Exhibit 10.2

NEITHER THIS PROMISSORY NOTE, NOR ANY SECURITIES ISSUABLE UPON CONVERSION
HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
SALE OR DISPOSITION MAY BE EFFECTED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION
THEREFROM.

SECURED CONVERTIBLE PROMISSORY NOTE

 

US $225,000      January 25, 2012   

For value received DayStar Technologies, Inc., a Delaware corporation (“Payor”),
promises to pay to Michael Moretti (“Holder”), or his heirs or assigns, the
principal sum of US $225,000 on the terms set forth below. Interest on the
outstanding principal amount shall accrue at the rate of 10% per annum
(“Interest Rate”) or at the Default Rate, as herein defined. Interest shall
commence on the date hereof and shall continue on the outstanding principal
until paid in full. Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed.

This secured convertible promissory note (this “Note”) is issued pursuant to the
terms of that certain Securities Purchase Agreement (the “Purchase Agreement”)
dated as of January 25, 2012 between Payor and Holder. This Note shall be
secured by Payor’s grant of a security interest and lien to Holder of all of
Payor’s assets as more fully set forth on Exhibit A to that certain Security
Agreement by and between Payor and Holder (and incorporated herein by reference
the “Security Agreement”).

1. Definitions. The following terms shall have the meanings herein specified:

“Capital Stock” means any of the current or future authorized class or series of
capital stock of Payor.

“Common Stock” means authorized common stock, $.01 par value, of Payor, and
shall include any other class or series of capital stock of Payor that is not
limited to a fixed sum in respect of the rights of the holder thereof to
participate in the liquidation or winding up of Payor.

“Conversion Notice” shall have the meaning set forth in Section 2(a).

“Conversion Price” shall mean the per share price(s) at which some or all of the
outstanding principal amount plus all accrued interest thereon is converted or
convertible pursuant to Section 2(a), and in all cases as adjusted pursuant to
Section 2(d).

“Conversion Shares” means the shares of Common Stock, or such other shares of
Capital Stock, issuable upon conversion of this Note.

“Event of Default” means an event specified in Section 4 hereof.

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“Excluded Securities” means (i) securities issued as a result of any stock
split, stock dividend or reclassification of Capital Stock, distributable on a
pro rata basis to all holders of Capital Stock; (ii) securities issued pursuant
to a stock option plan, deferred compensation plan, or other compensation
arrangement approved by the Board of Directors of Payor to consultants (as
defined in the Payor’s Equity Incentive Plan), employees, officers or directors
of the Payor; or (iii) securities issued by Payor upon the conversion or
exercise of options, warrants, or convertible securities issued by Payor on or
before the issuance date of this Note and on or after the payment in full of the
principal and interest on the Note.

“Fundamental Transaction” means a transaction (a) in which Payor, directly or
indirectly, in one or more related transactions, (i) consolidates or merges with
or into (whether or not the Payor is the surviving corporation) another person
or persons, or (ii) sells, assigns, transfers, conveys or otherwise disposes of
all or substantially all of the properties or assets of the Payor to another
person, or (iii) allows another person to make a purchase, tender or exchange
offer that is accepted by the holders of more than 50% of 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) consummates 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
the 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), or (v) reorganizes,
recapitalizes or reclassifies its Common Stock or (b) in which 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 (the “Exchange Act”)) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate Common Stock.

“Holder” means Michael Moretti, and each endorsee, pledgee, assignee, owner and
holder of this Note, as such; and any consent, waiver or agreement in writing by
the then Holder with respect to any matter or thing in connection with this
Note, whether altering any provision hereof or otherwise, shall bind all
subsequent Holders. Notwithstanding the foregoing, Payor may treat the
registered holder of this Note as Holder for all purposes.

Words of one gender include the other gender; the singular includes the plural;
and the plural includes the singular, unless the context otherwise requires.

2. Conversion of the Note.

a. Election to Convert. Common Stock. Holder may, at its option exercisable by
written notice (the “Conversion Notice”) to Payor at any time prior to payment
in full hereof, except as set forth in Section 2(e), elect to convert all or any
part of the entire outstanding principal amount of this Note plus the accrued
interest on the then outstanding balance into shares of Common Stock at a
conversion price equal to $0.25 per share (subject to adjustment in the event of
any stock splits, stock dividends or other recapitalization of Common Stock
subsequent to the date of such sale or issuance).

