Document:

Unassociated Document

EXHIBIT 10.1

 

 

 

Global Mobility

Corporate Human Resources

One Court Square – 46th Floor

Long Island City, NY  11120

 

19 December 2011

 

Michael Corbat

Chief Executive Officer Citi Holdings

Citigroup Inc.

 

Dear Michael Corbat:

Citi Expatriate Program—Assignment Letter – Program A

On behalf of Global Mobility, I am pleased to confirm the terms and conditions of your expatriate assignment to the Regional Corporate Office in the United Kingdom pursuant to the Citi Expatriate Program. Global Mobility is the unit within Citi that oversees administration of the Citi Expatriate Program.  “Citi” refers to Citigroup Inc. and its subsidiaries, including your current employer at Citi and the host company or companies that make up the business unit in your assignment location.

Your assignment is scheduled to start on 1 January 2012, subject to your obtaining necessary work permits and visas.  Citi will assist you and your family in obtaining the appropriate documents.

EMPLOYMENT STATUS

During the term of your expatriate assignment, you shall remain an employee of Citi Global Markets Inc (CGMI), which will be lending your services to Citi Global Markets Limited (CGML) pursuant to an inter-company agreement for the supply of employee services. During your expatriate assignment, you will remain an employee of CGMI, and your Expatriate salary and benefits will be administered by CGML, as agent for your employer, pursuant to the terms and conditions of the Citi Expatriate Program. During this time you will not be an employee of CGML.

This letter is not an employment contract or a guarantee to employ you for any definite period of time or at any place at any time.  To the extent legally permissible, your employment by Citi at all times is on an “at-will” basis and may be terminated at any time (subject to any applicable notice provisions in your employment offer letter) by you or by Citi.  In the event you voluntarily apply for and are granted permanent resident status or citizenship in the United Kingdom, your assignment under the Citi Expatriate Program may be terminated.

  

  

  

 

Page 2 of 8

CITI EXPATRIATE PROGRAM

The current terms and conditions of the Citi Expatriate Program are described in detail in the Expatriate Handbook.  The most recent edition of the Expatriate Handbook has been delivered to you together with this letter.  You should refer to the Expatriate Handbook for more detailed descriptions of matters summarized in this letter.  In the event of any conflict between the description of an item of expatriate compensation or other feature of the Citi Expatriate Program in this letter and its description in the most recent edition of the Expatriate Handbook, the Expatriate Handbook will control.

Because you will remain an employee of CGMI in the United States during the term of your expatriate assignment, you are not eligible for any benefits or salary provided to Citi employees who are employed under local terms and conditions in the United Kingdom.  However, while on assignment,  you will be subject to certain local practices and customs, such as office hours and dress policies, holiday schedules and, if applicable, restrictions in certain countries on participation in Citi equity compensation and investment programs.

This letter summarizes key elements of the expatriate policies regarding compensation, allowances, reimbursements, tax equalization and other benefits that apply to Citi Expatriates generally and to your assignment specifically.   The preliminary salary worksheet attached to this letter will provide you with an estimate of your compensation and the allowances you will be eligible for while on assignment under the Citi Expatriate Program.  Allowances fluctuate based on various factors, including exchange rates, other market data, and conditions in the assignment country, and are subject to change.  Refer to the most recent Expatriate Handbook or contact your assignment country mobility coordinator for additional details regarding specific allowances.

DURATION AND REASON FOR ASSIGNMENT

You have been assigned to fill a specific need with Regional Corporate Office as Chief Executive Officer EMEA. If your assignment extends beyond three years, during the fourth year, Citi, in its sole discretion, may extend your expatriate assignment or begin to explore other options, including but not limited to, termination of your assignment.

Upon termination of your assignment (subject to agreement by your employer and/or the host employer in the assignment country or other relevant parties), Citi may, but shall not be obligated to, offer you employment under local terms and conditions in the assignment country, your sending country or another country, or a new expatriate assignment.  Provided you have not resigned and your employment has not been terminated involuntarily for cause, if you are not offered (or you do not accept) continued employment with Citi upon termination of your expatriate assignment, Citi will provide relocation assistance, as detailed in the Expatriate Handbook, to repatriate you to the United States.

  

  

  

Page 3 of 8

EXPATRIATE SALARY AND OTHER COMPENSATION

As of the start date of your expatriate assignment, your annual gross base salary will be US$ 500,000. As always, your salary remains subject to change, but for the duration of your assignment to CGML in the United Kingdom, your compensation country will be the United States and your salary will be paid in US Dollars. Additional details regarding expatriate salary administration can be found in the Expatriate Handbook under the heading “Compensation.”

While on assignment, a “housing norm” representing assumed housing costs of an employee of your position and family size in New York will be deducted from your gross salary.  Details regarding housing norms can be found in the Expatriate Handbook under the heading “Key Concepts—Compensation country housing norms.”  The housing norm deduction can change if there is a change in your family size in the assignment location and it will change if there is a change in your base salary and/or annually based upon survey data provided to Citi by an independent consultant.  You agree to this deduction from your pay and acknowledge that it is subject to change and may be less than or may exceed the housing allowance described below.

Your salary and any other payments you may receive as a participant in the Citi Expatriate Program are also subject to such deductions as are required by law, and as provided pursuant to the tax equalization policy. Elements of the tax equalization policy and other policies and procedures regarding expatriate taxation, including your responsibilities in this regard, are further described below and in greater detail in the Expatriate Handbook under the heading “Tax.”  Note that as part of tax equalization, you may be required to make payments to Citi from time to time.

