of each of Subscriber and the Company contained herein
shall survive the acceptance of this subscription and the Closings.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
5.           Registration
Rights.

    

    (a)           In
consideration of the investment in the Units described in this Subscription
Agreement and the Memorandum, the Company hereby grants to the Subscriber, and
Subscriber hereby agrees to and accepts from the Company, the registration
rights set forth in the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit A (the “Registration Rights
Agreement”).

    

    (b)           In
connection with the exercise by Subscriber of the registration rights set forth
in the Registration Rights Agreement, and with respect to the Securities held by
such Subscriber, Subscriber hereby covenants that, prior to filing a
Registration Statement or Prospectus (each as defined in Registration Rights
Agreement) or any amendments or supplements thereto, Subscriber shall promptly
and truthfully complete and execute a selling security-holder questionnaire
provided by the Company, and provide any and all such other material information
as the Company may require in order to prepare and file such Registration
Statement, Prospectus or any amendment or supplement thereto.

    

    6.           Miscellaneous.

    

    (a)           Subscriber
agrees not to transfer or assign this Subscription Agreement or any of
Subscriber’s interest herein and further agrees that the transfer or assignment
of the Securities acquired pursuant hereto shall be made only in accordance with
all applicable laws.

    

    (b)           Subscriber
agrees that Subscriber cannot cancel, terminate, or revoke this Subscription
Agreement or any agreement of Subscriber made hereunder, and this Subscription
Agreement shall survive the death or legal disability of Subscriber and shall be
binding upon Subscriber’s heirs, executors, administrators, successors, and
permitted assigns.

    

    (c)           Subscriber
has read and has accurately completed this entire Subscription
Agreement.

    

    (d)           This
Subscription Agreement, the Confidential Purchaser Questionnaire and the
Investor Warrants, together with the Memorandum, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and may be amended or waived only by a written instrument signed by all
parties.

    

    (e)           Subscriber
acknowledges that it has been advised and has had the opportunity to consult
with Subscriber’s own attorney regarding this subscription and Subscriber has
done so to the extent that Subscriber deems appropriate.

    

    (f)           Any
notice or other document required or permitted to be given or delivered to the
parties hereto shall be in writing and sent:  (i) by fax if the sender
on the same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (ii) by registered or certified mail with
return receipt requested (postage prepaid) or (iii) by a recognized overnight
delivery service (with charges prepaid).

    

    If to the
Company:

    

    CNS
Response, Inc.

    2755
Bristol St., Suite 285

    Costa
Mesa, CA  96626

    Attn:
George Carpenter

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    With a
copy to:

    

    Sonnenschein
Nath & Rosenthal LLP

    101 JFK
Parkway

    Short
Hills, New Jersey  07078

    Attn:
Jeffrey A. Baumel, Esq.

    Tel:
(973) 912-7189

    

    If to the
Subscriber, to the Address Set Forth In the Records of the Company

    

    With
copies to:

    

    Maxim
Group LLC

    405
Lexington Avenue

    New York,
New York  10174

    Tel:
(212) 895-3500

    Fax:
(212) 895-3555

    Attn:  Andrew
Scott

    

    (g)           Failure
of the Company to exercise any right or remedy under this Subscription Agreement
or any other agreement between the Company and the Subscriber, or otherwise, or
any delay by the Company in exercising such right or remedy, will not operate as
a waiver thereof.  No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.

    

    (h)           This
Subscription Agreement shall be enforced, governed and construed in all respects
in accordance with the laws of the State of New York, as such laws are applied
by the New York courts except with respect to the conflicts of law provisions
thereof, and shall be binding upon the Subscriber and the Subscriber’s heirs,
estate, legal representatives, successors and permitted assigns and shall inure
to the benefit of the Company, and its successors and assigns.

    

    (i)         
  Any legal suit, action or proceeding arising out of or relating to
this Subscription Agreement or the transactions contemplated hereby shall be
instituted exclusively in New York Supreme Court, County of New York, or in the
United States District Court for the Southern District of New
York.  The parties hereto hereby:  (i) waive any objection
which they may now have or hereafter have to the venue of any such suit, action
or proceeding, and (ii) irrevocably consent to the jurisdiction of the New York
Supreme Court, County of New York, and the United States District Court for the
Southern District of New York in any such suit, action or
proceeding.  The parties further agree to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding 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 agree that
service of process upon a party which is mailed by certified mail to such
party’s address shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding.