 

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b. Delivery of Conversion Shares. The Conversion Shares shall be delivered as
follows:

1. As promptly as practicable after conversion, Payor shall deliver to Holder,
or to such person or persons as are designated by Holder in the Conversion
Notice, (1) a certificate or certificates representing the number of shares of
Capital Stock into which this Note or portion thereof is to be converted, in
such name or names as are specified in the Conversion Notice and (2) in the case
of conversion of the entire remaining principal balance plus accrued unpaid
interest hereof, any cash payable in respect of a fractional share. Such
conversion shall be deemed to have been effected at the close of business on the
date when this Note shall have been surrendered to Payor for conversion, so that
the person entitled to receive such Conversion Shares shall be treated for all
purposes as having become the record holder of such Conversion Shares at such
time.

2. In the event that less than the entire outstanding principal and accrued
unpaid interest of this Note is converted hereunder pursuant to subsection
(a) above, this Note shall not be surrendered for cancellation but shall have
the fact and amount of conversion recorded on the face of this Note by writing
acknowledged by Holder and Payor. If less than the entire principal balance of
this Note is converted, the amount of principal converted shall be reduced to
the nearest amount that results in no fractional shares.

c. Reservation of Shares. Payor agrees that, during the period within which this
Note may be converted, Payor will at all times have authorized and in reserve,
and will keep available solely for delivery upon the conversion of this Note, a
sufficient number of shares of Capital Stock and other securities and properties
as from time to time shall be receivable upon the conversion of this Note, free
and clear of all restrictions on issuance, sale or transfer other than those
imposed by law and free and clear of all pre-emptive rights. Payor agrees that
the Conversion Shares shall, at the time of such delivery, be validly issued and
outstanding, fully paid and non-assessable, and Payor will take all such action
as may be necessary to assure that the stated value or par value per share of
the Conversion Shares is at all times equal to or less than the Conversion
Price.

d. Adjustments.

1. In the event of a Fundamental Transaction while any principal or accrued
interest remains outstanding under this Note, then Payor shall use its
reasonable best efforts to cause the Payor or such successor entity, as the case
may be, to (i) execute with Holder an agreement providing that Holder shall have
the right thereafter to receive upon conversion of this Note solely the kind and
amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such consolidation, merger, sale, lease or
conveyance by a holder of the number of shares of Capital Stock for which this
Note might have been converted immediately prior to such consolidation, merger,
sale, lease or conveyance, (ii) make effective provision in its organizational
documents or otherwise, if necessary, in order to effect such agreement, and
(iii) set aside or reserve, for the benefit of Holder, the stock, securities,
property and cash to which Holder would be entitled upon conversion of this
Note.

 

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2. If the Payor at any time on or after the issuance date of this Note
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding Capital Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the
issuance date of this Note combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding Capital Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.

e. Stockholder Approval. The Company shall not issue or sell any Common Stock or
securities convertible into Common Stock pursuant to this Note, and the
Purchaser shall not purchase or acquire any such securities pursuant to this
Note, to the extent that, after giving effect thereto, the aggregate number of
shares of Common Stock that would be issued pursuant to this Note , together
with all shares of Common Stock issued pursuant to any transactions that may be
aggregated with the transactions contemplated by the Purchase Agreement under
applicable rules of The Nasdaq Stock Market would exceed the maximum number of
securities that the Company may issue pursuant to the Purchase Agreement without
breaching the Company’s obligations under the listing rules or regulations of
The Nasdaq Stock Market (the number of shares which may be issued without
violating such rules and regulations, the “Exchange Cap”), except that such
limitation shall not apply in the event that the Company obtains the approval of
its stockholders as required by the applicable rules of the Nasdaq Stock Market,
unless and until the Company elects to solicit stockholder approval of the
transactions contemplated by the Purchase Agreement and the stockholders of the
Company have in fact approved such transactions in accordance with the
applicable rules of The Nasdaq Stock Market.

3. Payment of the Note – Principal and Interest

a. Term. All principal and all unpaid accrued interest that has not been
converted into Capital Stock pursuant to Section 2 above shall be due and
payable on the second anniversary following the issuance date of this Note (the
“Maturity Date”). The Maturity Date may be extended by Holder, at the option of
Holder and in its sole discretion, effective upon written notice of such
extension by Holder to Payor not less than 15 calendar days prior to the
original Maturity Date. At any time after the Maturity Date (as it may be
extended pursuant to this Section 3(a)), Holder may proceed to collect such
unconverted principal and accrued interest. All payments of interest and
principal shall be in lawful money of the United States of America and shall be
made to Holder at the address stated in Section 9 below. All payments shall be
applied first to accrued interest, and thereafter to principal.

