EXECUTION COPY
 
AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT
 
THIS AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of November 11, 2011 by and between CNS Response, Inc., a Delaware corporation (the “Company”), and the investors listed on Schedule A hereto (each, an “Investor” and together, the “Investors”).
 
WHEREAS, two of the Investors (the “October 2011 Investors”) are party to that certain Note and Warrant Purchase Agreement, dated as of October 18, 2011, between the Company and such Investors (the “October 2011 Note and Warrant Purchase Agreement”), pursuant to which such Investors purchased subordinated secured notes and received Warrants (as defined below) 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 their notes (the “Warrant Coverage”);
 
WHEREAS, certain other Investors have requested an increase in the Warrant Coverage from 50% to 100%;
 
WHEREAS, the Company proposes to amend and restate the October 2011 Note and Warrant Purchase Agreement as follows:
 
AGREEMENT
 
In consideration for the mutual promises and covenants herein, the parties agree as follows:
 
 
 
 
 
SECTION 1 – PURCHASE AND SALE OF NOTES AND WARRANTS
 
1.1           Purchase and Sale of Subordinated Secured Convertible Promissory Notes and Warrants.  The Company has authorized the issuance and sale, in accordance with the terms hereof, of Subordinated Secured Convertible Promissory Notes in the original aggregate principal amount of up to $2,000,000 (the “Note Cap Amount”), substantially in the form attached as Exhibit A hereto (individually, a “Subordinated Secured Note” and, collectively, the “Subordinated Secured Notes”), and warrants to purchase shares of the common stock of the Company, par value $0.001 per share (the “Common Stock”), substantially in the form attached as Exhibit B hereto (individually, a “Warrant” and collectively, the “Warrants”).  On the terms and subject to the conditions set forth in this Agreement, at the Closings (as defined below) the Company agrees to issue to each Investor, and each Investor agrees to purchase from the Company, (i) Subordinated Secured Notes in the principal amounts set forth on Schedule A hereto and (ii) Warrants, for the aggregate consideration set forth opposite such Investor’s name on Schedule A hereto; provided, however, that the October 2011 Investors shall be treated as specified in Section 1.2(c) hereof.  The Subordinated Secured Notes and the Warrants are sometimes referred to herein, collectively, as the “Securities”.  The financing pursuant to which the Company is issuing the Securities is hereinafter referred to as the “Financing”.   The Subordinated Secured Notes are subordinated in all respects to the Company’s obligations under the secured convertible promissory notes (the “Senior Notes”) issued pursuant to the Note and Warrant Purchase Agreement, dated as of October 1, 2010, by and between the Company and the Investors listed on Schedule A thereto, and the related guaranties issued in favor of certain holders of such notes by the guarantors thereof, and amended by an Amendment and Conversion Agreement, dated as of September 30, 2011, by and between the Company and the Investors signatory thereto.   The Subordinated Secured Notes are pari passu with the subordinated convertible promissory notes (the “Pari Passu Notes”) issued pursuant to the Note and Warrant Purchase Agreement, dated as of January 20, 2011, by and between the Company and the Investors listed on Schedule A thereto, and amended by an separate Amendment and Conversion Agreement, dated as of September 30, 2011, by and between the Company and the Investors signatory thereto.  A second position security interest in the Collateral (as defined in the Amended and Restated Security Agreement, dated as of September 30, 2011, between the Company and Paul Buck, as administrative agent for the Secured Parties (as defined therein) (the “Amended and Restated Security Agreement”)) is granted to the holders of the Subordinated Secured Notes and the Pari Passu Notes in accordance with the terms of the Amended and Restated Security Agreement, the form of which is attached hereto as Exhibit C (the “Amended and Restated Security Agreement”), which security interest will be subordinated to the security interest in the Collateral granted to the holders of the Senior Notes and related guarantors under the Amended and Restated Security Agreement.
 
1.2          Closings.
 
(a)           Initial Closing.  Except with respect to the October 2011 Investors, the initial purchase and sale of the Securities shall take place at a closing (the “Initial Closing”) which shall take place remotely via exchange of documents and signatures at 10:00 a.m. Eastern Time on the day immediately following execution and delivery of this Agreement, or at such other place and time as may be agreed to among the Company and the Investors.  At the Initial Closing, the Company shall deliver to each of the Investors purchasing Securities for cash at such closing a Subordinated Secured Note in the face amount set forth opposite such Investor’s name on Schedule A under the column entitled “Purchase Price / Principal Amount of Note”, and a Warrant to purchase a number of shares of Common Stock corresponding to one hundred percent (100%) of the number of shares of Common Stock issuable upon conversion of such Subordinated Secured Note, against receipt of a check subject to collection or a wire transfer in immediately available funds of the purchase price, to an account designated by the Company.
 
(b)           Additional Closings.  The Company shall have the right, on one or more occasions, to hold additional closings (each, an “Additional Closing”, and collectively with the Initial Closing, the “Closings”, and individually, a “Closing”), pursuant to which it shall have the right to issue and sell additional Subordinated Secured Notes and Warrants to additional Investors or existing Investors (provided that no Additional Closings shall take place later than April 1, 2012).  At each Additional Closing, the Company shall deliver to each Investor purchasing Subordinated Secured Notes for cash at such closing a Subordinated Secured Note in the face amount of the purchase price paid by such Investor for such Subordinated Secured Note, and a Warrant to purchase a number of shares of Common Stock corresponding to one hundred percent (100%) of the number of shares of Common Stock issuable upon conversion of such Subordinated Secured Note, against receipt of a check subject to collection or a wire transfer in immediately available funds of the purchase price, to an account designated by the Company. By receiving Securities at an Additional Closing, each Investor so receiving Securities thereby represents that its representations and warranties contained in Section 3 are true and correct as of the date of such Additional Closing.  The aggregate principal amount of Subordinated Secured Notes that may be issued at Closings hereunder shall, when added to the aggregate principal amount of Subordinated Secured Notes issued to the October 2011 Investors, 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.

 
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The obligation of each Investor to purchase and pay cash for the Subordinated Secured Notes and Warrants to be delivered at a Closing is, unless waived by such Investor, subject to the condition that the Company’s representations and warranties contained in Section 2 are true, complete and correct on and as of such Closing date.  The obligation of the Company to sell and issue Subordinated Secured Notes and Warrants to be delivered at a Closing is, unless waived by the Company, subject to the condition that the relevant Investor’s representations and warranties contained in Section 3 are true, complete and correct on and as of the Closing Date.

(c)  October 2011 Investors.  The Company and the October 2011 Investors agree that this Agreement amends and restates in its entirety the October 2011 Note and Warrant Purchase Agreement, but that the Amended and Restated Security Agreement remains in full force and effect.  Each October 2011 Investor agrees to deliver the original certificate representing the subordinated secured note issued to him in connection with the October 2011 Note and Warrant Purchase Agreement to the Company for the purpose of having it replaced with a Subordinated Secured Note.  On the day immediately following such delivery by such Investor, the Company shall issue to such Investor a Subordinated Secured Note in the same aggregate principal amount and with the same issuance date as the note it is replacing.  Each October 2011 Investor furthermore agrees to deliver the original certificate representing the Warrant issued in connection with the October 2011 Note and Warrant Purchase Agreement to the Company for the purpose of having it replaced with a Warrant to purchase a number of shares of Common Stock corresponding to one hundred percent (100%) of the number of shares of Common Stock issuable upon conversion of such Investor’s Subordinated Secured Note.  On the day immediately following such delivery by an October 2011 Investor, the Company shall issue to such Investor a Warrant, having an expiration date identical to that of the Warrant it is replacing, to purchase a number of shares of Common Stock corresponding to one hundred percent (100%) of the number of shares of Common Stock issuable upon conversion of such Investor’s Subordinated Secured Note.  By receiving such Subordinated Secured Note and such Warrant, each October 2011 Investor thereby represents that his representations and warranties contained in Section 3 of the October 2011 Note and Warrant Purchase Agreement are true and correct as of the date of such receipt.

 
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SECTION 2 - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
 
The Company represents and warrants to each Investor as follows:
 
2.1           Existence of Company.  The Company is a duly organized Delaware corporation.  The Company is validly existing in all jurisdictions where it conducts its business.
 
