Document:

Unassociated Document

NOTE AND WARRANT PURCHASE AGREEMENT

 

THIS NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of January 20, 2011 by and between CNS Response, Inc., a Delaware corporation (the “Company”), and the investors listed on Schedule A hereto (each, an “Investor” and together, the “Investors”).

 

AGREEMENT

 

In consideration for the mutual promises and covenants herein, the parties agree as follows:

 

SECTION 1 – PURCHASE AND SALE OF NOTES AND WARRANTS

1.1           Purchase and Sale of Subordinated Notes and Warrants.  The Company has authorized the issuance and sale, in accordance with the terms hereof, of Subordinated Convertible Promissory Notes in the original aggregate principal amount of up to $5,000,000 (the “Note Cap Amount”), substantially in the form attached as Exhibit A hereto (individually, a “Subordinated Note” and, collectively, the “Subordinated Notes”), and warrants to purchase shares of the common stock of the Company, par value $0.001 per share (the “Common Stock”), substantially in the form attached as Exhibit B hereto (individually, a “Warrant” and collectively, the “Warrants”).  On the terms and subject to the conditions set forth in this Agreement, at the Closings (as defined below) the Company agrees to issue to each Investor, and each Investor agrees to purchase from the Company, (i) Subordinated Notes in
the principal amounts set forth on Schedule A hereto and (ii) Warrants, for the aggregate consideration set forth opposite such Investor’s name on Schedule A hereto.  The Subordinated Notes and the Warrants to be purchased are sometimes referred to herein, collectively, as the “Securities”.  The financing pursuant to which the Company is issuing the Securities is hereinafter referred to as the “Financing”.   The Subordinated Notes are subordinated in all respects to the Company’s obligations under the Secured Convertible Promissory Notes (the “Secured Notes”) issued pursuant to the Note and Warrant Purchase Agreement, dated as of October 1, 2010, by and between the Company and the Investors listed on Schedule A thereto, and the related guaranties issued in favor of certain holders of such notes by SAIL Venture Partners, L.P.

 

           1.2           Closings.

 

(a)           Initial Closing.  The initial purchase and sale of the Securities shall take place at a closing (the “Initial Closing”) which shall take place remotely via exchange of documents and signatures at 10:00 a.m. Eastern Time on the day immediately following execution and delivery of this Agreement, or at such other place and time as may be agreed to among the Company and the Investors.  At the Initial Closing, the Company shall deliver to each of the
Investors purchasing Securities for cash at such closing a Subordinated Note in the face amount set forth opposite such Investor’s name on Schedule A under the column entitled “Purchase Price / Principal Amount of Note (Initial Closing)”, and a Warrant to purchase a number of shares of Common Stock corresponding to fifty percent (50%) of the number of shares of Common Stock issuable upon conversion of such Subordinated Note, against receipt of a check subject to collection or a wire transfer in immediately available funds of the purchase price, to an account designated by the Company.

 

  

  

  

 

(b)           Additional Closings.  The Company shall have the right, on one or more occasions, to hold additional closings (each, an “Additional Closing”, and collectively with the Initial Closing, the “Closings”, and individually, a “Closing”), pursuant to which it shall have the right to issue and sell additional Subordinated Notes and
Warrants to additional Investors or existing Investors (provided that no Additional Closings shall take place later than July 31, 2011).  At each Additional Closing, the Company shall deliver to each Investor purchasing Subordinated Notes for cash at such closing a Subordinated Note in the face amount of the purchase price paid by such Investor for such Subordinated Note, and a Warrant to purchase a number of shares of Common Stock corresponding to fifty percent (50%) of the number of shares of Common Stock issuable upon conversion of such Subordinated Note, against receipt of a check subject to collection or a wire transfer in immediately available funds of the purchase price, to an account designated by the Company. By receiving Securities at an Additional Closing, each Investor so receiving Securities thereby represents that its representations and warranties contained in
Section 3 are true and correct as of the date of such Additional Closing.  The aggregate amount of Subordinated Notes that may be issued at Closings hereunder shall in no event exceed the Note Cap Amount.  The Company shall have the right to update Schedule A in order to add information regarding Additional Closings, which shall not be deemed to be an amendment to this Agreement.

 

The obligation of each Investor to purchase and pay for the Subordinated Notes and Warrants to be delivered at a Closing is, unless waived by such Investor, subject to the condition that the Company’s representations and warranties contained in Section 2 are true, complete and correct on and as of such Closing date.  The obligation of the Company to sell and issue Subordinated Notes and Warrants to be delivered at a Closing is, unless waived by the Company, subject to the condition that the relevant Investor’s representations and warranties contained in Section 3 are true, complete and correct on and as of the Closing Date.

