EXHIBIT 10.1

 

THIS CONVERTIBLE PROMISSORY NOTE (THIS “NOTE”) AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE
LAWS OF ANY FOREIGN JURISDICTION. THIS NOTE AND SUCH SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED AND SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.

 

BIODRAIN MEDICAL, Inc.

 

CONVERTIBLE PROMISSORY NOTE

 

  Eagan, Minnesota $________ Issue Date: June ___, 2013

 

1.        Principal and Interest. BIODRAIN MEDICAL, INC. (the “Company”), a
Minnesota corporation, for value received, hereby promises to pay to the order
of ___________ or his, her or its assigns (“Holder”), in lawful money of the
United States of America at the address for notices to Holder set forth in the
applicable Subscription Agreement (as defined below) (or such other address as
Holder shall provide to the Company in writing pursuant thereto), the principal
amount of $________ (the “Principal Amount”), together with interest as set
forth below.

 

This Note is being issued pursuant to that certain Confidential Private
Placement Memorandum (as supplemented, the “Memorandum”) dated as of May ___,
2013, which sets forth the terms of the offering and sale (the “Offering”) by
the Company of up to a maximum of $1,000,000 (the “Maximum Offering”) of 8%
convertible promissory notes (each a “Note” and collectively the “Notes”) and
warrants (each a “Warrant” and collectively the “Warrants”) for each investor to
purchase the number of shares of Common Stock as is equal to 75% of the
principal amount of the Notes purchased by it, divided by the Fixed Conversion
Price (as hereinafter defined). An investment in the Notes and the Warrants
shall be further governed by that certain Subscription Agreement, of even date
with the Issue Date set forth above, between the Company and Holder (the
“Subscription Agreement”).

 

This Note shall become due and payable on the one-year anniversary of the Issue
Date set forth above (the “Due Date”). The Company promises to pay interest on
the unpaid Principal Amount at a rate of eight percent (8%) per annum or such
lesser rate as shall be the maximum rate allowable under applicable law, which
interest shall accrue from the Issue Date until the Due Date or such date when
the entire Principal Amount and accrued interest thereon is paid in full in
accordance with the terms of this Note. Commencing five (5) days after the
occurrence of any Event of Default (as hereinafter defined), that results in the
eventual acceleration of this Note, interest shall accrue at the rate specified
in Section 5.2 hereof. Interest shall be computed on the basis of a 360-day year
of twelve 30-day months, shall compound annually and shall be accrued and added
to principal on an annual basis.

 

Capitalized terms used, but not otherwise defined, herein shall have the
respective meanings ascribed to such terms in the Memorandum.

 

 

 

 

2.        Elective Conversion Options.

 

2.1           Elective Conversion Options.

 

(a)          Pre-Qualified Financing Conversion Option. Notwithstanding anything
herein to the contrary, any time prior to the consummation of a Qualified
Financing (as hereinafter defined) until the repayment of the entire Principal
Amount and accrued interest thereon as permitted hereunder, Holder shall have
the option to convert any or all of the unpaid Principal Amount and accrued
interest thereon into shares (“Shares”) of the Company’s common stock, par value
$0.01 per share (the “Common Stock”) at a fixed conversion price equal to $0.18
per share, subject to proportionate adjustment as provided in Section 3 hereof
(the “Fixed Conversion Price”).

 

(b)          Qualified Financing Conversion Option. Notwithstanding anything
herein to the contrary, upon the consummation of a Qualified Financing (as
hereinafter defined) until the repayment of the entire Principal Amount and
accrued interest thereon as permitted hereunder, Holder shall have the option to
convert any or all of such unpaid Principal Amount and accrued interest thereon
into Shares of the Company’s Common Stock, at a conversion price equal to the
lesser of (i) 90% of the lowest price per share at which Shares of the Company’s
Common Stock (or other equity securities of the Company on an as converted
basis) are sold in an equity financing or series of related equity financings by
the Company resulting in aggregate gross cash proceeds (before commissions and
other expenses) to the Company of at least $2,000,000 (a “Qualified Financing”)
or (ii) the Fixed Conversion Price (subject to proportionate adjustment as
provided in Section 3 hereof).

 

(c)          Holder’s conversion rights provided under this Section 2.1 are
referred to herein as the “Conversion Option”. The applicable conversion price
shall be paid by Holder by forgiveness of such amount of this Note, included all
unpaid Principal Amount and accrued interest thereon, being converted as
specified in the applicable Conversion Notice (as hereinafter defined).

