Exhibit 10.2
THIS NOTE
AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED .
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED .
CNS RESPONSE, INC.
SECURED CONVERTIBLE PROMISSORY
NOTE
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$___________
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________ __,
2009
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Costa Mesa,
California
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FOR VALUE RECEIVED, CNS Response, Inc., a
Delaware corporation (the “ Company ”), promises
to pay to SAIL Venture Partners, LP (“ Investor
”), or its assigns, in lawful money of the United States of
America, the principal sum of two hundred thousand ($200,000),
together with interest from the date of this note (this “
Note ”) on the unpaid principal balance at a rate
equal to 8.0% per annum, computed on the basis of the actual number
of days elapsed and a year of 365 days. All unpaid
principal, together with any then unpaid and accrued interest and
other amounts payable hereunder, shall be due and payable, unless
converted pursuant to Section 7 below, on the earlier of (i) a
declaration by Investor on or after June 30, 2009 (the “
Maturity Date ”) that such amounts are due and
payable or (ii) 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 pursuant
to the terms of Section 6 below. This Note is issued
pursuant to the Bridge Note and Warrant Purchase Agreement, dated
May 14, 2009 (the “ Agreement ”), and all
capitalized terms not defined in this Note shall have the meaning
ascribed to them in the 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) “
Equity Financing Conversion Price ” shall mean 85% of
the per share price paid for the securities in the Qualified Equity
Financing.
(c) “
Investor ” shall mean the Person specified in the
introductory paragraph of this Note or any Person who is the
registered holder of this Note.
(d)
“ Outstanding Debt ” shall mean, as of a
particular time, the then outstanding principal amount of this Note
and all then accrued and unpaid interest thereon.
(e) “
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.
(f) “
Securities Act ” shall mean the Securities Act of
1933, as amended.
2.
Interest . Subject to Sections 3 and 7,
accrued interest on this Note shall be payable on the earlier of
(i) a declaration by Investor on or after the Maturity Date
that the Outstanding Debt is due and payable and
(ii) when, upon or after the occurrence of an Event of Default
(as defined below), the Outstanding Debt is made due and payable in
accordance with the terms hereof.
3.
Prepayment . This Note may not be prepaid
except with the prior written consent of
Investor. Notwithstanding any other provision of this
Note, if prior to the date on which all of the Outstanding Debt is
repaid there is a liquidation, dissolution or winding-up of the
Company (a “ Liquidation Event ”), then, unless
Investor provides written notice to the Company to the contrary
prior to the closing of the Liquidation Event, concurrently with
the closing of the Liquidation Event, in full satisfaction of the
Outstanding Debt, the Company shall pay Investor an amount equal to
the product of (x) 250% multiplied by (y) the Outstanding
Debt. 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 Liquidation Event for cancellation; provided, however ,
that upon payment 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.
(a) The
occurrence of any of the following shall constitute an “
Event of Default ”:
(i) Failure
of the Company to pay the principal or interest on a Note when
due.
(ii) Failure
of the Company to perform or observe any covenant or agreement as
required by the Loan Documents.
(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) The
initiation of a proxy fight by a shareholder of the Company against
the management of the Company.
(vii) The
initiation of a lawsuit against the Company or any of its
shareholders by any party, including a shareholder of the
Company.
(viii) George
Carpenter voluntarily or involuntarily terminates his employment
with the Company.
(ix) Investor
determines, in its sole discretion, that the Company will not close
by June 30, 2009 an equity financing in the Company in an amount
and on terms acceptable to Investor.
(x) Any
of the representations and warranties of the Company made in any
Loan Document are not true and correct in any material respect as
of the date of such Loan Document.
(b) If
an Event of Default occurs and is continuing, Investor may exercise
any or all of the following rights and remedies:
(i) Declare
this Note, all interest thereon, and all other obligations under or
pursuant to the Loan Documents to be immediately due and payable,
and upon such declaration, this Note, interest and such other
obligations 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 6 below and otherwise available to creditors at law and in
equity.
(a)
Grant of Security Interest.
(i) The
Company, in consideration of the indebtedness described in this
Note, hereby grants and conveys to 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
6(b) of this Note.
(ii) Investor
and Company agree that the indebtedness evidenced by the Note is
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, except that the indebtedness
evidenced by the Note is subordinate and junior in right of payment
to the indebtedness of the Company evidenced by those certain
notes, dated March 30, 2009, issued to Investor and Brandt
Ventures, GP. All liens and security interests at any
time granted by the Company to secure the Note, including the
Collateral, are senior to all presently existing and hereafter
arising liens and security interests in the assets of the
Collateral which secure any and all other indebtedness, except that
the liens and security interests securing the Note are subordinate
and junior to the liens and security interest securing indebtedness
of the Company evidenced by those certain notes, dated March 30,
2009, issued to Investor and Brandt Ventures, GP. The
Company has taken, and will take, all actions necessary to make the
statements in this Section 6(a)(ii) true.
(b)
Property. The property subject to the security
interest (the “Collateral” ) is as
follows:
(i)
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.
(ii)
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 copyrights, any other intellectual
property, all data that comprises the QEEG patient database, all
forms of receivables, and all guaranties and securities therefore;
all right, title and interest in and to the TRD study and its
contents, results and documentation; all right, title and interest
in and to any and all past, present and future studies and their
contents, results and documentations.
(iii)
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.
(iv)
After-Acquired Property. All property of the
types described in Sections 6(b)(i)-(iii), or similar thereto, that
at any time hereafter may be acquired by Company including, but not
limited to, all accessions, parts, additions and
replacements.
(v)
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 6(b)(i)-(iv), including
(without limitation) all
