NOTE AND WARRANT PURCHASE AGREEMENT
Exhibit
10.1
EXECUTION
COPY
THIS NOTE AND WARRANT PURCHASE
AGREEMENT (this “Agreement”) is made as of
October 1, 2010 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 Notes
and Warrants. The Company has authorized the issuance and
sale, in accordance with the terms hereof, of Secured Convertible Promissory
Notes in the original aggregate principal amount of up to $3,000,000 plus an
amount corresponding to accrued and unpaid interest payable on any Existing
Notes (as defined below) exchanged in this financing (the sum of $3,000,000 plus
such amount, the “Note Cap
Amount”), substantially in the form attached as Exhibit A hereto
(individually, a “Note”
and, collectively, the “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, or exchange pursuant to Section
4.3 hereof (“Exchange”)
Existing Notes and Existing Warrants (as defined below) for, (i) 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 Notes and the Warrants to be purchased or received upon
Exchange hereunder 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”.
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1.2
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Closings.
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(a) Initial
Closing. The initial purchase and sale of the Securities and
Exchange of Existing Notes and Warrants 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 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 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. At the Initial Closing, the
Company shall deliver to each Investor exchanging Securities for Existing Notes
and Existing Warrants at such closing a Note in the face amount corresponding to
the principal amount plus accrued and unpaid interest with respect to such
Existing Notes, 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 new Note, against receipt of the certificate(s)
representing the Existing Notes and Existing Warrants subject to such
Exchange.
(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 Notes and Warrants to
additional Investors or existing Investors and to exchange Existing Notes and
Warrants (provided that no Additional Closings shall take place later than
January 31, 2011). At each Additional Closing, the Company shall
deliver to each Investor purchasing Notes for cash at such closing a Note in the
face amount of the purchase price paid by such Investor for such 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 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. At each Additional Closing, the Company shall deliver
to each Investor exchanging Securities for Existing Notes and Existing Warrants
at such closing a Note in the face amount corresponding to the principal amount
plus accrued and unpaid interest with respect to such Existing Notes, 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 new Note, against receipt of the certificate(s) representing the
Existing Notes and Existing Warrants subject to such Exchange. 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 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 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 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.
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2.2 Authority to
Execute. The execution, delivery and performance by the
Company of (i) this Agreement, (ii) the Notes and the Warrants to be
issued pursuant to the terms of this Agreement, (iii) the Security Agreement,
dated as of October 1, 2010, by and between the Company and Xxxx Xxxxxxxxx, as
administrative agent on behalf of the Secured Parties (as defined therein)(the
“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 or the Security
Agreement, (ii) the issuance of the Notes and Warrants contemplated by this
Agreement, (iii) the granting of the security interest under the terms of the
Notes or (iv) the issuance of any shares of stock upon conversion of the Notes
or exercise of the Warrants.
2.4 Valid
Issuance. The shares of stock to be issued upon conversion of
the Notes and exercise of the Warrants contemplated by this Agreement will be,
upon conversion and exercise in accordance with the terms of the 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 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 Notes and Warrants and the shares of stock to be issued upon conversion of
such Notes and exercise of such Warrants will be issued in compliance with all
applicable federal and state securities laws. The issuance of such
Notes, Warrants and shares will not trigger any anti-dilution protections,
except as may be the case with respect to the Existing Notes (as defined below)
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.
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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 Xxxxxxxx-Xxxxx Act of 2002 (the
“Xxxxxxxx-Xxxxx 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
Xxxxxxxx-Xxxxx 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 Notes and Warrants issued pursuant to this
Agreement and the shares of stock to be issued upon conversion of such 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.
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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 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 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 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 Notes
representing at least a majority of the aggregate principal amount outstanding
under all of the 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
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(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;
(e) use
the proceeds from the Financing for any purpose other than for the current
operations of the Company, it being understood that the Majority Holders will
review for payment certain obligations of the Company after the Initial Closing
and will approve payment thereof;
provided, however, that the rights of
the Investor under this Section 4.2 shall not apply (1) after the repayment in
full of the Notes or (2) in connection with a transaction that provides for the
repayment in full of the Notes upon the closing of such
transaction.
4.3 Outstanding
Debt. In the event an Investor, who has previously purchased
notes from the Company and received related warrants (i) pursuant to that
certain Bridge Note and Warrant Purchase Agreement, dated as of June 3, 2010, by
and between the Company and Xxxx Xxxxxxxxx, and as amended or (ii) as part of
the issuance of notes to Deerwood Partners LLC and Deerwood Holdings LLC on July
5, 2010 and August 20, 2010 (such notes purchased pursuant to (i) and (ii)
above, the “Existing Notes” and such warrants received pursuant to (i) and (ii)
above, the “Existing Warrants”), purchases Notes pursuant to this Agreement in
the aggregate principal amount of 50% of the aggregate principal amount of such
Investor’s Existing Notes, the Company shall cause such Investor’s Existing
Notes and Existing Warrants to be amended to reflect the terms of the Notes
issued pursuant to this Agreement, or, at the Company’s option, exchange such
Investor’s Existing Notes and Existing Warrants for Notes and Warrants issued
pursuant to this Agreement.
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.
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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.
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.
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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 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.
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CNS RESPONSE, INC.
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By:
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/s/ Xxxx Xxxx
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Name: Xxxx
Xxxx
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Title: Chief
Financial Officer
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INVESTOR:
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By:
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Name:
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Title:
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