 

SECTION 2 - REPRESENTATIONS AND WARRANTIES

OF THE COMPANY

 

The Company represents and warrants to each Investor as follows:

 

2.1           Existence of Company.  The Company is a duly organized Delaware corporation.  The Company is validly existing in all jurisdictions where it conducts its business.

 

2.2           Authority to Execute.  The execution, delivery and performance by the Company of (i) this Agreement, (ii) the  Subordinated Notes and the Warrants to be issued pursuant to the terms of this Agreement, and (iii) any financing statements thereunder (collectively, the “Loan Documents”) are within the Company’s corporate powers, have been duly authorized by all necessary corporate action, do not and will not conflict with any provision of law or organizational document of the Company
(including its Certificate of Incorporation or Bylaws) or of any agreement or contractual restrictions binding upon or affecting the Company or any of its property and need no further stockholder or creditor consent.

 

  

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2.3           No Stockholder Approval Required.  No approval of the Company’s stockholders is required for (i) the entry by the Company into this Agreement, (ii) the issuance of the Subordinated Notes and Warrants contemplated by this Agreement, or (iii) the issuance of any shares of stock upon conversion of the Subordinated Notes or exercise of the Warrants.

 

2.4           Valid Issuance.  The shares of stock to be issued upon conversion of the Subordinated Notes and exercise of the Warrants contemplated by this Agreement will be, upon conversion and exercise in accordance with the terms of the Subordinated Notes or the Warrants, as applicable, and in the case of the Warrants upon payment of the exercise price therefor in accordance with the terms of such Warrants, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Loan Documents, the documents entered into by the
investors and other parties in the financing giving rise to repayment of the Subordinated Notes, applicable state and federal securities laws and liens or encumbrances created by or imposed by the Investor.  Assuming the accuracy of the representations of the Investor in Section 3 of this Agreement, such Subordinated Notes and Warrants and the shares of stock to be issued upon conversion of such Subordinated Notes and exercise of such Warrants will be issued in compliance with all applicable federal and state securities laws.  The issuance of such Subordinated Notes, Warrants and shares will not trigger any anti-dilution protections, except as may be the case with respect to the Secured Notes  and the related warrants.

 

2.5           Binding Obligation.  This Agreement is, and the other Loan Documents when delivered hereunder will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

 

2.6           Litigation.  Other than the litigation disclosed in the Company’s most recent SEC Reports (as defined below), no litigation or governmental proceeding is pending or threatened against the Company which may have a materially adverse effect on the financial condition,  operations or prospects of the Company, and to the knowledge of the Company, no basis therefore exists.

 

2.7           Intellectual Property.  To the best of the Company’s knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others.  There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company bound by or a
party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.

 

  

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2.8           SEC Reports. The Company has timely filed all forms, reports, schedules, proxy statements, registration statements and other documents (including all exhibits thereto) required to be filed by it with the Securities and Exchange Commission (the “SEC”) pursuant to the federal securities laws and the SEC rules and regulations thereunder, together with all certifications required pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) (as
they have been amended since the time of their filing, including all exhibits thereto, the “SEC Reports”).  Each of the SEC Reports complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the rules and regulations of the SEC under all of the foregoing. None of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not
misleading.

 

SECTION 3 - REPRESENTATIONS AND WARRANTIES

OF THE INVESTORS

 

Each Investor represents and warrants to the Company as follows:

 

3.1           Authorization; Binding Obligations.  The Investor has full power and authority to enter into this Agreement and each of the other Loan Documents to which he, she or it is a party, and this Agreement and each other Loan Document constitutes a valid and legally binding obligation of each Investor, enforceable against each Investor in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

 

3.2           Accredited Investor.  The Investor is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D promulgated under the Securities Act.

 

3.3           Investment for Own Account.  The Subordinated Notes and Warrants issued pursuant to this Agreement and the shares of stock to be issued upon conversion of such Subordinated Notes and exercise of such Warrants 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.

 

3.4           Knowledge and Experience.  The Investor 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 Securities 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 Securities, including a total loss of his/her investment.

 

3.5           Opportunity to Ask Questions.  The Investor 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 Investor.  In connection therewith, the Investor 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.

 

  

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

 

SECTION 4 - COVENANTS OF THE COMPANY

 

4.1           Registration Rights Agreement.  Notwithstanding any provision in the Loan Documents to the contrary, the Company agrees that all securities issued upon conversion of the Subordinated Notes and exercise of the Warrants contemplated by this Agreement will be subject to a Registration Rights Agreement between the Company and each Investor.  In the event that the terms of such Subordinated Notes and Warrants do not provide for such a Registration Rights Agreement, the Company agrees to work with each Investor in good faith to prepare and execute such a Registration
Rights Agreement on terms reasonably satisfactory to each Investor at or prior to the time of conversion or exercise.

