THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
 
CNS RESPONSE, INC.
SECURED PROMISSORY NOTE
 
$250,000.00
December 2, 2010
 
Aliso Vejo, California

FOR VALUE RECEIVED, CNS Response, Inc., a Delaware corporation (the “Company”),
promises to pay to Mr. John Pappajohn (“Investor”, or “Noteholder”), or his
registered assigns, in lawful money of the United States of America, the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00), together with
a single payment of accrued interest calculated based on the actual days
outstanding and a 360 day year at a rate of nine percent (9%).  Such interest
shall be paid pursuant to Section 2 below (“Interest Payment”).  All unpaid
principal, together with the accrued interest and other amounts payable under
this Secured Promissory Note (this “Note”) shall be due and payable, on the
earliest of (i) the maturity date of December 2, 2010 (“Maturity Date”), (ii)
upon prepayment of this Note pursuant to Section 3 below, (iii) the closing of a
financing in which the aggregate proceeds to the Company are not less than
$3,000,000 (which, for the purposes of clarity, shall include a financing
transaction that involves multiple closings), or (iv) when, upon or after the
occurrence of an Event of Default (as defined below), such amounts are made due
and payable in accordance with the terms hereof.   This Note is secured by a
lien on all of the assets of the Company granted pursuant to the terms of
Section 5 of the Bridge Note and Warrant Purchase Agreement, dated as of the
date hereof between the Company and Investor (the “Purchase Agreement”).
 
The following is a statement of the rights of Investor and the conditions to
which this Note is subject, and to which the Company and Investor agree:
 
1.      Definitions.  As used in this Note, the following capitalized terms have
the following meanings:
 
(a)        “Company” includes the corporation initially executing this Note and
any Person which shall succeed to or assume the obligations of the Company under
this Note.
 
(b)        “Investor” shall mean the Person specified in the introductory
paragraph of this Note or any other Person who is the registered holder of this
Note.
 
(c)        “Outstanding Debt” shall mean, as of a particular time, the sum of
(i) the then outstanding principal amount of this Note and (ii) the amount of
interest due pursuant to the Interest Payment.
 
(d)        “Person” shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
 
(e)        “Securities Act” shall mean the Securities Act of 1933, as amended.
 
2.      Interest Payment.  Subject to Section 3, the Interest Payment shall be
payable at the same time the principal amount of the Note is repaid as described
in the first paragraph hereof.

 
 

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3.      Prepayment.  This Note may be prepaid, in whole or part, at any time by
the Company.  All prepayment amounts shall first be applied to any accrued
interest with the remainder applied towards the outstanding principal (“Full
Prepayment” or “Partial Prepayment”).  Investor agrees to deliver the original
of this Note (or a notice to the effect that the original Note has been lost,
stolen or destroyed along with an indemnity with respect thereto in a form
satisfactory to the Company) at the closing of the Full Prepayment for
cancellation or Partial Prepayment for the appropriate principal adjustment;
provided, however, that upon Full Prepayment of the amounts set forth above with
respect to the Outstanding Debt, the Outstanding Debt shall be deemed satisfied
and paid in full and the Company shall have no other obligation with respect to
the Outstanding Debt, whether or not this Note is delivered for cancellation as
set forth in the preceding sentence.
 
4.      Notice of Defaults. The Company shall furnish to Investor written notice
of the occurrence of any Event of Default hereunder promptly following the
occurrence thereof.
 
5.      Events of Default.
 
(a)        The occurrence of any of the following shall constitute an “Event of
Default”:
 
(i)           Failure of the Company to pay the principal or the Interest
Payment on this Note when due.
 
(ii)          Failure of the Company to perform or observe any covenant or
agreement as required by this Note and continuation of such failure for a period
of ten (10) days following written notice from Investor.
 
(iii)         The Company makes a general assignment for the benefit of
creditors.
 
(iv)         Any proceeding is instituted by or against the Company seeking to
adjudicate it bankrupt or insolvent, and such proceeding is not dismissed within
sixty (60) days.
 
(v)          The entry against the Company of a final judgment, decree or order
for the payment of money in the excess of $25,000 and the continuance of such
judgment, decree or order unsatisfied for a period of thirty (30) days without a
stay of execution.
 
(vi)         Any representation or warranty of the Company made in this Note is
proven not to have been true and correct in any material respect as of the date
of this Note.
 
(b)        If an Event of Default occurs and is continuing, Investor may
exercise any or all of the following rights and remedies:
 
(i)           Declare the Note and the Interest Payment be immediately due and
payable, and upon such declaration, the Note and the Interest Payment shall
immediately be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are expressly waived.
 
(ii)          Exercise any and all other rights and remedies available to
Investor under Section 5 of the Purchase Agreement and otherwise available to
creditors at law and in equity.
 
6.      Successors and Assigns.  Subject to the restrictions on transfer
described in Sections 8 and 10 below, the rights and obligations of the Company
and Investor shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
 
7.      Waiver and Amendment.  Any provision of this Note may be amended, waived
or modified upon the written consent of the Company and Investor. Any such
amendment, waiver or modification effected in accordance with this paragraph
shall be binding upon the Company and Investor.

 
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8.      Transfer of this Note.  With respect to any offer, sale or other
disposition of this Note, Investor will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of Investor’s counsel, or other evidence if reasonably satisfactory to the
Company, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect, as applicable). Upon receiving such written notice and
reasonably satisfactory opinion, if so requested, or other evidence, the
Company, as promptly as practicable, shall notify Investor that Investor may
sell or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company.  This Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities
Act.  The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.  Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company.  Prior to presentation of this Note for
registration of transfer, the Company shall treat the registered holder hereof
as the owner and holder of this Note for the purpose of receiving all payments
of principal and the Premium Payment and for all other purposes whatsoever,
whether or not this Note shall be overdue and the Company shall not be affected
by notice to the contrary.  Notwithstanding the foregoing, Investor may assign
this Note to an affiliated entity without the prior written consent of the
Company so long as such assignment complies with applicable law.
 
9.      Representations and Warranties.
 
(a)        Investor represents and warrants to the Company that:
 
(i)           Authorization.  Investor has full power and authority to enter
into this Note.  This Note constitutes a valid and legally binding obligation of
Investor, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally and general principles of equity.
 
(ii)          Accredited Investor.  Investor is an “accredited investor” within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
 
(b)        The Company represents and warrants to Investor that:
 
(i)           Existence of Company.  The Company is a duly organized Delaware
corporation.  The Company is validly existing in all jurisdictions where it
conducts its business.
 
(ii)          Authority to Execute.  The execution, delivery and performance by
the Company of this Note and any financing statements hereunder 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.
 
(iii)         No Stockholder Approval Required.  No approval of the Company’s
stockholders is required for the issuance of this Note or the granting of the
security interest hereunder.
 
(iv)         Binding Obligation.  This Note is a legal, valid and binding
obligation of the Company, enforceable against the Company 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.

 
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(v)         Litigation.  Except as previously disclosed to Investor, 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.
 
(vi)        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.
 
10.    Assignment by the Company.  Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, in whole or in part (other
than by operation of law) by the Company without the prior written consent of
Investor.
 
11.    Notices.  All notices, requests, demands, consents, instructions or other
communications required or permitted hereunder shall be in writing and faxed,
mailed or delivered to each party at the respective addresses of the parties as
set forth on the signature page hereto, or at such other address or facsimile
number as a party shall have furnished to the other party in writing.  All such
notices and communications will be deemed effectively given the earlier of
(i) when received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation),
(iv) one business day after being deposited with an overnight courier service of
recognized standing or (v) four days after being deposited in the U.S. mail,
first class with postage prepaid.
 
12.    Employees and Agents.  Investor may take any action hereunder by or
through agents or employees so long as such agents or employees are duly
authorized to so act on behalf of the Investor.
 
13.    Payment.  Payment shall be made in lawful tender of the United States.
 
14.    Expenses; Waivers.  If this Note is not paid when due and Investor takes
any action to enforce Investor’s rights hereunder, the Company shall promptly
pay upon demand by Investor all such reasonable costs of collection, including
reasonable attorneys’ fees, whether or not litigation is commenced.  The Company
hereby waives notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor and all other notices or demands relative to
this instrument.  The Company also shall pay for all attorney’s fees incurred by
Investor related to the drafting and preparation of this Note.
 
15.    Governing Law.  This Note and all actions arising out of or in connection
with this Note 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.
 
16.    Effectiveness.  This Note shall become effective upon the execution by
the Company and Investor.
 
[Remainder of Page Intentionally Left Blank]

 
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The Company has caused this Note to be issued as of the date first written above
and agrees to all the terms set forth above.
 
CNS RESPONSE, INC.
   
By:
 
Name:  George Carpenter
Its:  Chief Executive Officer

 
Address: 
85 Enterprise, Suite 410
     
Aliso Vejo, CA 92656

Accepted and agreed:
     
INVESTOR:
         
Mr. John Pappajohn
 

Address:  
666 Walnut Street
 
Suite 2116
 
Des Moines, IA 50309

 
 

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