 

2.2           Notice of Certain Events; Conversion Procedure for the Conversion
Options. So long as this Note remains outstanding and unless expressly waived in
writing by Holder in Holder’s sole and absolute discretion, the Company shall
give Holder at least ten (10) calendar days advance written notice in accordance
with Section 12 herein prior to the consummation of a Qualified Financing or a
Fundamental Transaction (as defined below) or the repayment of any unpaid
Principal Amount and accrued interest thereon under the Note. Holder shall have
ten (10) calendar days following receipt of such notice to elect to convert any
or all unpaid Principal Amount and accrued interest thereon into Shares of the
Company’s Common Stock in accordance with this Section 2.2. Upon conversion of
this Note pursuant to this Section 2.2, Holder shall surrender this Note, duly
endorsed, at the office of the Company and shall provide written notice (the
“Conversion Notice”) to the Company at its principal corporate office of the
election to convert the same. The Company, as soon as practicable following
receipt of the Conversion Notice, shall issue and deliver to Holder a
certificate or certificates for the number of Shares to which Holder is entitled
(such certificates bearing such legends as are required by applicable state and
federal securities laws).

 

2.3           Mechanics and Effect of Conversion for the Conversion Option. No
fractional Shares shall be issued upon any conversion hereunder. All fractional
shares shall be rounded up to the nearest whole share. Any conversion pursuant
to the Conversion Option, and the issuance of Shares of the Company’s Common
Stock pursuant thereto, shall be deemed to have occurred immediately upon the
Company’s receipt of the Conversion Notice. From and after such time, Holder
shall be treated for all purposes as the record holder of the Shares. Upon
conversion of this Note in full, with no principal or accrued interest amount
thereafter outstanding, the Company shall be released from all its obligations
and liabilities hereunder.

 

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3.        Effect of Certain Events.

 

3.1           Adjustment of Conversion Price upon Subdivision or Combination of
Shares. If the Company at any time after the date of issuance of this Note
subdivides (by any split, share dividend, recapitalization or otherwise) its
Shares into a greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time after the date of issuance of this Note combines (by
combination, reverse stock split, recapitalization or otherwise) its Shares into
a smaller number of shares, the Fixed Conversion Price in effect immediately
prior to such combination will be proportionately increased. Any adjustment
under this Section 3.1 shall become effective at the close of business on the
date the subdivision or combination becomes effective.

 

3.2           Distribution of Assets. If the Company shall propose to declare or
make any dividend or other distribution of assets (or rights to acquire its
assets) to holders of Shares, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (each a
“Distribution”), at any time after the issuance of this Note, then, in each such
case, the Company shall provide to Holder hereof notice of such proposed
Distribution at least ten (10) days prior to such Distribution, and Holder shall
have the opportunity to convert this Note into Shares on the terms and subject
to the conditions herein contained, and thereafter participate in such
Distribution.

 

3.3           Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 3 that is proportionately applied to all
outstanding shares of Common Stock of the Company, but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights applicable to all
outstanding shares of Common Stock , but excluding the Qualified Financing),
then the Company’s board of directors shall make an appropriate adjustment or
provision so as to protect the rights of the Holder of this Note; provided,
except as set forth in Section 3.1, that no such adjustment pursuant to this
Section 3 will increase the Fixed Conversion Price, as otherwise determined
pursuant to this Note.

 

4.        Prepayment.

 

4.1           Other than as provided in Section 2, Section 4.2 and Section 5
hereof, unless expressly waived in writing by Holder, in Holder’s sole and
absolute discretion, this Note may not be prepaid at any time, in whole or in
part, prior to a Qualified Financing. At any time following the consummation of
a Qualified Financing and in accordance with the notice requirements set forth
in Section 2.2 above, the Company shall have the right to prepay, without
premium or penalty, any or all of the unpaid Principal Amount and interest
accrued thereon under the Note, to the extent that Holder does not first provide
the Company with a Conversion Notice in the applicable timeframe permitted
herein.         

 

4.2            In the event of a Fundamental Transaction (as defined below), the
Company shall:

 

(a)          pay to the Holder an amount equal to the unpaid Principal Amount of
this Note, payable in cash or such other form of Sale Proceeds (as defined
below), having a value equal to such unpaid Principal Amount; and

 

(b)          pay to the Holder all accrued but unpaid interest on this Note,
payable in cash or such other form of Sale Proceeds, having a value equal to
such accrued but unpaid interest.

 

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Upon the consummation of a Fundamental Transaction and completion by the Company
of the deliveries set forth in clauses (a) and (b) above, the indebtedness
evidenced by this Note shall be satisfied in full and no interest shall continue
to accrue on this Note and all rights of the Holder hereunder shall terminate.

 

4.3           For purposes of this Note:

 

(a)          “Fundamental Transaction” means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company, including
intellectual property, to another Person, or (iii) allow another Person to make
a purchase, tender or exchange offer that is accepted by the holders of more
than fifty percent (50%) of either the outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than fifty percent (50%)
of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), (v) reorganize, recapitalize
or reclassify its Common Stock (other than a forward or reverse stock split), or
(vi) any “person” or “group” (as these terms are used for purposes of Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 , as amended (the
“Exchange Act”)) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) of
the aggregate ordinary voting power represented by issued and outstanding Common
Stock; provided, that a “Fundamental Transaction” shall not be deemed to have
occurred for purposes of the foregoing clause (vi) as the result of the
acquisition of additional securities by Dr. Samuel Herschkowitz, Joshua Kornberg
or their affiliates.

 

(b)          “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

 

(c)          “Sale Proceeds” means, in the event of a Fundamental Transaction,
the proceeds to the Company, any selling stockholders or the Company’s
stockholders, whether cash or securities.

 

5.        Events of Default.

 

5.1           Each of the following events shall constitute a default under this
Note (each an “Event of Default”) if not cured by the Company within thirty (30)
calendar days after receipt of written notice thereof from Holder or such longer
period as set forth below:

 

(a)          failure by the Company to pay the principal or interest amount due
hereunder;

(b)          failure by the Company or the Company’s transfer agent to issue
securities issuable upon conversion of this Note to Holder within thirty (30)
calendar days after the receipt of a Conversion Notice and surrender by Holder
of this Note to the Company or the Company’s transfer agent;

 

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(c)          the Company shall: (1) make a general assignment for the benefit of
its creditors; (2) apply for or consent to the appointment of a receiver,
trustee, assignee, custodian, sequestrator, liquidator or similar official for
itself or any of its assets and properties; (3) commence a voluntary for relief
as a debtor under the United States Bankruptcy Code; (4) file with or otherwise
submit to any governmental authority any petition, answer or other document
seeking: (A) reorganization, (B) an arrangement with creditors or (C) to take
advantage of any other present or future applicable law respecting bankruptcy,
reorganization, insolvency, readjustment of debts, relief of debtors,
dissolution or liquidation; (5) file or otherwise submit any answer or other
document admitting or failing to contest the material allegations of a petition
or other document filed or otherwise submitted against it in any proceeding
under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by
a court of competent jurisdiction;

 

(d)          any case, proceeding or other action shall be commenced against the
Company for the purpose of effecting, or an order, judgment or decree shall be
entered by any court of competent jurisdiction approving (in whole or in part)
anything specified in Section 5.1(c) hereof, or any receiver, trustee, assignee,
custodian, sequestrator, liquidator or other official shall be appointed with
respect to the Company, or shall be appointed to take or shall otherwise acquire
possession or control of all or a substantial part of the assets and properties
of the Company, and any of the foregoing shall continue unstayed and in effect
for any period of at least sixty (60) days; or

 

(e)          any material breach by the Company of any covenant, warranty,
representation or other term or condition of this Note, the Subscription
Agreement or the Warrant issued to the Holder in connection with the Offering,
at any time which is not cured within the time periods permitted therein or, if
no cure period is provided therein, within sixty (60) days after the date on
which the Company receives written notice of such breach.

 

5.2           If any Event of Default specified in Sections 5.1(c) or (d)
occurs, then the full Principal Amount of this Note, together with any other
amounts owing in respect thereof, to the date of the Event of Default shall
become immediately due and payable in cash without any action on the part of
Holder, and if any other Event of Default occurs, the full Principal Amount of
this Note, together with any other amounts owing in respect thereof, to the date
of acceleration shall become, at Holder’s election, immediately due and payable
in cash. Commencing five (5) days after the occurrence of any Event of Default
that results in the eventual acceleration of this Note, interest on this Note
shall continue to accrue at the rate of twenty percent (20%) per annum, or such
lower maximum amount of interest permitted to be charged under applicable law.
All Notes for which the full amount hereunder, including unpaid Principal Amount
and accrued interest thereon, shall have been paid in accordance herewith shall
promptly be surrendered to or as directed by the Company. Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder and
Holder shall have all rights as a Note holder until such time, if any, as the
full payment under this Section 5.2 shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

 

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6.        Notice of Proposed Transfers. Prior to any proposed transfer of this
Note or the Shares, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, Holder shall give written notice
to the Company of such Holder’s intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if the Company so requests, be accompanied (except
in transactions in compliance with Rule 144) by an unqualified written opinion
of legal counsel, who shall be reasonably satisfactory to the Company, addressed
to the Company and reasonably satisfactory in form and substance to the
Company’s counsel, to the effect that the proposed transfer of this Note or
Securities may be effected without registration under the Securities Act;
provided, however, no such opinion of counsel shall be necessary for a transfer
without consideration by a Holder to any affiliate of such Holder, or a transfer
by a Holder which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his spouse or lineal descendants or
ancestors, if the transferee agrees in writing to be subject to the terms hereof
to the same extent as if such transferee were the original Holder hereunder.
Each certificate evidencing Securities or this Note transferred as above
provided shall bear an appropriate restrictive legend, except that this Note or
certificate shall not bear such restrictive legend if in the opinion of counsel
for the Company such legend is not required in order to establish compliance
with any provisions of the Securities Act.

 

7.        Reservation of Shares. The Company covenants and agrees that all
Shares will, upon issuance on conversion of this Note, be duly authorized,
validly issued, fully paid and nonassessable, and free of all preemptive rights,
liens and encumbrances, except for restrictions on transfer provided for herein
and in the Company’s organizational documents, as amended from time to time.
Prior to executing this Note or as soon as reasonably possible thereafter, the
Company shall reserve out of its authorized and unissued Shares, solely for the
purpose of providing for the exercise of the rights to convert this Note, such
number of Shares as shall be sufficient therefore at the Fixed Conversion Price,
and shall use its best efforts and take such reasonable actions as are necessary
to ensure that such securities remain so reserved for issuance in the future.

 

8.        No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Note, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of Holder of this Note against impairment.

 

9.        Waivers; Governing Law. The Company hereby waives presentment, demand
for performance, notice of non-performance, protest, notice of protest and
notice of dishonor. No delay on the part of Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right. This Note
is being delivered in and shall be construed in accordance with the laws of the
State of Minnesota, without regard to the conflicts of laws provisions thereof.

 

10.      No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other person the right to vote or to
consent or to receive notice as a stockholder of the Company.

 

11.      Amendment. This Note may only be amended with the written consent of
Holder, in his, her or its sole discretion.

 

12.      Notices. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery to the address of Holder provided pursuant to the Subscription
Agreement (or such other address as Holder shall provide to the Company in
writing pursuant thereto). The Company shall follow all notification
requirements set forth in this Note, including, without limitation, Section 2.2
hereof.

 

13.      Attorneys’ Fees. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the principal and
interest payable hereunder, reasonable attorneys’ fees and costs incurred by
Holder.

 

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14.      Representations, Warranties and Covenants of the Company. The Company
hereby represents, warrants and covenants to Holder that:

 

   (a)          Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota and has full corporate power and authority to conduct
its business as currently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the property owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except to the extent that the failure
to be so qualified or in good standing would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
operations, conditions (financial or otherwise), properties, assets or results
of operations of the Company.

 

   (b)          Subordination.

 

  (i)          This Note shall rank, to the extent permitted by applicable law,
senior to all outstanding debt of the Company, except any outstanding secured
debt that is expressly described as senior or pari passu to this Note in the
Memorandum.

 

  (ii)         So long as any of the Notes remain outstanding, the Company
agrees not to (x) issue or incur any indebtedness for borrowed money (“New
Debt”) if such New Debt is senior in right of payment to the Notes, without the
prior written consent of the holders of at least a majority of the aggregate
principal amount of the Notes then outstanding or (y) repay any existing
indebtedness due or owing to Josh Kornberg or any of his Affiliates, including
any principal or interest, for borrowed money , without the prior written
consent of the holders of at least a majority of the aggregate principal amount
of the Notes then outstanding. As used herein, “Affiliates” means a person or
entity that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, the person or
entity specified.

 

  (iii)        The Company has taken, and shall take, such corporate actions and
other contractual actions, including, but not limited to, entering into
subordination agreements with third parties, as the Company in good faith
believes to be reasonably required in order to comply with this Section 14(b)
from the date first above written until such time as all Principal Amount and
interest accrued thereon under this Note has been paid in full to Holder or this
Note is converted in the manner set forth above.

 

ISSUED as of the date first above written.

 

  BIODRAIN MEDICAL, INC.       By:     Name: Josh Kornberg   Title: President
and Chief Executive Officer

 

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