BRIDGE NOTE AND WARRANT PURCHASE AGREEMENT
THIS BRIDGE NOTE AND WARRANT PURCHASE
AGREEMENT (this “Agreement”) is made
as of June 12, 2009 by and between CNS Response, Inc., a Delaware corporation
(the “Company”), and
Xx. Xxxx Xxxxxxxxx (the “Investor”).
Agreement
In consideration for the mutual
promises and covenants herein, the parties agree as follows:
Section
1 – Purchase and Sale of Note and Warrant
1.1 Agreement to Purchase and
Sell Note and Warrant.
a) Closing. Subject
to the terms and conditions of this Agreement, the Investor agrees to purchase,
and the Company agrees to sell and issue to the Investor, a Secured Convertible
Promissory Note in the principal amount of $1,000,000, substantially in the form
attached hereto as Exhibit
A (the “Note”), at the
closing (the “Closing”). In
addition, in order to induce the Investor to purchase the Note, the Company
shall issue to the Investor at the Closing a warrant in the form attached hereto
as Exhibit
B (the “Warrant”)
that will permit the Investor to purchase up to 3,333,333 shares of common stock
of the Company (“Common
Stock”) at a purchase price equal to $0.30 per share.
b) Securities. The
Note and Warrant issued pursuant to this Agreement, and any securities issuable
upon conversion or exercise of such Note and Warrant or upon conversion of the
shares of stock to be issued upon conversion or exercise of such Note or
Warrant, are referred to herein as the “Securities.”
1.2 Closing.
a) The
Closing shall take place at the offices of the Company at 10:00 a.m., California
time, on the date hereof, or at such other location, date and time as may be
agreed upon by the Investor and the Company (the “Closing
Date”). At
the Closing, the Company shall issue and deliver to the Investor the Note and
Warrant described in Section 1.1(a), both of which shall be acknowledged and
agreed to by the Investor. As payment in full for such Note, the
Investor shall deliver to the Company a check payable to the order of the
Company in the amount of $1,000,000, or transfer such sum to the account of the
Company by wire transfer. As payment in full for such Warrant, the
Investor shall deliver to the Company a check payable to the order of the
Company in the amount of $20, or transfer such sum to the account of the Company
by wire transfer, which the parties agree is the fair market value of the
Warrant being so issued. The obligation of the Investor to purchase
and pay for the Note and Warrant at the Closing is, unless waived by the
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
the Closing Date. The obligation of the Company to sell and issue the
Note and Warrant at the Closing is, unless waived by the Company, subject to the
condition that the 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
the Investor as follows:
2.1 Existence of
Company. The Company is a duly organized Delaware
corporation. Upon the taking of the actions referred to in Section
4.1, the Company will be 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 Note and the Warrant to be
issued pursuant to the terms of this Agreement, (iii) the Intercreditor
Agreement, dated as of the date hereof, among the Company, the Investor and SAIL
Venture Partners, LP (“SAIL”) (the
“Intercreditor
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 Note and Warrant contemplated by this Agreement, (iii) the granting of
the security interest under the terms of such Note or (iv) the issuance of any
shares of stock upon conversion or exercise of such Note and Warrant or upon
conversion of the shares of stock to be issued upon conversion or exercise of
such Note or Warrant.
2.4 Valid
Issuance. The shares of stock to be issued upon conversion or
exercise of the Note and Warrant contemplated by this Agreement will be, upon
issuance and following receipt by the Company of any applicable consideration
therefore as set forth in the applicable Loan Document, 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 such conversion
of the Note, 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 Note and Warrant and the shares of stock to be issued upon conversion or
exercise of such Note and Warrant or upon conversion of the shares of stock to
be issued upon conversion or exercise of such Note and Warrant will be issued in
compliance with all applicable federal and state securities laws. The
issuance of such Note, Warrant and shares will not trigger any anti-dilution
protections.