    

    (j)        
   If any provision of this Subscription Agreement is held to be
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed modified to conform with such statute or rule of
law.  Any provision hereof that may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provisions hereof.

    

    (k)           The
parties understand and agree that money damages would not be a sufficient remedy
for any breach of this Subscription Agreement by the Company or the Subscriber
and that the party against which such breach is committed shall be entitled to
equitable relief, including an injunction and specific performance, as a remedy
for any such breach, without the necessity of establishing irreparable harm or
posting a bond therefor.  Such remedies shall not be deemed to be the
exclusive remedies for a breach by either party of this Subscription Agreement
but shall be in addition to all other remedies available at law or equity to the
party against which such breach is committed.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (l)        
   All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, singular or plural, as identity of
the person or persons may require.

    

    (m)          This
Subscription Agreement may be executed in counterparts and by facsimile, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    Signature
Page for Individuals:

    

    IN WITNESS WHEREOF, Subscriber has
caused this Subscription Agreement to be executed as of the date indicated
below.

    

    
      
        	$ 	
                 

              	 	
                 
      

              
	
                Purchase
      Price

              	 	
                Number
      of Units

              
	 	 	 
	
                 
      

              	 	
                 
      

              
	
                Print
      or Type Name

              	 	
                Print
      or Type Name (Joint-owner)

              
	 	 	 
	
                 
      

              	 	
                 
      

              
	
                Signature

              	 	
                Signature
      (Joint-owner)

              
	 	 	 
	
                 

              	 	
                 
        

              
	
                Date

              	 	
                Date
      (Joint-owner)

              
	 	 	 
	
                 
      

              	 	
                 
      

              
	
                Social
      Security Number

              	 	
                Social
      Security Number (Joint-owner)

              
	 	 	 
	 	 	 
	 	 	 
	
                 
      

              	 	
                 
      

              
	
                Address

              	 	
                Address
      (Joint-owner)

              
	 	 	 
	
                _______
      Joint Tenancy

              	 	
                ______
      Tenants in Common 

              

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Signature
Page for Partnerships, Corporations or Other Entities:

    

    IN WITNESS WHEREOF, Subscriber has
caused this Subscription Agreement to be executed as of the date indicated
below.

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                      $

                                    	
                                        

                                    	 	
                                       
      

                                    
	 
      	
                                      Total
      Purchase Price

                                    	 	
                                      Number
      of Units

                                    
	 
      	 	 
      
	 
      	 	 
      
	
                                      Print
      or Type Name of Entity

                                    	 	 
      
	 
      	 	 
      
	 
      	 	 
      
	
                                      Address

                                    	 	 
      
	 
      	 	 
      
	 
      	 	 
      
	
                                      Taxpayer
      I.D. No. (if applicable)

                                    	 	
                                      Date

                                    
	 
      	 	 
      
	 
      	 	 
      
	
                                      Signature

                                    	 	
                                      Print
      or Type Name and Indicate

                                    
	 
      	 	
                                      Title
      or Position with Entity

                                    
	 
      	 	 
      
	 
      	 	 
      
	
                                      Signature
      (other authorized signatory)

                                    	 	
                                      Print
      or Type Name and Indicate

                                    
	 
      	 	
                                      Title
      or Position with
Entity

                                    

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Acceptance:

    

    IN WITNESS WHEREOF, the Company has
caused this Subscription Agreement to be executed, and the foregoing
subscription accepted, as of the date indicated below, as to _______
Units.

    

    
      
        
          
            	 	
                    CNS
      RESPONSE, INC.

                  
	 	 
      	 
      
	 	
                    By: 

                  	 
      
	 	 
      	
                    Name:  George
      Carpenter

                  
	 	 
      	
                    Title:
      Chief Executive
Officer

                  

          

        

      

    

    

    Date:
_______________________, 20__

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