formofconvpromissorynote.htm


     

      
        

      

    

    

 

    EXHIBIT
10.2

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

     

     

    


    APPLIED
NEUROSOLUTIONS, INC.

    


    December
___,
2008                                                                                                                                                        Vernon Hills,
Illinois

     

     

     No.
CPN      _________                                                                                                                                                $  
_________ 

     

    


    


    12%
CONVERTIBLE PROMISSORY NOTE

    


    APPLIED
NEUROSOLUTIONS, INC., a Delaware corporation with an address at 50 Lakeview
Parkway, Suite 111, Vernon Hills, Illinois 60061 (the "Maker"), for value
received, hereby promises to pay to ___________________ or his/her/its
registered assigns (the "Holder") on June  __, 2010 (the Maturity
Date”) the principal sum of $___________ and interest on the outstanding
principal sum hereof (computed on the basis of a 360 day year of twelve months)
at the rate of 12% per annum from the date hereof until the earlier of (a) the
Maturity Date or (b) the date on which this Promissory Note has been converted
in full into shares of the Maker’s common stock (the “Common
Stock”).   The outstanding principal and accrued but unpaid
interest thereon shall be payable on the Maturity Date in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts to the Holder at the office of the
Maker as hereinafter set forth.  At the option of the Maker, interest
on this Promissory Note may be paid in shares of the Common Stock in accordance
with Section 2 hereof.

    


    This
Promissory Note is one of a series of promissory notes of the Maker in the
aggregate principal amount of up to $2,000,000 issued in
connection with a private placement as described in the Convertible Note
Purchase Agreement dated as of the date hereof to which the Maker is a party
(the “Subscription Agreement”).  This Promissory Note shall rank pari passu with all of the
other Promissory Notes issued pursuant to the Subscription
Agreement.

    


    1.           Transfers of Note to Comply
with the Securities Act

    


    The
Holder agrees that this Promissory Note may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (1) to a person to whom
this Promissory Note may legally be transferred without registration and without
delivery of a current prospectus under the Securities Act of 1933, as amended
(the “Securities Act”) with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 1 with
respect to any resale or other disposition of this Promissory Note; or (2) to
any person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition and thereafter to all successive assignees.

    


    
      
        
        

      

      
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    2.           Payment of Interest and
Prepayment

    


    (a)           Subject
to the terms hereof, the Maker has the sole option to determine whether to
satisfy payment of the accrued but unpaid interest on this Promissory Note in
full on the Maturity Date or the date on which this Promissory Note is converted
in full into shares of Common Stock (each an “Interest Repayment Date”) either
in cash or in shares of Common Stock, or a combination of both.  The
Maker shall deliver to the Holder a written notice, in the form of Exhibit A attached
hereto, electing to pay such interest in full on such Interest Repayment Date in
either cash or Common Stock, or a combination of both ("Interest Repayment
Election Notice").  The Interest Repayment Election Notice shall be
delivered to the Holder at least two (2) business days, but not more than six
(6) business days, prior to the Interest Repayment Date (the "Notice
Date").  If the Interest Repayment Election Notice is not delivered
within the prescribed period set forth in the preceding sentence, then the
repayment of interest on the Repayment Interest Date shall be made in
cash.  The Maker shall issue and deliver to the Holder no later than
four (4) business days from the Notice Date that number of shares of Common
Stock specified in the Interest Repayment Election Notice.  If the
Maker elects to repay all or a portion of the accrued but unpaid interest on the
Interest Repayment Date with shares of Common Stock, the number of such shares
to be issued for such interest repayment shall be the number determined by
dividing (x) the dollar amount of interest to be paid in shares of Common Stock,
by (y) the Interest Conversion Price (as defined below) as of Notice
Date.