2.5 Binding
Obligation. Upon the taking of the actions referred to in
Section 4.1, this Agreement will be, 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. 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 its 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
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 nececssary 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 Investor
The 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 is a
party, and this Agreement and each other Loan Document constitutes a valid and
legally binding obligation of the Investor, enforceable against the 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 Note and Warrant issued pursuant to this
Agreement and the shares of stock to be issued upon conversion or exercise of
such Note and Warrant or upon conversion of the shares of stock to be issued
upon conversion or exercise of such Note and Warrant are being acquired for his
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.
Section
4 - Covenants of the Company
4.1 Good
Standing. Within
three (3) business days of the Closing, the Company shall make all filings with
the State of Delaware and pay all franchise taxes and any other fees necessary
to reinstate, renew or revive, as appropriate, the Certificate of Incorporation
and to bring within good standing the status of the Company under the General
Corporation Laws of the State of Delaware.
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4.2 Future
Financings. The Company covenants to allow Investor, at
Investor’s election, to participate in all future financings of the Company up
to an aggregate participation by Investor of $10,000,000 in addition to the
amounts invested by the Investor in the Company after giving effect to the
transactions contemplated by this Agreement. The Company shall
provide adequate notice to the Investor of all such future
financings. Notwitstanding the foregoing, Investor is not obligated
to participate in any future financings.
4.3 Registration Rights
Agreement. Notwithstanding any provision in the Loan Documents
to the contrary, the Company agrees that all securities issued upon conversion
or exercise of the Note and Warrant contemplated by this Agreement or upon
conversion of the shares of stock to be issued upon conversion or exercise of
such Note and Warrant will be subject to a Registration Rights Agreement between
the Company and Investor. In the event that the terms of such Note
and Warrant do not provide for such a Registration Rights Agreement, the Company
agrees to work with Investor in good faith to prepare and execute such a
Registration Rights Agreement on terms reasonably satisfactory to Investor at
the time such Note and Warrant are converted or exercised.
4.4 Restrictive
Covenants. Without the consent of Investor, 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, (ii) a joint venture or
(iii) a similar business entity.
Section
5 - Security Agreement
5.1 Grant of Security
Interest.
a) The
Company, in consideration of the indebtedness evidenced by the Note, hereby
grants and conveys to the Investor a security interest in and to all of the
Company’s existing and future right, title and interest in, to and under the
Collateral as defined in Section 5.2 below.
b) The
Investor and Company agree that, subject to the terms of the Intercreditor
Agreement, the indebtedness evidenced by the Note is and shall be senior in
right of payment to all presently existing and hereafter arising indebtedness
for borrowed money of the Company, and any other indebtedness of the Company,
other than those Senior Secured Convertible Promissory Notes dated March 30,
2009 and May 14, 2009, in the aggregate principal amount of $450,000, issued to
SAIL and that Senior Secured Convertible Promissory Note dated March 30, 2009,
in the aggregate principal amount of $250,000, issued to Xxxxxx Ventures, GP
(“Xxxxxx”). The
Investor and Company further agree that, subject to the terms of the
Intercreditor Agreement, all liens and security interests at any time granted by
the Company to secure the Note, including the Collateral, are and shall be (i)
subordinate only to existing liens and security interests in the assets of the
Collateral which secure indebtedness of the Company to SAIL and Xxxxxx; and (ii)
shall be senior to all other, including hereafter arising, liens and security
interests in the assets of the Collateral which secure any and all other
indebtedness. The Company has taken, and will take, all actions
necessary to make the statements in this Section 5.1(b) true.
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5.2 Property. The
property subject to the security interest (the “Collateral”) is as
follows:
a) Equipment and
Fixtures. All equipment of every type and description owned by
the Company, including (without limitation) all present and future machinery,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies and other goods (except
inventory) used or bought for use by the Company for any business or enterprise
and including all goods that are or may be attached or affixed to or otherwise
become fixtures upon any real property.
b) Accounts Receivable and Other
Intangibles. All of the Company’s accounts, chattel paper,
contract rights, commissions, warehouse receipts, bills of lading, delivery
orders, drafts, acceptances, notes, securities and other instruments; documents;
general intangibles, patents and trademarks, applications for patents and
trademarks including, but not limited to, the patent application
entitled “Method for Classifying and Treating Physiologic Brain Imbalances Using
Quantitative EEG,” know-how, proprietary information, all software source and
object code whether created or licensed by the Company, all data that comprises
the QEEG patient database, all forms of receivables, and all guaranties and
securities therefore.
c) Inventory and Other Tangible
Personal Property. All of the Company’s inventory, including
all goods, merchandise, materials, raw materials, work in progress, finished
goods, now owned or hereinafter acquired and held for sale or lease or furnished
or to be furnished under contracts or service agreements or to be used or
consumed in the Company’s business and all other tangible personal property of
the Company.
d) After-Acquired
Property. All property of the types described in Sections
5.2(a)-(c), or similar thereto, that at any time hereafter may be acquired by
Company including, but not limited to, all accessions, parts, additions and
replacements.
e) Products and
Proceeds. All products and proceeds of the Collateral from the
sale or other disposition of any of the Collateral described or referred to in
Sections 5.2(a)-(d), including (without limitation) all accounts, instruments,
chattel paper or other rights to payment, money, insurance proceeds and all
refunds of insurance premiums due or to become due under all insurance policies
covering the forgoing property.
Notwithstanding the foregoing, the
security interest granted herein shall not extend to and the term “Collateral”
shall not include any contract right or licenses to the extent that any such
contract or license prohibits the granting of a security interest therein, and
the granting of a security interest in such contract or license would cause the
Company to be in breach thereof or otherwise lose its rights
thereunder.
5.3 Removal of Collateral
Prohibited. The Company shall not permanently remove the
Collateral from its premises without the written consent of the Investor, except
that the Company may dispose of Collateral in the ordinary course of
business.
5.4 Protection of Security
Interest. Subject to the terms of the Intercreditor Agreement,
if an Event of Default has occurred under the Note and is continuing, or if any
action or proceeding is commenced which materially adversely affects the
Collateral or title under the Note or the senior right of payment or other
interest of the Investor, then the Investor may make such appearance, disburse
such sums and take such action as he deems necessary to protect his interest,
including but not limited to: (a) disbursement of reasonable attorney’s fees;
(b) entry upon the Company’s property to make repairs to the Collateral; and (c)
procurement of satisfactory insurance that is reasonable under the
circumstances; provided, however, the Investor may undertake the foregoing only
if he has first provided written notice of the Event of Default to the Company,
and the Company has failed to cure such Event of Default within ten (10) days of
receipt of such notice. Any amounts disbursed by the Investor
pursuant to this Section 5.4, with interest thereon, shall become additional
indebtedness of the Company secured by this Section 5. Unless the
Company and the Investor agree to other terms of payment, such amounts shall be
immediately due and payable, and if the Investor notifies the Company within
five (5) days of such disbursement, all such amounts shall bear interest from
the date which is ten (10) days following the date of disbursement at the rate
stated in the Note.
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5.5 Forbearance by Investor Not
a Waiver. Any forbearance by the Investor in exercising any
right or remedy hereunder, or otherwise afforded by applicable law, shall not be
a waiver of or preclude the exercise of, any right or remedy. The
acceptance by the Investor of payment of any sum secured by the Note after the
due date of such payment shall not be a waiver of the right of the Investor to
either require prompt payment when due of all other sums so secured or to
declare a default for failure to make prompt payment. No action taken
by the Investor shall waive the right of the Investor to accelerate the
indebtedness secured by this Section 5 and seek such other remedies as are
provided by the Note and/or applicable law.