b. Payment on Event of Default. If any Event of Default occurs hereunder, then,
at the option and upon the declaration of Holder of this Note and upon written
notice to Payor (which election and notice shall not be required in the case of
an Event of Default under Section 4(c) or 4(d) or in a re-occurring Event of
Default under Section 4(a) or 4(b)) and Payor’s subsequent failure to cure any
such Event of Default under Section 4(d) within the referenced 60-day period,
this Note shall accelerate and all principal and unpaid accrued interest that
has not been converted into Common Stock pursuant to Section 2 above shall
become due and payable, and, at any time thereafter, Holder may proceed to
collect such unconverted principal and accrued interest and/or proceed with its
remedies under any collateral document.

 

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c. Default Interest Rate. In the event Payor fails to pay the entire unpaid
principal balance when due or interest when due, Payor shall pay a default
penalty (the “Default Penalty”) in an amount equal to 2% of the then outstanding
principal and accrued and outstanding interest under this Note and the entire
unpaid principal balance, accrued and outstanding interest, and the Default
Penalty (if not paid) shall thereafter bear interest at a default interest rate
equal to the lower of 12% per annum or the highest rate permitted by law (the
“Default Rate”).

d. Prepayment. Payor may prepay this Note at any time after one month following
the date hereof; provided that Payor shall give Holder at least 30 calendar days
advance written notice of Payor’s intent so to prepay and Holder shall have the
right to convert all or any portion of this Note, as applicable, pursuant to
Section 2(b) at any time during such 30 calendar day period.

e. Attorney’s Fees. If an Event of Default shall occur hereunder, Payor shall
pay all reasonable attorneys’ fees and court costs incurred by Holder in
enforcing and collecting this Note.

4. Events of Default. The occurrence of any one or more of the following, if
uncured within twenty (20) days from written notice thereof with respect to
subsections (a) and (b) only and only in the first instance of such failure or
breach and any instance thereafter, upon the occurrence, shall constitute an
“Event of Default”:

a. Payor fails to pay timely any of the principal amount due under this Note on
the date the same becomes due and payable or any accrued interest or other
amounts due under this Note on the date the same becomes due and payable;

b. Payor breaches any of its representations, warranties, covenants (including
failure to issue shares upon conversion of the Note) or agreements set forth in
the Agreement, the Security Agreement, the Purchase Agreement, this Note or any
other agreement between Payor and Holder;

c. Payor files any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or any other law for the relief of,
or relating to, debtors, now or hereafter in effect, or makes any assignment for
the benefit of creditors or takes any corporate action in furtherance of any of
the foregoing; or

d. An involuntary petition is filed against Payor under any bankruptcy statute
now or hereafter in effect, unless such petition is dismissed or discharged
within sixty (60) days thereafter, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Payor.

5. Transfer.

a. In order to transfer this Note, Holder, or its duly authorized
representative, shall provide Payor a copy of an assignment duly executed by
Holder hereof, but in no event shall this Note be transferred to a third party
unrelated to Holder, unless (i) an Event of Default under Section 4(a) of this
Note has been declared by Holder and (ii) Payor shall have received prior

 

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written notice of such transfer. In the event that Holder seeks to make a
transfer of this Note to an unrelated party in the absence of registration under
the Securities Act of 1933, as amended (the “1933 Act”) and any applicable state
securities laws, Holder shall furnish an opinion of counsel satisfactory in form
and in substance to Payor that such transfer is exempt from registration under
the 1933 Act and any applicable state securities laws

b. This Note is, and each certificate representing Conversion Shares shall be,
stamped or otherwise imprinted with a legend substantially in the following
form:

“The securities represented hereby have not been registered under the Securities
Act of 1933, as amended, or applicable state securities laws and may not be
reoffered, sold, transferred, pledged, or otherwise disposed of except pursuant
to (1) registration under such act or laws or (2) an exemption from registration
under such act or laws.”

6. Rights Upon a Fundamental Transaction. In addition to the provisions of
Section 2(d) hereof, for so long as any amounts remain outstanding under this
Note, if Payor enters into any agreement in connection with a Fundamental
Transaction with a holder of unsecured or secured debt (whether of the Company
or another party to the Fundamental Transaction) which provides for benefits or
terms more favorable than those contained in this Note with regard to a
Fundamental Transaction, then this Note shall be deemed to be modified to
provide Holder with those more favorable benefits and terms. The Company shall
notify Holder promptly of the existence of such more favorable benefits and
terms and Holder shall have the right to receive the more favorable benefits and
terms immediately. If requested in writing by Holder, the Company shall amend
this Note to contain the more favorable terms and conditions.

7. Loss or Mutilation of Note. Upon receipt by Payor of evidence reasonably
satisfactory to Payor of the loss, theft, destruction or mutilation of this
Note, together with an indemnity reasonably satisfactory to Payor, in the case
of loss, theft, or destruction, or the surrender and cancellation of this Note,
in the case of mutilation, Payor shall execute and deliver to Holder a new Note
of like tenor and denomination as this Note.

8. Waiver or Amendment. Any term of this Note may be amended or waived with the
written consent of Payor and Holder. The failure of Holder to enforce at any
time any of the provisions of this Note shall not, absent an express written
waiver signed by Holder specifying the provision being waived, be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Note or any part hereof or the right of Holder thereafter to enforce each and
every such provision. No waiver of any breach of this Note shall be held to be a
waiver of any other or subsequent breach.

9. Taxes. Payor agrees that it will pay, when due and payable, any and all
stamp, original issue or similar taxes which may be payable in respect of the
issue of this Note and/or any Conversion Shares or certificates therefor. Payor
shall not, however, be required to pay any stamp, original issue or similar tax
which may be payable in respect of any transfer involved in the transfer and
delivery of stock certificates to a person other than of Holder.

 

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10. Compliance with Usury Laws. It is the intention of the parties to conform
strictly to the applicable usury laws, whether pursuant to state, federal or
other applicable law, that are applicable to this Note. All agreements between
Payor and Holder, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no event, shall the amount paid
or agreed to be paid to Holder under this Note, exceed the maximum amount
permissible under applicable usury laws. If, under any circumstances,
fulfillment of any provision hereof at the time performance of such provision
shall be due, shall involve exceeding the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced to the limit of such
validity; and if under any circumstances Holder shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder and not to
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal and such other indebtedness, the excess shall be deemed to
have been a payment made by mistake and shall be refunded to the Payor. The
terms and provisions of this Section shall control and supersede every other
provision of this Note, as applicable.

11. Notices. All notices or other communications to a party required or
permitted hereunder shall be in writing and shall be delivered personally or by
facsimile (receipt confirmed electronically) to such party (or, in the case of
an entity, to an executive officer of such party) or shall be sent by a
reputable express delivery service or by certified mail, postage prepaid with
return receipt requested, addressed as follows:

if to Holder to:

Michael Moretti

[                         ]

[                         ]

if to Payor to:

DayStar Technologies, Inc.

3567 Benton Street, Suite 367

Santa Clara, California 95051

Attn: Christopher T. Lail

          Chief Financial Officer

Any party may change the above specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by facsimile, provided that any such facsimile is
received during regular business hours at the recipient’s location) or on the
day shown on the return receipt (if delivered by mail or delivery service).

12. Headings. The titles and headings to the Sections herein are inserted for
the convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Note. This Note shall be construed
without regard to any presumption or other rule requiring construction hereof
against the party causing this Note to be drafted.

 

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13. Governing Law; Waiver of Jury Trial. This Note shall be governed by and
construed under the laws of the State of New York, without giving effect to
conflicts of laws principles that would require the application of the laws of
any other jurisdiction. THE PARTIES EACH HEREBY, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL OF ANY DISPUTE
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING
HERETO OR ANY DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS.

14. Usury. Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Lawful Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this Note or otherwise in connection with this loan transaction, the provisions
of this Section 12 shall govern and prevail, and neither Payor nor the sureties,
guarantors, successors or assigns of Payor shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Lawful Rate shall be deemed charged, required or permitted
by any court of competent jurisdiction, any such excess shall be applied as a
payment and reduction of the principal of indebtedness evidenced by this Note;
and, if the principal amount hereof has been paid in full, any remaining excess
shall forthwith be paid to Payor. In determining whether or not the interest
paid or payable exceeds the Maximum Lawful Rate, Payor and Holder shall, to the
extent permitted by applicable law and subject to section 3(b) above,
(i) characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
indebtedness evidenced by this Note so that the interest for the entire term
does not exceed the Maximum Lawful Rate. As used herein, the term “Maximum
Lawful Rate” shall mean the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Holder in accordance
with the applicable laws of the State of New York.

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IN WITNESS WHEREOF, the Payor has executed this Note as of the date first
written above.

 

DayStar Technologies, Inc.

a Delaware corporation

By:

 

/s/ Christopher T. Lail

  Name: Christopher T. Lail   Title: Chief Financial Officer

 

 

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