As a participant in the Citi Expatriate Program, you will be eligible for specified benefits, subject to the applicable terms and conditions described in detail in the Expatriate Handbook, including a moving allowance.

GOODS & SERVICES ALLOWANCE

To cover the difference in the cost of goods and services between New York  and London, you may receive a monthly Goods and Services (G&S) differential payment.  The amount of this payment can change monthly depending on inflation, foreign exchange rates, family size, and salary. It is paid only if the cost of goods and services, as determined by our outside consultant, exceed the costs in New York. You acknowledge that receipt of a G&S differential payment in one month is not a guarantee that you will receive a G&S differential payment in the same amount (or any amount) in any subsequent month.

Your housing and utility allowance will be paid monthly, beginning with the month in which you occupy expatriate housing.  The initial amount of your allowance is based on your current job level and family size (which includes only those dependents who accompany you on assignment) and is limited to an amount determined for your assignment country. The housing and utilities allowance is subject to periodic reviews and may change based upon survey data provided by an independent consultant, or upon changes in your family.  You agree to notify Citi promptly of any changes in your family status or if any accompanying family members cease to live with you full-time in the assignment country. You agree that you will be solely responsible for any rental and utility costs in excess of the housing and utilities allowance.

  

  

  

Page 4 of 8

 

EXPATRIATE HANDBOOK

All of the benefits, allowances, and policies referred to in this letter are subject to the terms, conditions and limitations set forth in the Expatriate Handbook, as it may be modified from time to time.  Please note that your participation in the Citi Expatriate Program and entitlement to these benefits is subject to your satisfactory performance of certain responsibilities in connection with the administration of these benefits, especially your obligations to submit reimbursement requests within certain deadlines, to provide timely and effective cooperation in the tax return preparation process, to promptly refund to Citi any overpayments you may receive, to promptly pay any tax equalization balance owed to Citi and to promptly realize and return to Citi the value of certain tax credits and benefits that accrue to you.  If you fail to perform any of these obligations, you may lose your eligibility for expatriate benefits, and you may be subject to disciplinary action.  By accepting your assignment, you affirm that you have read and that you understand the Expatriate Handbook and that you accept these obligations.  You may contact Global Mobility if you have any questions.  Contact information can be found under the contact section of the Global Mobility website at: http://globalmobility.citigroup.net/.

The terms and conditions of expatriate benefits and the policies and procedures that make up the Citi Expatriate Program may change.  The Expatriate Handbook will be updated from time to time to reflect such changes or to clarify certain matters.  The most recent version of the Expatriate Handbook will be available on the Global Mobility Web site on the Human Resources Intranet at: http://globalmobility.citigroup.net/.

If a benefit specified above as applying to you is eliminated entirely from the Citi Expatriate Program, you will remain eligible for such benefit until the conclusion of your current assignment, as provided in the most recent version of the Expatriate Handbook prior to its elimination, but subject to modification in the ordinary course of business.  Unless you are notified otherwise, you will be eligible for any benefits added in subsequent editions of the Expatriate Handbook, subject to the terms and conditions described therein.

TAX  MATTERS AND EXPATRIATE RESPONSIBILITIES

During your expatriate assignment, you will be tax equalized to the United States. The tax equalization policy and the expatriate  benefits you will receive are designed with the intent that your out-of-pocket costs for certain living expenses while on assignment, including income taxes, will be similar to what you would have paid had you been or remained an employee under local terms and conditions in your compensation country.  To ensure the fair and equitable administration of the Citi Expatriate Program, you agree to follow the procedures and policies outlined in the Expatriate Handbook, and specifically, to assume the following responsibilities:

  

  

  

Page 5 of 8

 

	
·

	
Actual and Hypothetical Taxes

As provided in the Expatriate Handbook, as part of the tax equalization process, Citi will pay all income taxes to all taxing jurisdictions on total Citi compensation (and taxable expatriate allowances, reimbursements and benefits) paid during your expatriate assignment.  During this same period, Citi will deduct hypothetical taxes from your expatriate salary each month, and from any incentive compensation, including cash bonuses, deferred cash awards and equity compensation that is paid to you during your assignment.  You will be responsible for paying hypothetical tax to Citi in cash on any income from Citi equity awards during your assignment (e.g., stock option exercise gains and the value of stock awards at vesting) to the extent the amount of hypothetical tax due on such income may not be deducted in shares.  Payment of hypothetical tax on income from Citi equity awards will be due immediately at the time of the relevant transaction, and if provision for immediate payment in full is not made, your equity award transaction or your rights to the award may be cancelled.

Hypothetical taxes, calculated on your Citi compensation, will be based on United States  income tax law in effect at the time each item of Citi compensation is paid to you, as determined by Citi and its tax and legal advisors.  By accepting an expatriate assignment, you agree to pay hypothetical tax in accordance with the tax equalization policy. You acknowledge that your hypothetical tax obligation to Citi may exceed the amount of actual tax you would pay on the same income were you not subject to the tax equalization policy.

You will be responsible for all actual taxes due on any non-Citi income, but, as more fully explained in the Expatriate Handbook, you may claim a limited right to tax protection for non-Citi income that becomes subject to tax in your assignment country.  If you receive income from Citi equity or deferred cash awards after your assignment has ended but that is subject to tax in a former assignment location, you may also be entitled to a limited tax protection benefit, as more fully described in the Expatriate Handbook.

As more fully described in the Expatriate Handbook, Citi’s expatriate tax preparer, currently PricewaterhouseCoopers (“PwC”), may prepare an annual tax equalization calculation to compare the hypothetical tax withheld from your compensation and paid by you during each year of your assignment to your total hypothetical tax liability for the year on an annualized basis.  If the calculation shows a balance owing to you, it will be paid by Citi within 30 days.  If the calculation shows a balance owing to Citi, you agree to pay the outstanding hypothetical taxes within 30 days of the date of your final tax reconciliation statement for the year.  If you fail to pay by this deadline, you may be subject to disciplinary action.

	
·

	
Filing Tax Returns

You agree to cooperate with PwC in preparing any required income tax returns, including providing PwC with any required information in a timely manner and ensuring that it is complete and accurate in all material respects.  You will be liable for any charges, penalties and interest assessed by the taxing authorities as a result of any untimely or inaccurate submissions by you.

  

  

  

Page 6 of 8

	
·

	
Payment of Certain Tax Benefits to Citi

Because Citi will pay your actual tax liabilities on Citi compensation and taxable expatriate allowances, reimbursements and benefits, and your tax liability on such income will be limited to hypothetical tax on Citi compensation, you agree that Citi will be entitled to receive the value of any foreign tax credits or other tax benefits you may claim on your personal tax returns.  Citi or PwC will advise you as to any such benefits that may be claimed on your personal tax return and you will be entitled to tax preparation services after your assignment has ended to the extent necessary for you to realize such benefits.  As a condition to your assignment, you agree to use your best efforts to realize any such benefits at the earliest possible opportunity and to pay the value of such benefits to Citi within 30 days of the date you file the applicable tax return on which they were utilized, or if sooner, upon your receipt of a corresponding income tax refund.  You agree that this obligation may survive the termination of your expatriate assignment or your employment by Citi.

 

EMPLOYEE BENEFITS AND COUNTRIES DEFINED

	
·

	
Employee Benefits

Throughout your assignment, you will be eligible for the expatriate health and insurance program, which includes medical and dental coverage.

Information on your various benefits will be provided to you under separate cover.

	
·

	
Countries Defined

Your expatriate assignment will typically impact more than one jurisdiction.  In order to facilitate the best possible management of expatriate benefits, the countries to which you have a relationship during your assignment are specified as follows:

Your assignment country is the United Kingdom and your compensation country is the United States.

Your pension country is the United States.  You will continue to be covered under the current retirement plan for your pension country for which you are eligible (if any).  Generally, you will not be eligible for any company or government provided benefits in your assignment country, unless required by law.  You will remain eligible for other mandatory or government social/welfare programs in your pension country to the extent legally possible.

Your home leave country is the United States and is the country to which you and your family may take your annual home leave.

The country to which you are expected to return at the end of your expatriate assignment is the United States, which is referred to as your return country.  If your assignment ends on good terms, Citi will make a reasonable effort to find you a suitable position within Citi upon your return to this country.  However, you accept that Citi does not guarantee you reinstatement to your pre-assignment position (or any other position of employment) in this country or anywhere else in the world.

  

  

  

Page 7 of 8

VARIATION OR TERMINATION OF POLICY AND/OR TERMS OF ASSIGNMENT

Citi reserves the right to modify, amend and/or discontinue any of the benefits, policies or other terms and conditions of the expatriate program described in this letter and/or the Expatriate Handbook at any time and from time to time.  Citi also maintains, and you acknowledge by signing below, that the place of work is not an essential element of the employment relationship and can be changed by Citi, in its sole discretion.

NOTICE

Your employment may be terminated in accordance with the notice provisions designated within the US Separation Pay Plan.

The benefits described in this letter and Expatriate Handbook, and your participation in the Citi Expatriate Program (except for any rights to repatriation, reimbursement of expenses or tax protection or your obligations to make payments to Citi that expressly survive your assignment), will cease on the termination of your assignment.

You should refer to the section of the Expatriate Handbook titled “Conclusion of Expatriate Assignment” for further information on what happens in the event of the termination of your employment (by Citi or by you) during your expatriate assignment.

RIGHT OF SET OFF

As a condition of your participation in the Citi Expatriate Program, you agree that any obligation you incur as a participant in the Citi Expatriate Program to pay or refund any amount to Citi (including your obligation to realize and pay to Citi certain tax benefits) will survive the termination of your assignment and the termination of your employment with Citi; that, to the extent permitted by applicable law, any such amounts owed by you may be set off against salary, deferred compensation and incentive awards, or any other amounts owed to you by Citi; and that this right of set off will be in addition to any other legal or equitable remedies that may be available to Citi if amounts owed by you are not timely paid in full.  You agree that amounts owed by you to one Citi entity may be set off against amounts payable to you by another Citi entity.

DATA PRIVACY

By signing this letter, you agree that Citi, any affiliated company, and third parties may in connection with your employment and/or your expatriate assignment (during and after termination), process personal data (including sensitive personal data) for the purposes of managing your employment and assignment arrangements (for example, for the provision of benefits to you), for compliance with legal and regulatory obligations (including, but not limited to, the prevention and detection of crime and anti-terrorism), for the purpose of Citi’s business or other legitimate interests or as otherwise required or permitted by law or regulation. Because of the international nature of an expatriate assignment, your personal data will, subject to applicable law, be transferred to other countries for the purposes of managing your international assignment.  This means that personal data will be transferred to countries, particularly the United States, where Citi’s data servers are located.  Each country provides different standards of legal protection of personal data.