 

4.2           Restrictive Covenants.  Without the consent of the holders of Subordinated Notes representing at least a majority of the aggregate principal amount outstanding under all of the Subordinated Notes issued pursuant to this Agreement (the “Majority Holders”), the Company shall not:

 

(a)           effect a merger, reorganization, or sell, exclusively license or lease, or otherwise dispose of any assets of the Company with a value in excess of $20,000, other than in the ordinary course of business;

 

(b)           borrow, guaranty or otherwise incur indebtedness in excess of $100,000;

 

(c)           acquire all or substantially all of the properties, assets or stock of any other corporation or entity or assets with a value greater than $50,000; or

 

(d)           form, contribute capital or assets to, or make a loan or advance in excess of $50,000 to (i) any partially-owned or wholly-owned subsidiary formed or acquired after the date of this Agreement, (ii) a joint venture or (iii) a similar business entity;

 

  

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provided, however, that the rights of the Investor under this Section 4.2 shall not apply (1) after the repayment in full of the Subordinated Notes or (2) in connection with a transaction that provides for the repayment in full of the Subordinated Notes upon the closing of such transaction.

 

SECTION 5 - MISCELLANEOUS

 

5.1           No Waiver; Cumulative Remedies.  No failure or delay on the part of any party to any Loan Document in exercising any right or remedy under, or pursuant to, any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy or power preclude other or further exercise thereof, or the exercise of any other right, remedy or power.  The remedies in the Loan Documents are cumulative and are not exclusive of any remedies provided by law.

 

5.2           Amendments and Waivers.  Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended (either retroactively or prospectively) with the written consent of the Company and the Majority Holders.  Any amendment effected in accordance with this Section 5.2 shall be binding upon each Investor, each future holder of Securities and the Company.

 

5.3           Notices, Etc.   All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person, sent by facsimile transmission to the number set forth on the signature page hereof only if a hard copy is sent by U.S. mail to the recipient within 24 hours of facsimile transmission, or such other number as may hereinafter be designated in writing by the recipient to the sender, or duly sent by first class registered or certified mail, return receipt requested, postage prepaid, or
overnight delivery service (e.g., Federal Express) addressed to such party (i) if to the Company, at the address set forth on the signature page hereof or (ii) if to an Investor, at the address set forth on Schedule A hereof or such other address as may hereafter be designated in writing by the addressee to the sender.  All such notices, advises and communications shall be deemed to have been received: (a) in the case of personal delivery, on the date of such delivery; (b) in the case of facsimile transmission, on the date of transmission; and (c) in the case of mailing or delivery by service, on the date of delivery as shown on the return receipt or delivery service statement.

 

5.4           Costs and Expenses.  The Company agrees to be responsible for its costs and expenses incurred in connection with the preparation of the Loan Documents and to reimburse each Investor for all of its costs and expenses incurred in connection with the preparation of the Loan Documents, including legal fees of each Investor’s outside counsel.  If any litigation, contest, dispute, suit, proceeding or action is instituted between or among any of the parties hereto regarding the enforcement or interpretation of this Agreement or any of the Exhibits hereto, the
prevailing party shall be entitled to reimbursement from the other party or parties for all reasonable expenses, costs, charges and other fees (including legal fees) incurred in connection with or related to such dispute.

 

  

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5.5           Governing Law.  The Loan Documents shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions of the State of California or of any other state.  The Company and each Investor consent to personal jurisdiction in Orange County, California.

 

5.6           Severability.  If any term in this Agreement is held to be illegal or unenforceable, the remaining portions of this Agreement shall not be affected, and this Agreement shall be construed and enforced as if this Agreement did not contain the term held to be illegal or unenforceable.

 

5.7           Binding Effect; Assignment.  The Loan Documents shall be binding upon and inure to the benefit of the Company and each Investor and their respective successors and assigns.  The Company may not assign its rights or interest under the Loan Documents without the prior written consent of the Majority Holders.

 

5.8           Transfer of Securities.  Notwithstanding the legend required to be placed on the Securities by applicable law, no registration statement or opinion of counsel shall be necessary: (a) for a transfer of Securities to the respective estate of each Investor or for a transfer of Securities by gift, will or intestate succession of each Investor to his or her spouse or to the siblings, lineal descendants or ancestors each Investor or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were the original
Investor hereunder; or (b) for a transfer of Securities pursuant to SEC Rule 144 or any successor rule, or for a transfer of Securities pursuant to a registration statement declared effective by the SEC under the Securities Act relating to the Securities.

 

5.9           Survival of Representations, Warranties and Covenants.  The representations and warranties of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement indefinitely, and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the other parties. The covenants of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement until such time as the Subordinated Notes have been paid in full.

 

5.10           California Commissioner of Corporations.  THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATIONS BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

[Remainder of Page Intentionally Left Blank]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first written above.

 

	 	CNS RESPONSE, INC.	 
	 	 	 	 	 
	
 

	
By: 

	/s/ Paul Buck	 
	 	 	Name:	Paul Buck	 
	 	 	Title:	Chief Financial Officer	 
	 	 	 	CNS Response, Inc.	 

 

  

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	 	INVESTOR:	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	TitleUnassociated Document

    Exhibit 10.1

    FORM
      OF WARRANT AGREEMENT

  

WARRANT AGREEMENT (“Agreement”), dated as of                     , by and between Gunpowder Gold Corp., a Nevada corporation (the “ Company ”), and                       .

   (“Warrant holder”).  Certain capitalized terms used herein are defined in Section 14 hereof.

 

In consideration of the mutual terms, conditions, representations, warranties and agreements herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

	
Section 1.  

	
Issuance of Warrants.

 

The Company hereby issues and grants to Warrant holder 266,667 Warrants (“Warrants”) to purchase 266,667 shares of common stock of the Company (the “ Common Stock ”).  Commencing on March 1, 2011  (the “ Warrant Commencement Date ”), and terminating  on March 1, 2013 (the “ Warrant Expiration Date ”), the holder shall have the right, subject to the satisfaction of the conditions to exercise set forth in Section 7 of this Agreement, to purchase 266,667 shares of Common Stock (the shares of Common Stock issuable upon exercise of the Warrants being collectively referred to herein as the “ Warrant Shares ”) at an exercise price
of $.90  per Warrant Share (the “ Exercise Price ”).  The number of Warrant Shares issuable on exercise of each Warrant and the Exercise Price are all subject to adjustment pursuant to Section 8 of this Agreement. Notwithstanding, the Company may, in its sole and absolute discretion, reduce the Exercise Price.

 

	
Section 2.  

	
Form of Warrant Certificates.

 

Promptly after the execution and delivery of this Agreement by the parties hereto, the Company shall cause to be executed and delivered to Warrant holder one or more certificates evidencing the Warrants (the “Warrant Certificates”).  Each Warrant Certificate delivered hereunder shall be substantially in the form set forth in Exhibit A attached hereto and may have such letters, numbers or other identification marks and legends, summaries or endorsements printed thereon as the Company may deem appropriate and that are not inconsistent with the terms of this Agreement or as may be required by applicable law, rule or regulation.  Each Warrant Certificate shall be dated the date of
execution by the Company.

 

	
Section 3.  

	
Execution of Warrant Certificates.

 

Each Warrant Certificate delivered hereunder shall be signed on behalf of the Company by its Chairman of the Board, Chief Executive Officer, President or a Vice President, Secretary or an Assistant Secretary.  Each such signature may be in the form of a facsimile thereof and may be imprinted or otherwise reproduced on the Warrant Certificates.

 

If any officer of the Company who signed any Warrant Certificate ceases to be an officer of the Company before the Warrant Certificate so signed shall have been delivered by the Company, such Warrant Certificate nevertheless may be delivered as though such person had not ceased to be such officer of the Company.

 

 

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Section 4.  

	
Registration.

 

Warrant Certificates shall be issued in registered form only.  The Company will keep or cause to be kept books for registration of ownership and transfer of each Warrant Certificate issued pursuant to this Agreement.  Each Warrant Certificate issued pursuant to this Agreement shall be numbered by the Company and shall be registered by the Company in the name of the holder thereof (initially the Warrant holder).  The Company may deem and treat the registered holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for the purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.

 

	
Section 5.  

	
No Transfers.

 

A. Restrictions on Transfer.  No Warrant may be sold, pledged, hypothecated, assigned, conveyed, transferred or otherwise disposed of (each a “ transfer ”) unless (i) the transfer complies with all applicable United States securities laws and (ii) the transferee agrees in writing to be bound by the terms of this Agreement.

 

B. Cancellation.  Warrant Certificates surrendered for transfer or exchange shall be canceled by the Company.

 

	
Section 6.   

	
Mutilated or Missing Warrant Certificates.

 

If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company shall issue, upon surrender and cancellation of any mutilated Warrant Certificate, or in lieu of and substitution for any lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate of like tenor and representing an equal number of Warrants.  In the case of a lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate shall be issued by the Company only upon the Company’s receipt of reasonably satisfactory evidence of such loss, theft or destruction and, if requested, an indemnity or bond reasonably satisfactory to the Company.

 

	
Section 7.  

	
Exercise of Warrants.

 

A. Exercise.  Subject to the terms and conditions set forth in this Section 7, Warrants may be exercised, in whole or in part (but not as to any fractional part of a Warrant), at any time or from time to time on and after the Warrant Commencement Date and on or prior to 5:00 p.m. on the Warrant Expiration Date.