2.2           Authority to Execute.  The execution, delivery and performance by the Company of (i) this Agreement, (ii) the  Subordinated Secured Notes and the Warrants to be issued pursuant to the terms of this Agreement, (iii) the Amended and Restated Security Agreement and (iv) any financing statements thereunder (collectively, the “Loan Documents”) are within the Company’s corporate powers, have been duly authorized by all necessary corporate action, do not and will not conflict with any provision of law or organizational document of the Company (including its Certificate of Incorporation or Bylaws) or of any agreement or contractual restrictions binding upon or affecting the Company or any of its property and need no further stockholder or creditor consent.
 
2.3           No Stockholder Approval Required.  No approval of the Company’s stockholders is required for (i) the entry by the Company into this Agreement, (ii) the issuance of the Subordinated Secured Notes and Warrants contemplated by this Agreement, or (iii) the issuance of any shares of stock upon conversion of the Subordinated Secured Notes or exercise of the Warrants.
 
2.4           Valid Issuance.  The shares of stock to be issued upon conversion of the Subordinated Secured Notes and exercise of the Warrants contemplated by this Agreement will be, upon conversion and exercise in accordance with the terms of the Subordinated Secured Notes or the Warrants, as applicable, and in the case of the Warrants upon payment of the exercise price therefor in accordance with the terms of such Warrants, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Loan Documents, the documents entered into by the investors and other parties in the financing giving rise to repayment of the Subordinated Secured Notes, applicable state and federal securities laws and liens or encumbrances created by or imposed by the Investor.  Assuming the accuracy of the representations of the Investor in Section 3 of this Agreement, such Subordinated Secured Notes and Warrants and the shares of stock to be issued upon conversion of such Subordinated Secured Notes and exercise of such Warrants will be issued in compliance with all applicable federal and state securities laws.  The issuance of such Subordinated Secured Notes, Warrants and shares will not trigger any anti-dilution protections.
 
2.5           Binding Obligation.  This Agreement is, and the other Loan Documents when delivered hereunder will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

 
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2.6           Litigation.  Other than the litigation disclosed in the Company’s most recent SEC Reports (as defined below), no litigation or governmental proceeding is pending or threatened against the Company which may have a materially adverse effect on the financial condition,  operations or prospects of the Company, and to the knowledge of the Company, no basis therefore exists.
 
2.7           Intellectual Property.  To the best of the Company’s knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others.  There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.
 
2.8           SEC Reports.                                The Company has timely filed all forms, reports, schedules, proxy statements, registration statements and other documents (including all exhibits thereto) required to be filed by it with the Securities and Exchange Commission (the “SEC”) pursuant to the federal securities laws and the SEC rules and regulations thereunder, together with all certifications required pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) (as they have been amended since the time of their filing, including all exhibits thereto, the “SEC Reports”).  Each of the SEC Reports complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the rules and regulations of the SEC under all of the foregoing. None of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
 
SECTION 3 - REPRESENTATIONS AND WARRANTIES
OF THE INVESTORS
 
Each Investor represents and warrants to the Company as follows:
 
3.1           Authorization; Binding Obligations.  The Investor has full power and authority to enter into this Agreement and each of the other Loan Documents to which he, she or it is a party, and this Agreement and each other Loan Document constitutes a valid and legally binding obligation of each Investor, enforceable against each Investor in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.
 
3.2           Accredited Investor.  The Investor is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D promulgated under the Securities Act.

 
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3.3           Investment for Own Account.  The Subordinated Secured Notes and Warrants issued pursuant to this Agreement and the shares of stock to be issued upon conversion of such Subordinated Secured Notes and exercise of such Warrants are being, and will be, acquired for his, her or its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act.
 
3.4           Knowledge and Experience.  The Investor has such knowledge and experience in financial and business matters that (s)he is capable of evaluating the merits and risks of an investment in the Securities and of making an informed investment decision with respect thereto, has the ability and capacity to protect his/her interests and can bear the economic risk of the acceptance of the Securities, including a total loss of his/her investment.
 
3.5           Opportunity to Ask Questions.  The Investor has had the opportunity to ask questions and receive answers from the Company or any authorized person acting on its behalf concerning the Company and its business and to obtain any additional information, to the extent possessed by the Company (or to the extent it could have been acquired by the Company without unreasonable effort or expense) necessary to verify the accuracy of the information received by the Investor.  In connection therewith, the Investor acknowledges that (s)he has had the opportunity to discuss the Company’s business, management and financial affairs with the Company’s management or any authorized person acting on its behalf.
 
3.6.           Receipt of Information.  The Investor has received and reviewed all the information concerning the Company, the Securities and the shares of common stock underlying such Securities, both written and oral, that the Investor desires.  Without limiting the generality of the foregoing, the Investor has been furnished with or has had the opportunity to acquire, and to review: all information, both written and oral, that the Investor desires with respect to the Company’s business, management, financial affairs and prospects.  In determining whether to make this investment, the Investor has relied solely on his/her own knowledge and understanding of the Company and its business and prospects based upon the Investor’s own due diligence investigations and the Company’s filings with the SEC.
 
SECTION 4 - COVENANTS OF THE COMPANY
 
4.1           Registration Rights Agreement.  Notwithstanding any provision in the Loan Documents to the contrary, but subject to the final sentence of this Section 4.1, the Company agrees that all securities issued upon conversion of the Subordinated Secured Notes and exercise of the Warrants contemplated by this Agreement will be subject to a Registration Rights Agreement between the Company and each Investor.  In the event that the terms of such Subordinated Secured Notes and Warrants do not provide for such a Registration Rights Agreement, the Company agrees to work with each Investor in good faith to prepare and execute such a Registration Rights Agreement on terms reasonably satisfactory to each Investor at or prior to the time of conversion or exercise.  Any rights granted to the holder pursuant to this Section 4.1 shall not apply to the consummation of a public offering in which the Company issues shares of its Common Stock and/or other securities, which yields gross proceeds to the Company of at least $10 million (the “Qualified Offering”), and the registration of the issuance of the securities in the Qualified Offering.

 
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4.2         Restrictive Covenants.  Without the consent of the holders of Subordinated Secured Notes representing at least a majority of the aggregate principal amount outstanding under all of the Subordinated Secured Notes issued pursuant to this Agreement and the October 2011 Note and Warrant Purchase 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 (except in connection with Additional Closings);
 
(c)           acquire all or substantially all of the properties, assets or stock of any other corporation or entity or assets with a value greater than $50,000; or
 
(d)           form, contribute capital or assets to, or make a loan or advance in excess of $50,000 to (i) any partially-owned or wholly-owned subsidiary formed or acquired after the date of this Agreement, (ii) a joint venture or (iii) a similar business entity;
 
provided, however, that the rights of the Investor under this Section 4.2 shall not apply (1) after the repayment in full of the Subordinated Secured Notes or (2) in connection with a transaction that provides for the repayment in full of the Subordinated Secured Notes upon the closing of such transaction.
 
SECTION 5 - MISCELLANEOUS
 
5.1           No Waiver; Cumulative Remedies.  No failure or delay on the part of any party to any Loan Document in exercising any right or remedy under, or pursuant to, any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy or power preclude other or further exercise thereof, or the exercise of any other right, remedy or power.  The remedies in the Loan Documents are cumulative and are not exclusive of any remedies provided by law.
 
5.2           Amendments and Waivers.  Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended (either retroactively or prospectively) with the written consent of the Company and the Majority Holders.  Any amendment effected in accordance with this Section 5.2 shall be binding upon each Investor, each future holder of Securities and the Company.
 
5.3           Notices, Etc.   All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person, sent by facsimile transmission to the number set forth on the signature page hereof only if a hard copy is sent by U.S. mail to the recipient within 24 hours of facsimile transmission, or such other number as may hereinafter be designated in writing by the recipient to the sender, or duly sent by first class registered or certified mail, return receipt requested, postage prepaid, or overnight delivery service (e.g., Federal Express) addressed to such party (i) if to the Company, at the address set forth on the signature page hereof or (ii) if to an Investor, at the address set forth on Schedule A hereof or such other address as may hereafter be designated in writing by the addressee to the sender.  All such notices, advises and communications shall be deemed to have been received: (a) in the case of personal delivery, on the date of such delivery; (b) in the case of facsimile transmission, on the date of transmission; and (c) in the case of mailing or delivery by service, on the date of delivery as shown on the return receipt or delivery service statement.

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

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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:  Paul Buck
 
Title:  Chief Financial Officer
 
 
 
 

 
 
INVESTOR:
   
 
By:
  
   
Name:
   
Title: