Document:

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED.

Void after

__________, 2016

FORM OF WARRANT TO PURCHASE SHARES

This Warrant is issued to ________________ (“Holder”) by CNS Response, Inc., a Delaware corporation (the “Company”), in connection with the contemporaneous issuance to the Holder of a Note in the aggregate principal amount of $_________(the “Note”).  All capitalized terms not defined in this Warrant shall have the meaning ascribed to them in the Note.

1.           Purchase of Shares.  Subject to the terms and conditions hereinafter set forth, the holder of this Warrant is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the holder hereof in writing), to purchase from the Company up to ______________fully paid and nonassessable Shares (as defined below) at the Exercise Price (as defined below).

2.           Definitions.

(a)           Exercise Price.  The exercise price for the Shares initially shall be $0.10 per share, as adjusted from time to time (such price, as adjusted from time to time, is herein referred to as the “Exercise Price”).

(b)           Exercise Period.  This Warrant shall be exercisable, in whole or in part, during the term commencing on the date hereof and ending on the expiration date for this Warrant specified above.

(c)           The Shares.  The term “Shares” shall mean shares of the Company’s common stock, par value $0.001 per share.

3.           Method of Exercise.  While this Warrant remains outstanding and exercisable in accordance with the terms hereof, the holder may exercise, in whole or in part, the purchase rights evidenced hereby.  Such exercise shall be effected by:

(i)      the surrender of the Warrant, together with a notice of exercise in substantially the form attached hereto as Exhibit A to the Secretary of the Company at its principal offices; and

(ii)      the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased, either in cash (through a check payable to the Company or by wire transfer to an account designated by the Company) or as provided in Section 4 below.

  

  

  

4.           Net Exercise.  In lieu of making a cash payment upon the exercise of this Warrant, the holder of this Warrant may, at such holder’s option. elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the holder hereof a number of Shares computed using the following formula:

	  	
Y (A - B)

	
X =

	
A

Where

	
  

	
X —

	
The number of Shares to be issued to the holder of this Warrant.

	
  

	
Y —

	
The number of Shares purchasable under this Warrant.

	
  

	
A —

	
The fair market value of one Share.

	
  

	
B —

	
The Exercise Price (as adjusted to the date of such calculations).

For purposes of this Section 4, the fair market value of a Share shall mean the closing price of the Shares quoted in the over-the-counter market or any exchange on which the Shares are listed, whichever is applicable, as published in The Wall Street Journal on the date of determination of fair market value.  If the Shares are not traded on the over-the-counter market or on an exchange, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s board of directors.

5.           Certificates for Shares.  Upon the exercise of the purchase rights evidenced by this Warrant, one or more certificates for the number of Shares so purchased shall be issued as soon as practicable thereafter, and in any event within thirty (30) days of the delivery of the subscription notice.

6.           Issuance of Shares.  The Company covenants that the Shares, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof.

7.           Adjustment of Exercise Price and Number of Shares.  The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a)           Subdivisions, Combinations and Other Issuances.  If the Company shall at any time prior to the expiration of this Warrant subdivide the Shares, by split-up or otherwise, or combine its Shares, or issue additional shares as a dividend, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same.  Any adjustment under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

  

2

  

(b)           Reclassification, Reorganization and Consolidation.  In case of any reclassification, capital reorganization, or change in the capital stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 7(a) above), then the Company shall make appropriate provision so that the holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of Shares as were purchasable by the holder of this Warrant immediately prior to such reclassification, reorganization, or change.  In any such case appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant so that the provisions hereof, including Sections 7(a), shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per share payable hereunder, provided the aggregate purchase price shall remain the same.

 

(c)           Ratchet. In the event the Company shall issue Shares, or securities convertible, exchangeable or exercisable into Shares (excluding in each case shares issued (i) in any of the transactions described in Subsections (a) and (b) above, (ii) upon exercise of options granted to the Company’s employees, directors, consultants or officers under a plan or plans or individual compensation arrangements adopted by the Company’s board of directors, if such shares would otherwise be included in this Subsection (c), (iii) upon conversion of shares or exercise of options and warrants outstanding as of the date hereof, or (iv) to shareholders of any Company which merges into the Company in proportion to their stock holdings of such Company immediately prior to such merger, upon such merger), for consideration per share, exercise price per share, conversion price per share or exchange price per share (as the case may be)(“Offering Price”) less than the then applicable Exercise Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal such Offering Price and the number of shares issuable upon exercise of this Warrant shall be proportionately increased immediately thereafter.  Such adjustments shall be made successively whenever any such issuance is made.  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 issuances of securities that occur subsequent to the Qualified Offering (as defined below).