 

The Warrant shall be exercisable only on and after the Warrant Commencement Date. If the Company determines in its sole and absolute discretion to accelerate the date that this Warrant first becomes exercisable to a date which is earlier than the first anniversary date of the date hereof, the Company shall send notice to the Warrant holder prior to the date thereof.

 

In order to exercise any Warrant, Warrant holder shall deliver to the Company at its office referred to in Section 15 the following: (i) a written notice in the form of the Election to Purchase appearing at the end of the form of Warrant Certificate attached as  Exhibit A  hereto of such Warrant holder’s election to exercise the Warrants, which notice shall specify the number of such Warrant holder’s Warrants being exercised; (ii) the Warrant Certificate or Warrant Certificates evidencing the Warrants being exercised; and (iii) payment of the aggregate Exercise Price.

 

 

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All rights of Warrant holder with respect to any Warrant that has not been exercised, on or prior to 5:00 p.m. on the Warrant Expiration Date shall immediately cease and such Warrants shall be automatically cancelled and void.

 

B. Payment of Exercise Price.  Payment of the Exercise Price with respect to Warrants being exercised hereunder may, at the election of Warrant holder, be made as follows:  (i) by the payment to the Company, in cash, by check or wire transfer, of an amount equal to the Exercise Price multiplied by the number of Warrants then being exercised; or (ii) by surrendering to the Company for cancellation Warrant Certificates evidencing Warrants to acquire a number of Warrant Shares equal to (x) the aggregate Exercise Price divided by (y) the fair market value of one Warrant Share (a “ cashless exercise ”).

If a Warrant holder elects a cashless exercise, the number of Warrant Shares to be issued to Warrant holder upon such exercise shall be computed using the following formula:

 

	  	
X =

	
Y(A-B)

	
A

	  	  
	  	  	  
	  	
X =

	
the number of Warrant Shares to be issued to Warrant holder

	  	  	  
	  	
Y =

	
the number of Warrant Shares underlying the Warrants being exercised

	  	  	  
	  	
A =

	
the fair market value of one Warrant Share

	  	  	  
	  	
B =

	
the Exercise Price

 

(a) As used herein, the “fair market value of one Warrant Share” means an amount equal to the number of shares of Common Stock into which a Warrant Share is convertible times the average, over the 5 trading-day period ending on the trading day which is two trading days prior to the date of surrender, of the closing sales prices (or, if on any day there is no closing sales price, the average of the highest bid and lowest asked price) in the United States Over-the -Counter Bulletin Board as reported by the National Quotation Bureau, Incorporated, or any similar successor organization.

 

(b)           For the purpose of this section, the “closing” shall mean 4:00 p.m., New York City time.

 

C. Payment of Taxes.  The Company shall be responsible for paying any and all issue, documentary, stamp or other taxes that may be payable in respect of any issuance or delivery of Warrant Shares on exercise of a Warrant.

 

 

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D. Delivery of Warrant Shares.  Upon receipt of the items referred to in Section 7A, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute and deliver or cause to be executed and delivered, to or upon the written order of Warrant holder, and in the name of Warrant holder or Warrant holder’s designee, a stock certificate or stock certificates representing the number of Warrant Shares to be issued on exercise of the Warrant(s).  If the Warrant Shares shall in accordance with the terms thereof have become automatically convertible into shares of the Company’s Common Stock prior to the time a Warrant is exercised, the Company
shall in lieu of issuing shares of Common Stock, issue to the Warrant holder or its designee on exercise of such Warrant, a stock certificate or stock certificates representing the number of shares of Common Stock into which the Warrant Shares issuable on exercise of such Warrant are convertible.  The certificates issued to Warrant holder or its designee shall bear any restrictive legend required under applicable law, rule or regulation.  The stock certificate or certificates so delivered shall be registered in the name of Warrant holder or such other name as shall be designated in said notice.  A Warrant shall be deemed to have been exercised and such stock certificate or stock certificates shall be deemed to have been issued, and such holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date that such notice, together with payment of the aggregate Exercise Price and the Warrant Certificate or Warrant Certificates evidencing the Warrants to be exercised, is received by the Company as aforesaid.  If the Warrants evidenced by any Warrant Certificate are exercised in part, the Company shall, at the time of delivery of the stock certificates, deliver to the holder thereof a new Warrant Certificate evidencing the Warrants that were not exercised or surrendered, which shall in all respects (other than as to the number of Warrants evidenced thereby) be identical to the Warrant Certificate being exercised.  Any Warrant Certificates surrendered upon exercise of Warrants shall be canceled by the Company.

 

	
Section 8.  

	
Adjustment of Number of Warrant Shares Issuable Upon Exercise of a Warrant and Adjustment of Exercise Price.

 

A. Adjustment for Stock Splits, Stock Dividends, Recapitalizations.  The number of Warrant Shares issuable upon exercise of each Warrant and the Exercise Price shall each be proportionately adjusted to reflect any stock dividend, stock split, reverse stock split, recapitalization or the like affecting the number of outstanding shares of Common Stock that occurs after the date hereof.

 

B. Adjustments for Reorganization, Consolidation, Merger.  If after the date hereof, the Company (or any other entity, the stock or other securities of which are at the time receivable on the exercise of the Warrants), consolidates with or merges into another entity or conveys all or substantially all of its assets to another entity, then, in each such case, Warrant holder, upon any permitted exercise of a Warrant (as provided in Section 7), at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of the Warrant prior to such consummation, the stock or
other securities or property to which such Warrant holder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such Warrant holder had exercised the Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 8.  The successor or purchasing entity in any such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to Warrant holder a written acknowledgment of such entity’s obligations under the Warrants and this Agreement.

 

 

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C. Notice of Certain Events.

 

Upon the occurrence of any event resulting in an adjustment in the number of Warrant Shares (or other stock or securities or property) receivable upon the exercise of the Warrants or the Exercise Price, the Company shall promptly thereafter (i) compute such adjustment in accordance with the terms of the Warrants, (ii) prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, and (iii) mail copies of such certificate to Warrant holder.

 

D. Adjustment to the Exercise Price.

 

The Company has the right, in its sole and absolute discretion, to reduce the Exercise Price. Upon any such determination, the Company shall notice to the Warrant holder thereof.

 

	
Section 9.  

	
Reservation of Shares.

 

The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock, or its authorized and issued Common Stock held in its treasury, the aggregate number of the Warrant Shares deliverable upon the exercise of all outstanding Warrants, for the purpose of enabling it to satisfy any obligation to issue the Warrant Shares upon the due and punctual exercise of the Warrants, through 5:00 p.m. on the Warrant Expiration Date.

 

	
Section 10.  

	
No Impairment.

 

The Company shall not, by amendment of its certificate of incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of the Warrants or this Agreement, and shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of Warrant holder under the Warrants and this Agreement against wrongful impairment.  Without limiting the generality of the foregoing, the Company:  (i) shall not set or
increase the par value of any Warrant Shares above the amount payable therefor upon exercise, and (ii) shall take all actions that are necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of the Warrants.

 

	
Section 11.  

	
Representations and Warranties of Warrant holder.

 

Warrant holder represents and warrants to the Company that, on the date hereof and on the date the Warrant holder exercises the Warrant pursuant to the terms of this Agreement:

 

(i) Warrant holder is an “accredited investor”, as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

(ii) Warrant holder understands that the Warrants and the Warrant Shares have not been registered under the Securities Act and acknowledges that the Warrants and the Warrant Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration becomes available.

 

(iii) Warrant holder is acquiring the Warrants for Warrant holder’s own account for investment and not with a view to, or for sale in connection with, any distribution thereof.

 

 

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(iv)          All the representations made by the Warrant holder on the date hereof in the Subscription Agreement between the Company and the Warrant holder shall be true and correct as of the date the Warrant holder exercises the Warrant.

 

	
Section 12.  

	
No Rights or Liabilities as Stockholder.

 

No holder, as such, of any Warrant Certificate shall be entitled to vote, receive dividends or be deemed the holder of Common Stock which may at any time be issuable on the exercise of the Warrants represented thereby for any purpose whatever, nor shall anything contained herein or in any Warrant Certificate be construed to confer upon the holder of any Warrant Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change
of stock to no par value, consolidation, merger, conveyance or otherwise), or to receive notice of meetings or other actions affecting stockholders or to receive dividend or subscription rights, or otherwise, until such Warrant Certificate shall have been exercised in accordance with the provisions hereof and the receipt and collection of the Exercise Price and any other amounts payable upon such exercise by the Company.  No provision hereof, in the absence of affirmative action by Warrant holder to purchase Warrant Shares shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

	
Section 13.  

	
Fractional Interests.

 

The Company shall not be required to issue fractional shares of Common Stock upon exercise of the Warrants or to distribute certificates that evidence fractional shares of Common Stock.  If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable on the exercise of a Warrant, the number of Warrant Shares to be issued by the Company shall be rounded to the nearest whole number, with one-half or greater being rounded up.

 

	
Section 14.  

	
Definitions.

 

Unless the context otherwise requires, the terms defined in this Section 14, whenever used in this Agreement shall have the respective meanings hereinafter specified and words in the singular or in the plural shall each include the singular and the plural and the use of any gender shall include all genders.

 

 “Business Day” shall mean any day on which banking institutions are generally open for business in Nevada.

 

“Common Stock” means the common stock of the Company.

 

“Exercise Price” shall be the price per Warrant Share at which Warrant holder is entitled to purchase Warrant Shares upon exercise of any Warrant determined in accordance with Section 7 and  subject to adjustment as provided in Sections 8 and 16 hereof.

 

“Person” shall mean any corporation, association, partnership, joint venture, trust, organization, business, individual, government or political subdivision thereof or governmental body.

 

 

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“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute as at the time in effect, and any reference to a particular section of such Act shall include a reference to the comparable section, if any, of such successor federal statute.

 

	
Section 15.  

	
Notices.

 

All notices, consents, requests, waivers or other communications required or permitted under this Agreement (each a “ Notice ”) shall be in writing and shall be sufficiently given (a) if hand delivered, (b) if sent by nationally recognized overnight courier, or (c) if sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

if to the Company:

Gunpowder Gold Corp.

10 th Floor

3 Hardman Street, Manchester

United Kingdom, M3 3HF

if to Warrant holder, to its address in the Subscription Agreement.

 

or such other address as shall be furnished by any of the parties hereto in a Notice.  Any Notice shall be deemed given upon receipt.

 

	
Section 16.   

	
Supplements, Amendments and Waivers; Unilateral Changes by the Company.

 

This Agreement may be supplemented or amended only by a subsequent writing signed by each of the parties hereto (or their successors or permitted assigns), and any provision hereof may be waived only by a written instrument signed by the party charged therewith.

 

The Company shall have the right, in its sole and absolute discretion, to (i) accelerate the exercise date of this Warrant to a date which is prior to the first anniversary of the date hereof and/or (ii) reduce the Exercise Price. If the Company exercises its right hereunder, it shall provide notice thereof to the Warrant holder.

 

	
Section 17.  

	
Successors and Assigns.

 

Except as otherwise provided herein, the provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and permitted assigns of the parties hereto.  Warrants issued under this Agreement may be assigned by Warrant holder only to the extent such assignment satisfies the restrictions on transfer set forth in this Agreement; any attempted assignment of Warrants in violation of the terms hereof shall be void  ab initio .

 

	
Section 18.  

	
Termination.

 

This Agreement (other than Sections 7C, 11, and Sections 15 through 26, inclusive, and all related definitions, all of which shall survive such termination) shall terminate on the earlier of (i) the Warrant Expiration Date and (ii) the date on which all Warrants have been exercised.

 

 

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Section 19.  

	
Governing Law; Jurisdiction.

 

A. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be governed by and construed in accordance with the laws of the State of Nevada and the federal laws of the United States applicable herein.

 

B. Submission to Jurisdiction.  Each party to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of the State of Nevada, and any appellate court from any thereof, as determined by the Company in its sole and absolute discretion, in respect of actions brought against it as a defendant, in any action, suit or proceeding arising out of or relating to this Agreement or the Warrant Certificates and Warrants to be issued pursuant hereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action, suit or proceeding may be heard and
determined in such courts.  Each of the parties hereto agrees that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

C. Venue.  Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement, or the Warrant Certificates and Warrants to be issued pursuant hereto, in any court referred to in this Subsection B.  Each of the parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action, suit proceeding in any such court and waives any other right to which it may be entitled on account of its place of residence or
domicile.

 

	
Section 20.  

	
Third Party Beneficiaries.

 

Each party intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their successors and permitted assigns.

 

	
Section 21.  

	
Headings.

 

The headings in this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement.

 

	
Section 22.  

	
Entire Agreement.

 

This Agreement, together with the Warrant Certificates and Exhibits, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and shall supersede any prior agreements and understandings between the parties hereto with respect to such subject matter.

 

	
Section 23.  

	
Expenses.

 

Each of the parties hereto shall pay its own expenses and costs incurred or to be incurred in negotiating, closing and carrying out this Agreement and in consummating the transactions contemplated herein, except as otherwise expressly provided for herein.

 

 

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Section 24.  

	
Neutral Construction.

 

The parties to this Agreement agree that this Agreement was negotiated fairly between them at arm’s length and that the final terms of this Agreement are the product of the parties’ negotiations.  Each party represents and warrants that it has sought and received legal counsel of its own choosing with regard to the contents of this Agreement and the rights and obligations affected hereby.  The parties agree that this Agreement shall be deemed to have been jointly and equally drafting by them, and that the provisions of this Agreement therefore should not be construed against a party or parties on the grounds that such party or parties drafted or was more responsible for the drafting
of any such provision(s).

 

	
Section 25.  

	
Representations and Warranties.

 

The Company hereby represents and warrants to the Warrant holder that:

 

(a) the Company has all requisite corporate power and authority to (i) execute and deliver this Agreement and (ii) issue and sell the Common Stock upon the conversion thereof and carry out provisions of this Agreement.  All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization (or reservation for issuance), sale and issuance of the Common Stock to be sold hereunder has been taken or will be taken prior to the date hereof;

 

(b) this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws relating to application affecting enforcement of creditor’s rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief of other equitable remedies;

 

(c) the Common Stock issuable upon the conversion thereof that is being purchased hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non assessable and will be free of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws;

 

(d) subject in part to the truth and accuracy of Warrant holder’s representations set forth in Section 11 of this Agreement, the offer, sale and issuance of the Common Stock issuable upon the conversion thereof as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and the qualification or registration requirements of any state securities or other applicable blue sky laws; and

 

(e) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision or an event that results in creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or non removal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

 

 

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Section 26.  

	
Counterparts.

 

This Agreement may be executed in counterparts and by facsimile and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

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

 

	  	
Gunpowder Gold Corp.

 

	  	
By:

	
 /s/ Neil Jason Pestell

	  

	  	
Name: Neil Jason Pestell

	 	 
	 	  
Title: Chief Executive Officer, President, Secretary, and Treasurer

 

 

 

 

 

 

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EXHIBIT A

 

	
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND LAWS.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF, AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH, A WARRANT AGREEMENT BETWEEN GUNPOWDER GOLD CORP. AND THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE COMPANY.

 

NO.     266,667 WARRANTS

 

FORM OF

 

Warrant Certificate

 

GUNPOWDER GOLD CORP.

 

This Warrant Certificate certifies that                                 a Non Us Resident, is the registered holder of 266,667  Warrants (the “ Warrant holder ”) to purchase shares (the “ Warrant Shares”) of Common Stock of Gunpowder Gold Corp. (the “ Company ”).  Each Warrant entitles the holder, subject to the satisfaction of the conditions to exercise set forth in Section 7 of the Warrant Agreement referred to below, to purchase from the Company at any time or from time to time on and after
March 1 2011, (the “Warrant Commencement Date”) and terminate on or prior to 5:00 p.m. on March 1, 2013 (the “Warrant Expiration Date ”) one fully paid and non assessable Warrant Share at the Exercise Price set forth in the Warrant Agreement.  The number of Warrant Shares for which each Warrant is exercisable and the Exercise Price are subject to adjustment as provided in the Warrant Agreement.

 

The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants to purchase Warrant Shares and are issued pursuant to a Warrant Agreement, dated as of February 24, 2011 (the “ Warrant Agreement ”), between the Company and                                      ., which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities
thereunder of the Company and Warrant holder.

 

Warrant holder may exercise vested Warrants by surrendering this Warrant Certificate, with the Election to Purchase attached hereto properly completed and executed, together with payment of the aggregate Exercise Price, at the offices of the Company specified in Section 15 of the Warrant Agreement.  If upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or its assignee a new Warrant Certificate evidencing the number of Warrants not exercised.

 

 

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This Warrant Certificate, when surrendered at the offices of the Company specified in Section 15 of the Warrant Agreement, by the registered holder thereof in person, by legal representative or by attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, for one or more other Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.

 

The Company may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

 

WITNESS the signatures of the duly authorized officers of the Company.

 

Dated: February 24, 2011

 

 

	 	 	      Gunpowder Gold Corp.	 
	 	 	 	 
	 	 	 	 
	  	
By:

	
Neil Jason Pestell

	  

	  	
Name: Neil Jason Pestell

	 	
     

 

	 	  
Title:Chief Executive Officer, President, Secretary,

and Treasurer

 

 

 

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FORM OF

 

Election to Purchase

 

The undersigned hereby irrevocably elects to exercise _________ of the Warrants evidenced by the attached Warrant Certificate to purchase Warrant Shares, and herewith tenders (or is concurrently tendering) payment for such Warrant Shares in an amount determined in accordance with the terms of the Warrant Agreement.  The undersigned requests that a certificate representing such Warrant Shares be registered in the name of , whose address is    and that such certificate be delivered to , whose address is .  If said number of Warrants is less than the number of Warrants evidenced by the Warrant Certificate (as calculated pursuant to the Warrant Agreement), the undersigned requests
that a new Warrant Certificate evidencing the number of Warrants evidenced by this Warrant Certificate that are not being exercised be registered in the name of , whose address is  and that such Warrant Certificate be delivered to , whose address is .

 

	  	  
Dated:                                   ,

 

Name of holder of Warrant Certificate:

 

 

 

  

(Please Print)

 

Address:

 

 

 

 

 

Signature:

	  	  	  
	  	
Note:

	
The above signature must correspond with the name as written in the first sentence of the attached Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and if the certificate evidencing the Warrant Shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which this Warrant Certificate is registered, the signature above must be guaranteed.

Signature Guaranteed:  _________________________

Dated:                           ,

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