  

  

  

Page 8 of 8

 

SIGNATURE

Please sign and date two copies of this letter and return one copy to me and retain the other copy for your records.  By signing below, you agree to the terms and condition of and to abide by the policies of the Citi Expatriate Program and your assignment as summarized and set forth in this letter and the Expatriate Handbook, which you acknowledge that you have read and understood.

I wish you much success in your new assignment.

Sincerely,

/s/ Katherine E. Thompson

Katherine E. Thompson

Managing Director, Global Mobility

 

	Accepted by: 	/s/ Michael Corbat	
 

	 Date:      	
12/21/11 

	
 

	Michael Corbat	 	 	 
	 	 	 	 	 

 

Attachments:   Expatriate Pay Statement Estimate

  

  

  

 

 

 

	  	
EXPATRIATE PAY STATEMENT ESTIMATE

	  
	  	  	  	  
	
NAME:

	
Michael Corbat

	
GEID:

	
 

	
HOME LOCATION:

	
New York

	
HOST LOCATION:

	
London

	
MARITAL STATUS:

	
 

	
LIVING AT POST:

	
2

	
STAFF TYPE:

	
Program A

	
TAX EXEMPTIONS:

	
2

	
LEVEL:

	  	
HARDSHIP ALLOW%:

	
0

	
HOST TO HOME FX RATE:

	
0.61957869

	
JOB GRADE:

	
0

	 	 	 	 
	
This is a preliminary salary worksheet.  It provides an estimate of your compensation and allowances under the expatriate program.  This statement is an estimate of net pay.  It includes medical and dental voluntary deductions. Allowances fluctuate based on various conditions, including exchange rates.  For additional details, please refer to the Expatriate Handbook.

	  	  	
USD               

	
USD             

	  	  	
Monthly

	
Annual

	
COMPENSATION

	
BASE SALARY

	
41,666.67

	
500,000.00

	  	
GOODS & SVC ALLOWANCE

	
1,528.90

	
18,346.74

	
PRE-TAX DEDUCTIONS

	
MEDICAL CONTRIBUTION

	
-456.80

	
-5,481.60

	  	
DENTAL CONTRIBUTION

	
-33.42

	
-401.04

	
HYPO HOUSING NORM

	
HYPO HOUSING NORM

	
-2,686.43

	
-32,237.10

	
HYPO TAX PAID BY EMPLOYEE

	
HYPO FEDERAL - US

	
-10,088.17

	
-121,058.03

	  	
HYPO TAX - STATE

	
-3,172.71

	
-38,072.50

	  	
HYPO FICA - SOC. SEC.

	
-373.80

	
-4,485.60

	  	
HYPO FICA - MED

	
-604.17

	
-7,250.00

	
NET PAY IN US DOLLARS

	  	
25,780.07

	
309,360.87

	
Below is a brief summary of expatriate eligible allowances:

Housing Allowance:  Citi will contribute towards the cost of housing in the assignment country up to housing allowance limits established in the assignment location. They are based on job level/position and family size at the assignment location. Your housing allowance limit is GBP 8,764 /month (amount in local currency).

	  	  	  	  
	
Utility Allowance:  You will be reimbursed for utilities expenses such as water, gas, electricity and home heating fuel separately, up to a limit established for the host country. In locations where an established utility allowance does not exist, actuals will be reimbursed per policy. Consult with your Assignment Country Mobility Coordinator for additional details. Your utility allowance limit is GBP 400/month (amount in local currency).

	  	  	  	  
	
Goods and Services (G&S) Allowance:  When everyday living costs are higher in the assignment location than in the compensation country, Citi will pay a G&S differential. This is based on spendable income up to a predetermined maximum annual base salary, actual family size (up to a maximum of six eligible family members including Expatriate), expatriate living costs in the assignment location, and exchange rates.

	  	  	  	  
	  	
Index:

	
134.95

	  
	  	
Family Size:

	
2

	  
	  	
Exchange Rate:

	
0.6195786

	  
	  	
Spendable:

	
52,485.26

	  
	  	  	  	  
	
Medical and Dental Contribution:  Represents your monthly medical premium deduction based on your family size as well as your total compensation.   Given the discretionary nature of incentive compensation, the premium reflected on this statement is an estimate and may vary from the actual premium deducted from your monthly expatriate pay.AMENDMENT AND CONVERSION AGREEMENT

 

SECURED CONVERTIBLE PROMISSORY NOTES

 

This AMENDMENT AND CONVERSION AGREEMENT (this “Agreement”) is entered into as of September 30, 2011 by and between CNS Response, Inc., a Delaware corporation (the “Company”) and the undersigned holders (“Undersigned Holders”), as the holders of secured convertible promissory notes in the aggregate principal amount set forth opposite each such holder's name below, and of the warrants to purchase the number of common stock, par value $0.001 per share (the “Common Stock”), of the Company set forth opposite each such holder’s name below.

 

WHEREAS, the Company issued secured convertible promissory notes (the “Notes”) and warrants to purchase Common Stock at an exercise price of $0.30 per share (the “Warrants”)  pursuant to a certain Note and Warrant Purchase Agreement (the “October Purchase Agreement”), dated as of October 1, 2010, between the Company and the investors party thereto (such investors, the “Holders”);

 

WHEREAS, the Company and the Holders entered into an agreement to amend and convert the Notes, dated as of June 3, 2011 (the “Agreement to Convert and Amend”), in connection with a planned listing of securities of the Company on a Canadian securities exchange;

 

WHEREAS, the Notes mature between October 1, 2011 and November 11, 2011;

 

WHEREAS, pursuant to Section 4.2(b) of the October Purchase Agreement, the Company will not, without the prior written consent of holders of at least a majority of the aggregate principal amount outstanding under all of the Notes issued pursuant to the October Purchase Agreement (the “Majority Holders”), borrow, guaranty or otherwise incur indebtedness in excess of $100,000;

 

WHEREAS, pursuant to Section 9 of the Note, the Company will not, without the prior written consent of the Majority Holders, amend, waive or modify any provision of the Notes;

 

WHEREAS, the Company issued subordinated unsecured convertible promissory notes (the “Subordinated Unsecured Notes”) and Warrants pursuant to a certain Note and Warrant Purchase Agreement (the “January Purchase Agreement”), dated as of January 20, 2011, between the Company and the investors party thereto (the “Unsecured Holders”), and wishes to amend such notes to grant the holders thereof a second position security interest (the “Second Position Security Interest”) in the Collateral (as defined in the Amended and Restated Security Agreement, dated as of the date hereof, between the Company and Paul Buck, as administrative agent for the Secured Parties (as defined therein)(the “Amended and Restated Security Agreement”)), which shall be subordinated to the security interest held by the Holders pursuant to the Amended and Restated Security Agreement, and to make other changes, all in accordance with the terms and conditions in substantially the form attached as Exhibit A hereto (the “Unsecured Note Amendment”);

  

 

  

 

WHEREAS, the Company wishes to issue subordinated secured convertible promissory notes (the “New Notes”) in the aggregate principal amount of $2 million, such amount subject to increase at the discretion of the Company’s Board of Directors, and warrants to purchase Common Stock (the “New Warrants”), all pursuant to a new Note and Warrant Purchase Agreement in substantially the form attached as Exhibit B hereto (the “New Purchase Agreement”);

 

WHEREAS, the Company furthermore wishes to issue shares of its Common Stock and/or other securities in a public offering at a per share price to be determined by the Company (the “Offering Price”), with such offering to yield gross proceeds to the Company of at least $10 million (such offering raising gross proceeds of at least $10 million, the “Qualified Offering”);

 

WHEREAS, the Company and the Holders wish to amend the Notes in accordance with the terms set forth herein;

 

NOW, THEREFORE, subject to and conditioned on the receipt by the Company of consent to the Unsecured Note Amendment by Unsecured Holders representing at least a majority of the aggregate principal amount of Subordinated Unsecured Notes outstanding, the Company and the Undersigned Holders, in consideration for the mutual promises and covenants herein, agree as follows:

 

1.             The Agreement to Convert and Amend is hereby superseded in its entirety and the Holders hereby relinquish any rights they may have with respect to warrants issued or to be issued pursuant to such agreement.

 

2.           Each Undersigned Holder hereby waives the provisions of Section 4.1 (“Registration Rights Agreement”) of the October Purchase Agreement, as they may apply to the Qualified Offering, and consents to the registration of the issuance of the securities in the Qualified Offering.

 

3.           a.  Notwithstanding anything to the contrary in the October Purchase Agreement, the Agreement to Convert and Amend or any Note, each Undersigned Holder hereby irrevocably

 

(i) agrees and consents to the Unsecured Note Amendment, including, but not limited to, the grant of the Second Position Security Interest in the Collateral to the Unsecured Holders pursuant to the Amended and Restated Security Agreement (the form of which is attached hereto as Exhibit E);

 

(ii) agrees and consents to the consummation of the transaction contemplated by the New Purchase Agreement and the issuance of the New Notes and New Warrants by the Company on the terms and conditions set forth in the New Purchase Agreement, including, but not limited to, the grant of a second position security interest in the Collateral to the investors in such transaction pursuant to the Amended and Restated Security Agreement, which second position security interest would be pari passu with the Second Position Security Interest granted under the Unsecured Note Amendment;

  

- 2 -

  

 

(iii) agrees and consents to the amendment of its Note(s) as specified in Exhibit C hereto (the “Amendment”), with such amendment being self-actuating and effective immediately upon receipt by the Company of consent to the Amendment by the Majority Holders (i.e., the Amendment will be effective immediately following receipt by the Company of executed copies of the Amendment and Conversion Agreement and the Irrevocable Consent to Amend and Irrevocable Notice to Convert (the form of which is attached hereto as Exhibit C) from the Majority Holders, without any further action by the Company or any Holder irrespective of whether the Note(s) to be amended are delivered to the Company); and

 

(iv) agrees to convert such amended Note(s) into shares of Common Stock in accordance with the terms set forth herein and on Exhibit C hereto (the “Conversion”).  Such conversion shall be self-actuating in connection with the consummation of the Qualified Offering, i.e., the Conversion shall be effective concurrently with the consummation of the Qualified Offering without any further action by the Company or such Undersigned Holder irrespective of whether the amended Note(s) being converted are delivered to the Company.  Upon the effectiveness of the Conversion, the Note(s) being converted pursuant hereto, and the related security interest pursuant to the Amended and Restated Security Agreement, shall be deemed canceled and each Undersigned Holder shall be entitled to receive as the Conversion Amount shares of Common Stock at the Conversion Price in accordance with the terms of the Note(s) as amended pursuant hereto and Exhibit C hereto. For the sake of clarity, the parties agree that such Conversion Price will be adjusted concurrently with the consummation of the Qualified Offering to the lesser of $0.30 or the Offering Price.  Upon the effective date of such conversion, any and all obligations of the Company contained in the October Purchase Agreement relating to the Notes shall cease to be of any further force or effect.