    


                (b)              Conversion Price for Accrued but
Unpaid Interest - The conversion price for the accrued but unpaid
interest on this Promissory Note (the "Interest Conversion Price") shall be
equal to the lesser of (i) 75% of
the average closing price of the Common Stock on the OTC Bulletin Board for the
20 trading day period immediately preceding the date of the closing date under
the Subscription Agreement (the “Closing”) or (ii) the closing market price on
the Principal Market (as hereinafter defined) on which the Common Stock is
then-quoted on the Notice Date  (in each case as such amount is
equitably adjusted to reflect any stock split, reverse stock split or stock
dividend carried out by the Maker).  “Principal Market” shall mean the
Pink Sheets, the OTC Bulletin Board, the Nasdaq Global Market, the Nasdaq Global
Select Market, the American Stock Exchange or the New York Stock Exchange on
which the Maker’s Common Stock is quoted at the applicable time.

    


    (c)           The
shares of Common Stock issued by the Maker to repay accrued but unpaid interest
on this Promissory Note, when issued, will not have been registered under the
Securities Act or any state securities laws and such shares may not be sold or
offered for sale in the absence of an effective registration statement as to
such shares under the Securities Act and any applicable state securities law or
an opinion of counsel satisfactory to the Maker that such registration is not
required.  The Company has granted  to the Holder of this
Promissory Note certain piggyback registration rights with respect to the shares
of Common Stock issued by the Maker to repay accrued but unpaid interest on this
Promissory Notes, which rights are set forth on Schedule III to the Purchase
Agreement.

    


    (d)           The
Maker may not prepay all or any part of the principal sum from time to time
without Holder’s consent.

    


    


    
      
        
        

      

      
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              3.

            	
              Conversion of
      Promissory Note

            


    

    


    (a)              Subject
to the provisions set forth herein, including, but not limited to, the
restrictions on conversion pursuant to Section 3(h) below, the Holder shall have
the right, but not the obligation, from and after the date hereof, and then at
any time until this Promissory Note is fully paid, to convert the principal
portion of this Promissory Note into fully paid and nonassessable shares of
Common Stock at the Note Conversion Price (as herein defined).  Upon
delivery to the Maker of a fully completed and executed Notice of Conversion, in
the form attached hereto as Exhibit B, in
accordance with Section 3(b) below (the date of giving such notice of conversion
being a "Note Conversion Date"), the Maker shall issue and deliver to the Holder
no later than four (4) business days from the Conversion Date that number of
shares of Common Stock for the portion of principal of this Promissory Note
being converted in accordance with this Section 3.  The number of
shares of Common Stock to be issued upon each conversion of principal of this
Promissory Note shall be determined by dividing that portion of the principal of
this Promissory Note to be converted by the Note Conversion Price as of the Note
Conversion Date.  The Maker’s delivery of the Notice of Conversion
shall be an irrevocable election to convert principal of this Promissory Note in
accordance with such Notice of Conversion, subject to the limitations set forth
in Section 3(h) below.

    


    (b)              The
Holder shall give notice of its decision to exercise its right to convert
principal of this Promissory Note, in whole or in part, by telecopying or
otherwise delivering an executed and completed Notice of Conversion to the Maker
at its address set forth in the Subscription Agreement.  The Holders
will be required to surrender this Promissory Note with the Notice of
Conversion.  Unless the Maker delivers a notice to the Holder pursuant
to Section 3(h) hereof, the Maker will cause the transfer agent to issue and
transmit to the Holder within four (4) business days of the Note Conversion Date
a certificate representing the shares of Common Stock being issued pursuant to
the Notice of Conversion and the Maker shall promptly deliver to the Holder a
new Promissory Note representing the balance of the principal not converted into
Common Stock.

    


    (c)              Conversion Price for Principal
- The price at which principal of this Promissory Note will be converted
into shares of Common Stock (the “Note Conversion Price”) shall be equal to the
lesser
of  (i) the average closing price of the Common Stock on the Principal
Market for the 20 trading day period immediately preceding the date of the
Closing , (ii) $0.04, and (iii) the per share price (or conversion price) in any
subsequent financing while  the debt is outstanding (in each case as
such amount is equitably adjusted to reflect any stock split, reverse stock
split or stock dividend carried out by the Maker).

