FORM OF NOTE PURCHASE AGREEMENT

 

This NOTE PURCHASE Agreement (this “Agreement”) is made as of August__, 2012 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

 

1.1           Purchase and Sale of Notes. The Company has authorized the
issuance and sale, in accordance with the terms hereof, of Secured Convertible
Promissory Notes substantially in the form attached as Exhibit A hereto
(individually, a “Note” and, collectively, the “Notes”), in the original
aggregate principal amount of up to $2,000,000 (the “Note Cap Amount”),
including an amount corresponding to the $200,000 principal amount outstanding
under two demand notes issued by the Company to John Pappajohn on April 26, 2012
and May 25, 2012, which are being exchanged in this financing (such notes, the
“Demand Notes”). 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”), Notes in the principal
amounts set forth on Schedule A hereto. The Notes 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”.

 

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 Note in the face
amount set forth opposite such Investor’s name on Schedule A under the column
entitled “Purchase Price (Initial Closing)” 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 Notes to additional Investors or existing Investors (provided that no
Additional Closings shall take place later than October 15, 2012). 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 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 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 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 to be delivered at a Closing is, unless
waived by the Company, subject to the condition that the relevant Investor’s
representations and warranties contained in Section 3 are true, complete and
correct on and as of the Closing Date.

 

Section 2 - Representations and Warranties

of the Company

 

The Company represents and warrants to each Investor as follows:

 

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

 

2.2           Authority to Execute. The execution, delivery and performance by
the Company of (i) this Agreement, (ii) the Notes to be issued pursuant to the
terms of this Agreement, (iii) the Security Agreement, dated as of August __,
2012, by and between the Company and David B. Jones, as administrative agent on
behalf of the Secured Parties (as defined therein), substantially in the form
attached hereto as Exhibit B (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 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.

 

2.4           Valid Issuance. The shares of stock to be issued upon conversion
of the Notes contemplated by this Agreement will be, upon conversion in
accordance with the terms of the Notes 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 the shares of stock
to be issued upon conversion of such Notes will be issued in compliance with all
applicable federal and state securities laws.

 

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

 

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

 

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

 

2.8           SEC Reports.         The Company has 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.

 

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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 issued pursuant to this
Agreement and the shares of stock to be issued upon conversion of such Notes 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.

 

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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 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 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 that is senior or
pari passu with the Notes in excess of $250,000;

 

(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 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           Exchange of Demand Notes. It is agreed and understood that John
Pappajohn is exchanging the Demand Notes for Notes issued pursuant to this
Agreement. With respect to such Demand Notes, in lieu of delivering to the
Company a check subject to collection or a wire transfer in immediately
available funds pursuant to Sections 1.2(a) or (b) hereof, Mr. Pappajohn shall
deliver to the Company the original certificates representing such Demand Notes.
The Company shall replace such Demand Notes with Notes issued pursuant to this
Agreement.

 

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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; sent by electronic mail; duly sent by first class registered or
certified mail, return receipt requested, postage prepaid; or duly sent by
overnight delivery service (e.g., Federal Express) addressed to such party (i)
if to the Company, at the address, fax number or electronic mail address, as
applicable, set forth on the signature page hereof or (ii) if to an Investor, at
the address, fax number or electronic mail address, as applicable, set forth on
Schedule A hereto, or at such other address, fax number or electronic mail
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 or electronic mail 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.

 

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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 and Underlying Shares. Notwithstanding the
legend required to be placed on the Securities and/or shares underlying such
Securities by applicable law, no registration statement or opinion of counsel
shall be necessary: (a) for a transfer of Securities or shares underlying such
Securities to the respective estate of each Investor or for a transfer of
Securities or shares underlying such 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
or shares underlying such Securities pursuant to SEC Rule 144 or any successor
rule, or for a transfer of Securities or shares underlying such Securities
pursuant to a registration statement declared effective by the SEC under the
Securities Act relating to the Securities.

 

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

 

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

 

[Remainder of Page Intentionally Left Blank]

 

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

 

  CNS RESPONSE, INC.         By:       Name:     Title:

 

Address/Fax Number/E-mail Address for Notice:

 

85 Enterprise, Suite 410

Aliso Viejo, CA 92656

__________________

__________________

 

[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT] 

 

 

 

 

  INVESTOR:         By:       Name:     Title:

 

[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT]

 

 

 

 

SCHEDULE A

 

Name, Address, Fax Number and E-Mail
Address of Investor 

Purchase Price

         1)  $                  2)  $            3)  $          4)  $         
5)  $          6)  $          7)  $          8)  $          9)  $         
TOTAL:     

 

 

 

 

EXHIBIT A

FORM OF NOTE

 

 

 

 

EXHIBIT B

FORM OF SECURITY AGREEMENT