 

	 	
b. 

	
The Company hereby agrees to the amendments and conversions of the Notes described in (iii) and (iv) above.

 

	 	
c. 

	
Each Undersigned Holder represents to the Company as follows:

 

i.           Accredited Investor.  The Undersigned Holder is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

 

ii.          Investment for Own Account.  The shares of Common Stock to be issued upon conversion of the Note(s) in accordance herewith are being, and will be, acquired for his, her or its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act.

 

iii.         Knowledge and Experience.  The Undersigned Holder has such knowledge and experience in financial and business matters that (s)he is capable of evaluating the merits and risks of an investment in the shares of Common Stock and of making an informed investment decision with respect thereto, has the ability and capacity to protect his/her interests and can bear the economic risk of the acceptance of the shares of Common Stock, including a total loss of his/her investment.

 

  

- 3 -

  

 

iv.         Opportunity to Ask Questions.  The Undersigned Holder has had the opportunity to ask questions and receive answers from the Company or any authorized person acting on its behalf 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 the Undersigned Holder.  In connection therewith, the Undersigned Holder acknowledges that (s)he has had the opportunity to discuss the Company’s business, management and financial affairs with the Company’s management or any authorized person acting on its behalf.

 

v.          Receipt of Information.  The Undersigned Holder has received and reviewed all the information concerning the Company, the Note(s) and the shares of Common Stock underlying such Note(s), both written and oral, that the Undersigned Holder desires.  Without limiting the generality of the foregoing, the Undersigned Holder has been furnished with or has had the opportunity to acquire, and to review: all information, both written and oral, that the Undersigned Holder desires with respect to the Company’s business, management, financial affairs and prospects.  In determining whether to make this investment, the Undersigned Holder has relied solely on his/her own knowledge and understanding of the Company and its business based upon the Undersigned Holder’s own due diligence investigations and the Company’s filings with the SEC.

 

d.   Simultaneously with the execution of this Agreement, each Undersigned Holder is delivering a duly completed and executed Irrevocable Consent to Amend and Irrevocable Notice to Convert, the form of which is attached hereto as Exhibit C, to the Company, which shall be irrevocable and which, (i) with respect to the Amendment, shall be effective immediately upon the receipt by the Company of consent to the Amendment by the Majority Holders, and (ii) with respect to the Conversion, shall be effective concurrently with the consummation of the Qualified Offering, both as specified in Section 3.a. hereof and Exhibit C hereto.

 

e.   It is understood and agreed that the Company is making available to all Holders the same opportunity to receive the consideration set forth in Section 5 hereof.

 

  

- 4 -

  

 

4.           a.  Notwithstanding anything to the contrary in the October Purchase Agreement, the Agreement to Convert and Amend or any Warrant, each of the Undersigned Holders hereby irrevocably agrees and consents to the amendment of their Warrant(s), as set forth in Exhibit D hereto, and the Company hereby agrees and consents to such amendment.  Such amendment shall be self-actuating and effective immediately upon receipt by the Company of consent to such amendment by the Majority Holders (i.e., the amendment will be effective immediately following receipt by the Company of executed copies of the Amendment and Conversion Agreement and the Irrevocable Consent to Amend Warrants to Purchase Shares (the form of which is attached hereto as Exhibit D) from the Majority Holders, without any further action by the Company or any Holder irrespective of whether the certificates evidencing the Warrants are delivered to the Company).

 

b.  Simultaneously with the execution of this Agreement, each Undersigned Holder is delivering to the Company a duly executed Irrevocable Consent to Amend Warrant to Purchase Shares, the form of which is attached hereto as Exhibit D, which shall be irrevocable and which shall be effective immediately upon the receipt by the Company of consent to such amendment by the Majority Holders as specified herein and in Exhibit D hereto.

 

c.  It is understood and agreed that the Company is making available to all Holders the same opportunity to receive the consideration set forth in Section 5 hereof.

 

5.           As consideration for the Amendment and Conversion, the Company shall issue to each Holder a warrant to purchase a number of shares of Common Stock corresponding to 30% of the number of shares issuable upon conversion of the principal amount and accrued and unpaid interest through the date of Conversion of the Note(s) amended and converted by such Holder.  The terms of such new warrant shall be identical to the terms of the Warrant, as amended to give effect to the amendments specified herein and in Exhibit D hereto.  Such new warrant will be issued by the Company and the certificate representing such new warrant will be delivered to the Holder within ten (10) business days of the date of Conversion.

 

6.           THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTIONS OTHER THAN THE STATE OF CALIFORNIA.

7.           This Agreement may only be amended by written agreement of each of the parties hereto expressly stating that such instrument is intended to modify, amend or supplement this Agreement.

8.           An Undersigned Holder may only assign this Agreement with the written consent of the Company.  The Company may freely assign this Agreement without the consent of any other party.  Any assignment of this Agreement in violation of this Section is null and void.  This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

  

- 5 -

  

 

9.           No failure on the part of any party hereto to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All rights, powers and remedies under this Agreement are cumulative and are not exclusive of any other rights, powers and remedies provided by law.

10.         This Agreement (including Exhibits A, B, C and D hereto) contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter thereof and shall constitute the entire agreement between the parties hereto with respect to the subject matter thereof, superseding all prior oral or written understandings. There are no unwritten agreements between the parties hereto.  In the event of a conflict between the terms of this Agreement, on the one hand, and the terms of the Notes, Warrants, October Purchase Agreement and/or Agreement to Convert and Amend, on the other hand, the terms of this Agreement shall prevail and control.

11.         This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement will be binding upon the Company and the Undersigned Holders and their respective successors, assigns, heirs and personal representatives.

 

[Signature page follows]

  

- 6 -

  

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	  	
CNS Response, Inc.

	 
	  	  	 
	  	  	 
	  	
By:

	  	 
	  	
Name:

	 
	  	
Title:

	 

	
Holders of Secured Convertible Promissory 

Notes:

	 	
Aggregate Principal 

Amount:

	 	
Number of Shares 

Underlying Warrants:

 

  

 

  

 

Exhibit A

[SEE AMENDMENT AND CONVERSION AGREEMENT - SUBORDINATED UNSECURED CONVERTIBLE PROMISSORY NOTES (WITH EXHIBITS)]

 

  

 

  

 

Exhibit B

[SEE NOTE AND WARRANT PURCHASE AGREEMENT (WITH EXHIBITS)]

 

  

 

  

 

Exhibit C

CNS RESPONSE, INC.

 

Irrevocable Consent to Amend and Irrevocable Notice to Convert

 

Secured Convertible Promissory Note

 

issued pursuant to

 

Note and Warrant Purchase Agreement, dated as of October 1, 2010, between the Company and the investors signatory thereto

 

CNS Response, Inc., a Delaware corporation (the “Company”) issued to the undersigned holder (the “Holder”) a convertible promissory note in the aggregate principal amount of ___________ (the “Note”), pursuant to the agreement specified above.

 

In accordance with and pursuant to the Amendment and Conversion Agreement (as defined below), the Holder hereby irrevocably (i) agrees and consents to the amendment of the Note as specified below and (ii) agrees to convert such amended Note (including accrued but unpaid interest thereon through the Conversion Date, as defined below) into shares of the Company’s common stock, $0.001 par value (the “Common Stock”) as further specified below, with (i) such amendment being self-actuating and effective immediately upon receipt by the Company of consent to the amendment by the Majority Holders (as defined in the Note), i.e., such amendment will be effective immediately following receipt by the Company of executed copies of the Amendment and Conversion Agreement and this Irrevocable Consent to Amend and Irrevocable Consent to Convert from the Majority Holders, without any further action by the Company or any Holder irrespective of whether the Note(s) to be amended are delivered to the Company and (ii) such conversion being self-actuating in connection with the consummation of a public offering in which the Company issues shares of its Common Stock and/or other securities at a per share price to be determined by the Company (the “Offering Price”) and yielding gross proceeds to the Company of at least $10 million (the “Qualified Offering”).

Upon the effective date of such conversion, the Holder shall be entitled to receive as the Conversion Amount shares of Common Stock at the Conversion Price in accordance with the terms of Section 6 of the Note, as amended as specified below.

1.           Amendment of Note.  The Note is amended as follows:

 

a.           The maturity date of the Note is extended to October 1, 2012.

 

b.           Section 1 (“Definitions”) is amended by adding the following provisions:

 

“(x)           ‘Amendment and Conversion Agreement’ means the agreement, executed as of September 30, 2011 by the Company and at least the Majority Holders in connection with a proposed Qualified Offering.”

  

C-1

  

 

“(y)           ‘Qualified Offering’ means the issuance by the Company of shares of Common Stock and/or other securities in a public offering at a per share price to be determined by the Company (the “Offering Price”), with such offering to yield gross proceeds to the Company of at least $10 million.”

 

In addition, all references in the Note to “Security Agreement” shall be deemed to refer to the Amended and Restated Security Agreement, dated as of September 30, 2011, by and between the Company and Paul Buck, as administrative agent on behalf of the Secured Parties (as defined therein).

 

b.           Section 6(a)(ii) shall be replaced in its entirety with the following:

 

“At the time specified in Section 6(c)(iii) hereof, the outstanding and unpaid Conversion Amount (as defined below) shall be automatically converted into fully paid and nonassessable shares of Common Stock in accordance with Section 6(c)(iii), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock equal to or in excess of one half of one share, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all stock transfer, stamp, documentary and similar taxes (excluding any taxes on the income or gain of the Holder) that may be payable with respect to the issuance and delivery of shares of Common Stock to the Holder upon conversion of any Conversion Amount.”

 

c.           The first sentence of Section 6(b) shall be replaced in its entirety with the following:

 

“Conversion Rate.  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 6(a) (the ‘Conversion Rate’) shall be determined by dividing the Conversion Amount by the Conversion Price.”

 

d.           The definition of “Conversion Price” in Section 6(b) shall be replaced in its entirety with the following:

 

“’Conversion Price’ means, as of any Conversion Date (as defined below) or other date of determination, $0.30, subject to adjustment as provided herein; provided that, in the case of mandatory conversion described in Section 6(c)(iii) hereof, ‘Conversion Price’ shall mean the lesser of $0.30 or the Offering Price.”

 

d.           The following replacement shall be made in the first sentence of Section 6(c)(ii):

 

“Notwithstanding anything to the contrary set forth herein” is replaced with “Subject to Section 6(c)(iii) hereof.”

 

e.           A new subsection (iii) shall be added to Section 6(c) containing the following:

  

C-2

  

 

“(iii)  Mandatory Conversion.  Notwithstanding Sections 6(c)(i) and 6(c)(ii) hereof, the Conversion Amount shall be automatically converted into shares of Common Stock concurrently with the consummation of the Qualified Offering (the date on which such conversion occurs, the ‘Conversion Date’).  On or before 4:00 p.m., New York Time, on the tenth (10th) Business Day following such Conversion Date (the ‘Share Delivery Date’), the Company shall issue and deliver to the address as specified in the executed Irrevocable Consent to Amend and Irrevocable Notice to Convert, a form of which was attached to the Amendment and Conversion Agreement, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled.  The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.”

 

f.           The final clause in Section 18 shall be replaced in its entirety with the following:

 

“except that such benefits shall expire with respect to the Holders on the date that holders of a majority of the aggregate principal amount of Notes issued have converted their Notes in accordance with the terms hereof.”

 

2.           Delivery of Conversion Amount (Qualified Offering).

 

	
Aggregate Principal Amount (plus accrued and unpaid interest) to be converted:

	  
	 	 
	
Title of Note:____________________________

	 
	
Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

 

	
Issue to:

	  
	  	  
	  	  

 

  

C-3

  

IN WITNESS WHEREOF, the undersigned has duly executed and delivered to the Company this Irrevocable Consent to Amend and Irrevocable Notice to Convert on the date written below.

	  	
CONVERTING NOTEHOLDER:

	  	  	  
	  	
Name:

	  
	 	  	   
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

	  	  	  
	  	
Date:

	 	  

 

  

C-4

  

	
Agreed and Accepted:

	  
	  	  
	
CNS RESPONSE, INC.

	  
	  	  
	
By:

	  	  
	
Name:

	  
	
Title:

	  

  

C-5

  

Exhibit D

CNS RESPONSE, INC. (the “Company”)

Irrevocable Consent to Amend Warrant to Purchase Shares

issued pursuant to

Note and Warrant Purchase Agreement, dated as of October 1, 2010, between the Company and the investors signatory thereto

 

CNS Response, Inc., a Delaware corporation (the “Company”) issued to the undersigned holder (the “Holder”) a warrant to purchase ________________ fully paid and nonassessable shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company (the “Warrant”), pursuant to the agreement specified above.

 

In accordance with and pursuant to the Amendment and Conversion Agreement executed as of September 30, 2011 by the Company and at least the Majority Holders in connection with a proposed public offering of the Company’s Common Stock and/or other securities and yielding gross proceeds to the Company of at least $10 million, the Holder hereby agrees and consents to amend the Warrant as specified below, with such amendment to be self-actuating and effective immediately upon receipt by the Company of consent to such amendment by the Majority Holders (as defined in the Warrant)(i.e., the amendment will be effective immediately following receipt by the Company of executed copies of the Amendment and Conversion Agreement and this Irrevocable Consent to Amend Warrant to Purchase Shares from the Majority Holders, without any further action by the Company or any Holder irrespective of whether the certificates evidencing the Warrants are delivered to the Company).

 

1.           Amendment of Warrant. The Warrant shall be amended as follows:

 

a.           A new sentence shall be added to the end of Section 7(c) of the Warrant as follows:

 

“Notwithstanding anything to the contrary set forth herein, no adjustments to the Exercise Price and the number of shares issuable upon exercise of this Warrant shall be triggered under this Section 7(c) by any issuances of securities that occur subsequent to the Qualified Offering (as defined below).”

 

b.           A new Section 7(d) is to be added as follows, with the existing Section 7(d) to be renumbered Section 7(e):

 

“(d)  One-Time Ratchet. If and when the Company issues shares of its Common Stock and/or other securities in a public offering at a per share price to be determined by the Company (the “Qualified Offering Price”) and yielding gross proceeds to the Company of at least $10 million, the Exercise Price, to the extent it exceeds the Qualified Offering Price, shall be adjusted so that it shall equal such Qualified Offering Price and the number of shares issuable upon exercise of this Warrant shall be proportionately increased.  Such adjustment shall only be made once, after which this Section 7(d) shall cease to be of further effect.”

 

  

D-1

  

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered to the Company this Irrevocable Consent to Amend on the date written below.

	  	
WARRANTHOLDER:

	  	  	  
	  	
Name:

	  
	 	 	 
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

	  	  	  
	  	
Date:

	 	  

 

  

D-2

  

 

Agreed and Accepted:

	
CNS RESPONSE, INC.

	  
	  	  
	  	  
	
By:

	  	  
	
Name:

	  
	
Title:

	  

 

  

D-3

  

Exhibit E

 

[SEE AMENDED AND RESTATED SECURITY AGREEMENT]

 

  

E-1

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