5.6 Uniform Commercial Code
Security Agreement. This Section 5 is intended to be a
security agreement pursuant to the Uniform Commercial Code (the “UCC”)
for any of the items specified in the Note as part of the Collateral which,
under applicable law, may be subject to a security interest pursuant to the UCC,
and the Company hereby grants the Investor a security interest in said
items. The Company agrees that the Investor may file any appropriate
document in the appropriate jurisdiction as a financing statement for any of the
Collateral. In addition, the Company agrees to execute and deliver to
the Investor, upon his request, any financing statements, as well as extensions,
renewals and amendments thereof, and reproductions of the Note in such form as
the Investor may require to perfect a security interest with respect to the
Collateral. The Company shall pay all costs of filing such financing
statements and any extensions, renewal, amendments and releases thereof, and
shall pay all reasonable costs and expenses of any record searches for financing
statements the Investor may reasonably require. Upon the occurrence
and during the continuance of an Event of Default under the Note, the Investor
shall have the remedies of a secured party under the UCC and may exercise all
rights and remedies available under the UCC and the Note.
5.7 Rights of
Investor.
a) Upon
the occurrence of an Event of Default under the Note, the Investor may require
the Company to assemble the Collateral and make it available to the Investor at
the place to be designated by the Investor which is reasonable convenient to
both parties. The Investor may sell all or any part of the Collateral
as a whole or in parcels either by public auction, private sale, or other method
of disposition pursuant to UCC. The Investor may bid at any public
sale on all or any portion of the public sale or of the
Collateral. The Investor shall give the Company reasonable notice of
the time and place of any public sale or of the time after which any private
sale or other disposition of the Collateral is to be made, and notice given at
least ten (10) days before the time of the sale or other disposition shall be
conclusively presumed to be reasonable.
b) Notwithstanding
any provision of the Note, the Investor shall be under no obligation to offer to
sell the Collateral. In the event the Investor offers to sell the
Collateral, the Investor will be under no obligation to consummate a sale of the
Collateral if, in his reasonable business judgment, none of the offers received
by him reasonably approximates the fair value of the Collateral.
c) In
the event the Investor elects not to sell the Collateral, the Investor may elect
to follow the procedures set forth in the UCC for retaining the Collateral in
satisfaction of the Company’s obligation, subject to the Company’s rights under
such procedures.
5.8 Remedies
Cumulative. Each remedy provided herein or in the Note is
distinct and cumulative to all other rights or remedies provided herein or in
the Note or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever. All remedies
available to Investor shall be subject to the terms of the Intercreditor
Agreement. The rights granted to the Investor pursuant to this
Section 5 are subject to the senior security interests in the Collateral granted
to SAIL and Xxxxxx.
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Section
6 - Miscellaneous
6.1 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.
6.2 Amendments and
Waivers. No amendment or waiver of any provisions of this
Agreement or the Note and Warrant that may be issued pursuant to this Agreement
shall be effective unless such amendment or waiver is in writing signed by the
Company and the Investor. Any such amendment, waiver or modification
effected in accordance with this paragraph shall be binding upon both the
Company and the Investor.
6.3 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 at the address set forth on the signature page
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.
6.4 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 Investor for all of its costs and expenses incurred in
connection with the preparation of the Loan Documents, including legal fees of
the 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.
6.5 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 Investor
consent to personal jurisdiction in Orange County, California.
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6.6 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.
6.7 Binding Effect;
Assignment. The Loan Documents shall be binding upon and inure
to the benefit of the Company and the 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 Investor.
6.8 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 estate of
the Investor or for a transfer of Securities by gift, will or intestate
succession of the Investor to his spouse or to the siblings, lineal descendants
or ancestors of Investor or his 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.
6.9 Survival of Representations,
Warranties and Covenants. The representations, warranties and
covenants 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.
6.10 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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SIGNATURE
PAGE TO
|
THE
COMPANY:
By: /s/ Xxxxxx
Xxxxxxxxx
Name: Xxxxxx
Xxxxxxxxx
Its: Chief
Executive Officer
0000
Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxx
Xxxx, XX 00000
Phone:
(000) 000-0000
Fax:
(000) 000-0000
|
INVESTOR:
By: /s/ Xxxx
Xxxxxxxxx
Xx.
Xxxx Xxxxxxxxx
0000
Xxxxxxxxx Xxxxxx
Xxx
Xxxxxx, XX 00000
Phone:
[___________________]
Fax:
[___________________]
|
9
EXHIBIT
A
FORM
OF NOTE
10
EXHIBIT
B
FORM
OF WARRANT
11