(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.

(e)           Notice of Adjustment.  When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

8.           No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

9.           Representations of the Company.  The Company represents and warrants to Holder that the representations and warranties made by the Company in Section 2 of the Agreement are true, correct and complete as of the date hereof. In addition, the Company represents that the Shares necessary for a cash exercise of this Warrant are duly reserved.

  

3

  

10.         Representations and Warranties by the Holder.  The Holder represents and warrants to the Company that the representations and warranties made by the Holder in Section 3 of the Agreement are true, correct and complete as of the date hereof.

11.         Restrictive Legend.

The Shares (unless registered under the Securities Act of 1933, as amended (the “Act”)) shall be stamped or imprinted with a legend in substantially the following form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.  COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

THE SALE OF 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 THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.

12.         Warrants Transferable.  Subject to compliance with the terms and conditions of this Section 12, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed or accompanied by written instructions of transfer.  With respect to any offer, sale or other disposition of this Warrant or any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or Shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder's counsel, or other evidence, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or the Shares and indicating whether or not under the Act certificates for this Warrant or the Shares to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law.  Upon receiving such written notice and reasonably satisfactory opinion or other evidence, if so requested, the Company, as promptly as practicable, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such Shares, all in accordance with the terms of the notice delivered to the Company.  If a determination has been made pursuant to this Section 12 that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made.  Each certificate representing this Warrant or the Shares transferred in accordance with this Section 12 shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.   Notwithstanding the foregoing, Holder may assign this Warrant or the Shares into which such Warrant may be converted to an affiliated entity without the prior written consent of the Company so long as such assignment complies with applicable law.

  

4

  

13.         Rights of Stockholders.  No holder of this Warrant shall be entitled, as a Warrant holder, to vote or receive dividends or be deemed the holder of the Shares or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, 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, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

14.         Amendments and Waivers.  Any provision of this Warrant may be amended, waived or modified upon the written consent of the Company and the Majority Holders.  Any such amendment, waiver or modification effected in accordance with this paragraph shall be binding upon the Company and Holder, it being understood and agreed that such written consent will affect all Warrants and be binding on all holders thereof regardless of whether any particular holder executed such consent.

15.         Notices.  All notices and other communications given or made hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, with a copy to be sent by United States first class mail, postage prepaid, (c) five (5) days after being sent by registered or certified mail, return receipt required, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the respective parties at their address or fax number as set forth on the signature page to the Note or to such electronic mail address, facsimile number or address as subsequently modified by written notice given in according with this Section 15.

16.         Governing Law.  This Warrant and all actions arising out of or in connection with this Warrant 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.

17.         Rights and Obligations Survive Exercise of Warrant.  Unless otherwise provided herein, the rights and obligations of the Company, of the holder of this Warrant and of the holder of the Shares issued upon exercise of this Warrant, shall survive the exercise of this Warrant.

[Signature Page Follows]

  

5

  

Issued this ___ day of ________, 2011.

	  	
CNS RESPONSE, INC.

	  	  	  
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

	  	
Address:

	
85 Enterprise, Suite 410

	  	  	
Aliso Viejo, CA 92656

	
Accepted and agreed:

	  
	 	 
	 	 
	  	  
	  	  
	
Name and Position

	  
	  	  
	
Address:

	  

[Signature Page - Five-Year Warrant]

  

 

  

EXHIBIT A

NOTICE OF EXERCISE

	
TO:

	
CNS Response, Inc.

	 
	  	  	 
	  	  	 

Attention: Chief Executive Officer

1.           The undersigned hereby elects to purchase __________ Shares of _____________ pursuant to the terms of the attached Warrant.

2.           Method of Exercise (Please initial the applicable blank):

	
  

	
___

	
The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any.

	
  

	
___

	
The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 4 of the Warrant.

3.           Please issue a certificate or certificates representing said Shares in the name of the undersigned or in such other name as is specified below:

	
 

	
(Name)

	
 

	
 

	
(Address)

4.           The undersigned hereby represents and warrants that the aforesaid Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 10 of the attached Warrant are true and correct as of the date hereof.

	  	  	
 

	  	  	
(Signature)

	  	  	  
	  	  	
 

	  	  	
(Name)

	  	  	  
	
 

	  	
 

	
(Date)

	  	
(Title)

  

 

  

FORM OF TRANSFER

(To be signed only upon transfer of Warrant)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________________________________________ the right represented by the attached Warrant to purchase ____________ shares of  ________________________ of CNS Response, Inc. to which the attached Warrant relates, and appoints ______________ Attorney to transfer such right on the books of __________, with full power of substitution in the premises.

	
Dated: ____________________

	  	  	  
	  	  	
(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

	  	  	
Address:

	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	
Signed in the presence of:EXECUTION COPY

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

THIS NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of October 18, 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 Secured Convertible Promissory Notes and Warrants.  The Company has authorized the issuance and sale, in accordance with the terms hereof, of Subordinated Secured Convertible Promissory Notes in the original aggregate principal amount of up to $2,000,000 (the “Note Cap Amount”), substantially in the form attached as Exhibit A hereto (individually, a “Subordinated Secured Note” and, collectively, the “Subordinated Secured 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 Secured 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 Secured 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 Secured Notes are subordinated in all respects to the Company’s obligations under the secured convertible promissory notes (the “Senior 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 the guarantors thereof, and amended by an Amendment and Conversion Agreement, dated as of September 30, 2011, by and between the Company and the Investors signatory thereto.   The Subordinated Secured Notes are pari passu with the subordinated convertible promissory notes (the “Pari Passu Notes”) issued pursuant to the Note and Warrant Purchase Agreement, dated as of January 20, 2011, by and between the Company and the Investors listed on Schedule A thereto, and amended by an separate Amendment and Conversion Agreement, dated as of September 30, 2011, by and between the Company and the Investors signatory thereto.  A second position security interest in the Collateral (as defined in the Amended and Restated Security Agreement, dated as of September 30, 2011, between the Company and Paul Buck, as administrative agent for the Secured Parties (as defined therein) (the “Amended and Restated Security Agreement”)) is granted to the holders of the Subordinated Secured Notes and the Pari Passu Notes in accordance with the terms of the Amended and Restated Security Agreement, the form of which is attached hereto as Exhibit C (the “Amended and Restated Security Agreement”), which security interest will be subordinated to the security interest in the Collateral granted to the holders of the Senior Notes and related guarantors under the Amended and Restated Security Agreement.

  

  

  

 

	 	
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 Secured 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 Secured 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 Secured Notes and Warrants to additional Investors or existing Investors (provided that no Additional Closings shall take place later than April 1, 2012).  At each Additional Closing, the Company shall deliver to each Investor purchasing Subordinated Secured Notes for cash at such closing a Subordinated Secured Note in the face amount of the purchase price paid by such Investor for such Subordinated Secured 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 Secured 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 Secured 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 Secured 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 Secured 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.

  

2

  

 

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 Secured Notes and the Warrants to be issued pursuant to the terms of this Agreement, (iii) the Amended and Restated Security Agreement and (iv) 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.

 

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 Secured Notes and Warrants contemplated by this Agreement, or (iii) the issuance of any shares of stock upon conversion of the Subordinated Secured Notes or exercise of the Warrants.

 

2.4           Valid Issuance.  The shares of stock to be issued upon conversion of the Subordinated Secured Notes and exercise of the Warrants contemplated by this Agreement will be, upon conversion and exercise in accordance with the terms of the Subordinated Secured 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 Secured 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 Secured Notes and Warrants and the shares of stock to be issued upon conversion of such Subordinated Secured Notes and exercise of such Warrants will be issued in compliance with all applicable federal and state securities laws.  The issuance of such Subordinated Secured Notes, Warrants and shares will not trigger any anti-dilution protections.

 

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.

  

3

  

 

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.

 

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.

  

4

  

 

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

 

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, but subject to the final sentence of this Section 4.1, the Company agrees that all securities issued upon conversion of the Subordinated Secured 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 Secured 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.  Any rights granted to the holder pursuant to this Section 4.1 shall not apply to the consummation of a public offering in which the Company issues shares of its Common Stock and/or other securities, which yields gross proceeds to the Company of at least $10 million (the “Qualified Offering”), and the registration of the issuance of the securities in the Qualified Offering.

  

5

  

 

4.2           Restrictive Covenants.  Without the consent of the holders of Subordinated Secured Notes representing at least a majority of the aggregate principal amount outstanding under all of the Subordinated Secured 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;

 

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 Secured Notes or (2) in connection with a transaction that provides for the repayment in full of the Subordinated Secured 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.

  

6

  

 

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.

 

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; provided, however, that the perfection of the security interests in the Collateral shall be governed and controlled by the laws of the relevant jurisdiction or jurisdictions under the UCC.  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.

  

7

  

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 Secured 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]

  

8

  

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

  

 

  

	  	
INVESTOR:

	  	  	  
	  	
By:

	
 

	  	  	
Name:

	  	  	
Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00195-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00195-of-00352.parquet"}]]