    


    (d)              If
the bid price for the Maker’s Common Stock is equal to at least 20 times the
closing price on the Principal Market on the date of the Closing for at least 20
consecutive trading days and the average daily trading volume of the Common
Stock on the Principal Market during such 20 day period is greater than one
million shares (the “Market Trigger”), the Maker will have the option, but not
the obligation, to convert the principal portion of this Promissory Note, in
whole or in part, into fully paid and nonassessable shares of Common Stock at
the Note Conversion Price (subject to the limitations of Section 3(h)
hereof).  The Maker may exercise its right to convert the principal of
this Promissory Note into shares of Common Stock as a result of the Market
Trigger by delivering a written notice to the Holder, which notice shall set
forth the amount of principal being converted, the Note Conversion Price, the
date on which the conversion of this Promissory Note will occur and the number
shares of Common Stock to be delivered to the Holder of this Promissory Note
(the “Company Conversion Notice”).  The Company Conversion Notice
shall be delivered to the Holder at least four (4) business days prior to the
Note Conversion Date set forth in such notice (and the date specified in such
notice of conversion being a "Company Conversion Date").  Upon receipt
of the Company Conversion Notice, the Holder shall promptly deliver to the Maker
this Promissory Note whereupon the Maker will cause its transfer agent to issue
and transmit to the Holder a certificate representing the shares of Common Stock
being issued pursuant to the Company Conversion Notice and the Maker shall
promptly deliver to the Holder a new Promissory Note representing the balance of
the principal not being converted, if any.  The number of shares of
Common Stock to be issued upon each conversion of principal of this Promissory
Note shall be determined by dividing the (ii) portion of the principal of this
Promissory Note to be converted by (ii) Note Conversion Price as of the Company
Conversion Date

    


    
      
        
        

      

      
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    (e)              If
the Maker enters into an agreement to consolidate with or merge into or sell or
convey all or substantially all its assets to any other entity or individual
(“Sale of the Business”) and prior to the closing for such Sale of the Business
the Holder delivers a Notice of Conversion to the Maker, then the Maker shall
convert the outstanding principal of this Promissory Note in accordance with
Section 3 hereof (subject to the limitations of Section 3(h)
hereof).  If the Maker is unable to issue the required number of
shares of Common Stock with respect to such Notice of Conversion because of
insufficient number of authorized shares of Common Stock (the “Unissued
Conversion Shares”), then after the closing of the Sale of the Business the
Maker shall redeem the unconverted principal of this Promissory Note at
Redemption Amount (as defined below).  The Redemption Amount shall be
paid in a lump sum amount as soon as practicable after the closing of the Sale
of the Business and such Redemption Amount shall bear interest (commencing on
the date of the closing of the Sale of the Business) at the rate of 12% per
annum until paid in full.  The Redemption Amount shall be equal to the
higher of (i)
the product of (A) the number of Unissued Conversion Shares multiplied by (B)
the amount equal to difference between the applicable Note Conversion Price and
the price per share received by the holders of the Common Stock from the Sale of
the Business, and (ii)  the unconverted principal of this Promissory
Note multiplied by a redemption factor of:  (X) 1.2 if the Sale of the
Business closes within 180 days of the date of this Promissory Note, (Y) 1.4 if
the Sale of the Business closes between the 181st day and
the first anniversary of this Promissory Note or (Z) 1.6 if the Sale of the
Business closes after the first anniversary of the date of this Promissory
Note.

    


    (f)              In
the event of any partial conversions of outstanding principal amount under this
Promissory Note pursuant to this Section 3, such conversions shall reduce the
amount of principal upon which interest shall accrue hereunder.

    


    (g)              The
shares of Common Stock issued upon any conversion of the principal of this
Promissory Note, when issued, will not have been registered under the Securities
Act or any state securities laws and such shares may not be sold or offered for
sale in the absence of an effective registration statement as to such shares
under the Securities Act and any applicable state securities law or an opinion
of counsel satisfactory to the Maker that such registration is not
required.  The Company has granted to the Holder of this Promissory
Note certain registration rights with respect to the shares of Common Stock
issued upon any conversion of the principal of this Promissory Note, which
rights are set forth on Schedule II to the Purchase Agreement.

    


    (h)              Notwithstanding
any other provision herein, this Note may not be converted by the Holder hereof
if, as of a Note Conversion Date, the Maker does not have sufficient number of
shares of Common Stock available for issuance upon conversion of this Note (as
requested in such Notice of Conversion).  Upon the receipt of a Notice
of Conversion from the Holder, the Maker shall promptly notify the Holder if the
Maker does not have enough authorized shares to issue pursuant to such Notice of
Conversion and such Notice of Conversion shall become null and void and of no
further force and effect.  A notice of insufficient authorized shares
from the Maker shall not prohibit the Holder from resubmitting a new Notice of
Conversion pursuant to Section 3 hereof with a lower amount of principal of this
Promissory Note to be converted into shares of Common
Stock.   The Maker may convert this Note pursuant to Section 3(d)
into as many shares of Common Stock as are available immediately prior to the
delivery of a Company Conversion Notice.

    


    
      
        
        

      

      
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    4.           Events of Default and
Remedies

    


    The
entire unpaid principal sum and all accrued interest of this Promissory Note
shall automatically become immediately due and payable, without notice or
demand, upon the occurrence of any one or more of the following events of
default ("Events of Default"):

    


    (a)           The
Maker shall fail to make a cash payment of principal or interest hereunder or
under any other Promissory Note, for a period of five business days from the
date due;

    


    (b)           The
Maker shall be unable, or admit in writing its inability, to pay its debts or
shall not pay its debts generally as they come due, or shall make any assignment
for the benefit of creditors;

    


    (c)           The
Maker shall take action to liquidate, wind up or dissolve or shall sell all or
substantially all of its assets except in connection with a Sale of the
Business;

    


    (d)           The
Maker shall commence, or there shall be commenced against the Maker, any case,
proceeding or other action seeking to have an order for relief entered with
respect to the Maker or to adjudicate the Maker as a bankrupt or insolvent;
or

    


    (e)           Maker
shall fail to comply with any of its covenants or agreements hereunder or the
Subscription Agreement or any other agreement or document, certificate or
instrument relating thereto except where such failure to comply is a result of
the action or inaction of the Holder, and such breach shall not be cured within
30 days after notification of such breach or the CFO of the Maker (or similar
officer) having obtained actual knowledge thereof.

    


    
      	
              5.        
       

            	
              Registration

            


    

    


    This
Promissory Note is registered on the books of the Maker as to both principal and
interest and can only be transferred on the books of the Maker.  Prior
to due presentment for registration of transfer, the Maker may treat the person
in whose name this Promissory Note is registered as the absolute owner of this
Promissory Note for the purpose of receiving payment of principal and interest
on this Promissory Note and for all other purposes.

     

          
6.           Miscellaneous

    


        No delay on
the part of the Holder in exercising any option, power or right shall constitute
a waiver thereof.

    


        No recourse
under or upon any obligation, covenant or agreement of this Promissory Note, or
for any claim based thereon or in respect thereof, shall be had against any
incorporator, stockholder, officer or director of the Maker or of any successor
corporation, either directly or through the Maker; it being expressly agreed
that this Promissory Note and the obligations hereunder are solely corporate
obligations of the Maker and any successor entity.

    


    
      
        
        

      

      
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        This
Promissory Note shall be governed as to validity, interpretation, construction,
effect and in all other respects by the laws and decisions of the State of New
York.  The Maker, and any endorsers, sureties and guarantors, agree
that the state courts located in the State of New York shall have subject matter
jurisdiction to entertain any action brought to enforce or collect upon this
Promissory Note and, by execution hereof, voluntarily submit to personal
jurisdiction of such courts; provided, however, such
jurisdiction shall not be exclusive and, at its option, the Holder may commence
such action in any other court which otherwise has jurisdiction.

    


        The Maker
waives service of process upon it and consents that all service of process may
be made be certified mail (return receipt requested) directed to it, and service
so shall be completed ten days after the same shall have been deposited in the
U.S. mail.

    


        The Maker
waives demand for payment, presentment for payment, notice of nonpayment or
dishonor, protest and notice of protest, and agrees to any extension of time of
payment and partial payments before, at or after maturity.  No renewal
or extension of this Promissory Note, no release or surrender of any security
for this Promissory Note, no release of any person liable hereon, no delay in
the enforcement hereof and no delay or omission in exercising any right or power
hereunder shall affect the liability of the Maker.  No delay or
omission by the Holder in exercising any power or right hereunder shall impair
such right or power or be construed to be a waiver of any default, nor shall any
single or partial exercise of any power or right hereunder preclude any or full
exercise thereof or the exercise of any other right or power.  Each
legal holder hereof shall have and may exercise all the rights and powers given
to Holder herein.  This Promissory Note may not be changed or
terminated orally, which may only be done in writing signed by both the Maker
and the Holder.  The Maker hereby waives any right to trial by jury of
any claim, demand, action or cause of action arising under or in any way
connected with or related to this Promissory Note.  The execution and
delivery of this Promissory Note has been authorized by the Board of Directors
of the Maker.

    


        This
Promissory Note shall be binding upon the successors and permitted assigns of
the Maker and inure to the benefit of the Holder and its successors, endorsees
and permitted assigns.

    


        The
obligations of Maker hereunder shall not be assigned by Maker without the prior
written consent of the Holder; provided, however, that no such consent shall be
required for the assumption of such obligations by the successor to the Maker
that participates in a merger with the Maker or an acquisition of the
Maker.

    


        If any term
or provision of this Promissory Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.

    


    [Signature
appears on the next page]


    
      
         


      

      
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    IN WITNESS WHEREOF, the Maker
has duly executed this Promissory Note on the date first above
written.

    


    APPLIED
NEUROSOLUTIONS, INC.

    


    By:______________________________

        Authorized
Officer

    


    



    
      
         


      

      
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    EXHIBIT
A – INTEREST REPAYMENT ELECTION NOTICE

    


    


    


    


    To:   
[HOLDER AT HOLDER'S ADDRESS]

    


          Pursuant
to Section 2 of the 12% Convertible Promissory Note of Applied NeuroSolutions,
Inc. issued on December ___, 2008 (the “Note”), the undersigned Maker (as
defined in the Note) hereby notifies you that it is electing to repay the
outstanding accrued but unpaid interest on the Note which has become due as a
result of the Interest Repayment Date (as defined in the Note) as
follows:

    


          _____
In full in cash on the Interest Repayment Date.

    


          _____
In full in shares of the Company's Common Stock as specified below within four
business days of the date of this Notice.

    


          _____
In part in cash in the amount of $                                                                                               ,
and in part in shares of the Company's Common Stock (as specified below) within
four business days of the date of this Notice.

    


    


    Interest
Conversion Price: $                                                                                                                                 


    


    Number of
Shares To Be Delivered:                                                                                                                     


    


    


    


                                           Applied
NeuroSolutions, Inc.

    


                                           By:                                                           
                                                                                              

                                           Name:

                                           Title:

    


    


    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
B – NOTICE OF CONVERSION

    


    NOTICE OF
CONVERSION

    


    (To be
executed by the Holder in order to convert the Note)

    


          The
undersigned hereby elects to convert $                                                                                                                          
of principal of the 12% Convertible Promissory Note of Applied NeuroSolutions,
Inc. issued on December ___, 2008 (the “Note”), into Shares of Common Stock of
Applied NeuroSolutions, Inc. according to the conditions set forth in such Note,
as of the date written below.

    


    Date of
Conversion:                                                                                                                                                                                  


    


    Note
Conversion Price: $                                                                                                                                                                          

    


    Number of
Shares To Be Delivered:                                                                                                                                                       


    


    Signature:                                                                                                                                                                                                             

    


    Print
Name:                                                                                                    
                                                                                             
                                                                                                                                  


    Address: