CONVERTIBLE
NOTE AGREEMENT
This
Agreement by and between ________________________________________
a
corporation duly organized and existing under the laws of the State of
____________ and _______________________ (hereinafter called
"Company") and those individuals listed on Exhibit A which is
attached hereto and incorporated by reference (hereinafter called "Note
Holders").
W I T N E S S E T H:
WHEREAS,
Note Holders are willing to lend Company the aggregate sum of ___________ be
evidenced by ________________________ percent Convertible Promissory Notes.
In
consideration of the mutual covenants and conditions herein contained, the
parties hereby agree, represent and warrant as follows:
1. Issue of
Notes
A. The
Company will authorize the issue of its ______________ percent Convertible
notes (hereinafter called "Notes") in the aggregate principal amount
of ____________ to be dated ____________________ (date) to mature on
____________ (date) to bear interest on the unpaid principal thereof at the
rate of _________________ percent per annum until maturity, payable
_______________on the _____________day of _____________________ in each year,
commencing on ______________________, ______ (year), and after maturity at the
rate of ________ percent per annum until paid, and to be substantially in the
form of Exhibit A attached hereto. For
the purposes of calculating interest for any period for which the interest
shall be payable, such interest shall be calculated on the basis of a
____________ day month and a___________ day year. The Company will promptly and punctually pay to Note Holders or
their nominee the interest on any of the Notes held by Note Holders without
presentment of the Notes. In the event
that Note Holders shall sell or transfer any of the Notes, they shall notify
the Company of the name and address of the transferee. In the event the Company defaults on any
installment of interest or principal, then any Holder of these Notes may, at
his option, without notice, declare the entire principal and the interest
accrued thereon immediately due and payable and may proceed to enforce the
collection thereof. All the Notes shall
contain a confession of judgment provision.
B. The Company
will also authorize the issue of _______________ shares of its common stock
(hereinafter called "The Stock") and will authorize the issuance of
and reserve for such purchase such a number of additional shares of common
stock (hereinafter called the "Conversion Stock") as may from time to
time be the maximum number required for issuance upon conversion of the Notes
pursuant to the conversion privileges hereinafter stated.
2. Sale and
Purchase of Notes and Stock
The Company will sell the Notes to the purchasers
listed on Exhibit A, each of whom agrees to purchase the principal amount of
the Notes set opposite their names, subject to the terms and conditions hereof
and in reliance upon the representations and warranties of the Company contained
herein, at the purchase price of ____________ Percent of the principal amount.
3.
Representations and Warranties by the Company
A. Company is
a corporation duly organized and existing in good standing under the laws of
the State of ________________________ has the corporate power to own its own
property and to carry on in the business as it is now being conducted.
B. Company has
on its corporate records the names of the following individuals who each own
_______________________ shares of common stock which constitute all the issue
and outstanding capital stock of the Company as of this date.
C. The Company
has furnished to the Note Holders an Offering Circular which is attached hereto
as Exhibit B. The financial statements
contained therein are true and correct and have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the period indicated.
D. There is no
action or proceeding pending or, to the knowledge of the Company, threatened
against the Company before any court or administrative agency, the
determination of which might result in any material adverse change in the
business of the Company.
E. The Company
has title to the respective properties and assets including the properties and
assets reflected on the financial statement for the year ending ____________
(month & day), _____ (year) and which assets and properties are subject to
no liens, mortgages, encumbrances or charges except a security interest to
____________________________________________________________________.
F. The Company
is not a party to any contract or agreement or subject to any restriction which
materially and adversely affects its business, property or assets, or financial
condition, and neither the execution nor delivery of this Agreement, nor the
confirmation of the transactions contemplated herein, nor the fulfillment of
the terms hereof, nor the compliance with the terms and provisions hereof and
of the Notes, will conflict with or result in the breach of the terms,
conditions or provisions or constitute a default, under the Articles of
Incorporation or Code of Regulations of the Company or of any Agreement or
instrument to which the Company is now a party.
G. The Company
has not declared, set aside, paid or made any dividend or other distributions
with respect to its capital stock and has not made or caused to be made
directly or indirectly, any payment or other distribution of any nature
whatsoever to any of the holders of its capital stock except for regular salary
payments for services rendered and the reimbursement of business expenses.
H. All of the
equipment and automobiles of the Company are in good condition and repair.
I. There are no outstanding options or rights
to purchase shares of the Company and no outstanding securities with the right
of conversion into shares of the Company.
J. The Company owns or possesses adequate
licenses or other rights to use, all patents, trademarks, trade names, trade
secrets, and copyrights used in its business.
No one has asserted to the Company that its operations infringe on the
patents, trademarks, trade secrets or other rights utilized in the operation of
its business.
K. Neither the Company nor any agent or
employee acting in its behalf has offered the Notes or the Stock or any portion
thereof for sale to or solicited in any offer to buy the same or any thereof
from any person or persons other than the purchasers listed in the attached
Exhibit A and five (5) other persons, and neither the Company nor any agent or
employee acting in its behalf will sell or offer for sale the Notes or Stock or
any portion thereof to or solicit any offer to buy the Notes or the Stock from
any person or persons so as to bring the issuance or sale thereof within the
provisions of Section 5 of the Securities Act of 1933.
4. Representations and Warranties by the Note
Holders
The
Note Holders represent and warrant that:
A.
The Note Holders are subscribing for the Notes and Stock for investment
purposes and not with the view to or for sale in connection with any
distribution thereof and that they have no present intent to sell, give or
otherwise transfer the Notes or Stock.
B. The Note Holders state that they are and
residents of the State of _______________.
C. The Note Holders understand that this is a
highly speculative investment in a Company which is insolvent both from a legal
and an equity standpoint.
D.
Individuals represent and warrant that they have a net worth in excess of
____________________ DOLLARS exclusive of their residences and that they are
sophisticated investors who are knowledgeable about the _______________________
business.
1
E. Note Holders state that they will be active
in the affairs of the business of the Company.
5. Prepayment of the Notes
Company
shall have the right to make prepayments on principal of the Notes at any time
on _________ days written notice. Such
prepayment shall be accompanied by a payment of all accrued interest to
date. There shall be no premium for the
amount so prepaid.
6. Conversion.
A. The Holder of any of the Notes at any time
up to and including the maturity date (or, as to any of the Notes to which
notice of prepayment shall have been given, at any time up to the close of
business on the third business day prior to the day fixed for prepayment) but
not thereafter may convert the Notes in whole or in part into as many fully
paid and nonassessable shares of Common Stock of the Company as the principal
amount of the Note so converted in a multiple of ______________________ per
share, and upon surrender of the certificate representing the Notes to the
Company at its principal office in the City of
_________________________________. If
any of the Notes shall be converted in part, the Company shall, at its option
and without charge to the Holder, either (I) execute and deliver to the Holder
Notes for the balance of the principal amount so converted, or (ii) make note
thereon of the principal of the amount converted.
B. Upon conversion of any of the Notes, all
accrued and unpaid interest on the principal amount converted shall be paid to
the Holder by the Company.
C. The Company shall take all necessary steps
to maintain the registration for the shares held subject to the conversion
privilege as described in this section.
D.
In the case the Company shall issue or
sell any share of its Common Stock (other than the Stock Shares issued upon
conversion of any of the Notes) without consideration or for consideration per
share less than the conversion price of ____________________ per share, then
forthwith upon such issuance or sale, the conversion price shall be adjusted to
a price (computed to the nearest cent) determined by dividing (i) an amount
equal to the sum of the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by ________________ and the
consideration, if any, received by the Company upon such issue or sale, by (ii)
the total amount of shares of Common Stock immediately outstanding after such
issue or sale.
E. In case the Company shall at any time divide
its outstanding shares of Common Stock into a greater number of shares, the
conversion price in effect immediately prior to such subdivision should be
proportionately reduced, and, conversely, in the case of outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the actual conversion price in effect immediately prior to such combination
shall be proportionately increased.
F. In case the Company shall declare a dividend
or make a distribution of any Stock of the Company payable in Common Stock or
in Convertible Securities, the aggregate maximum number of shares of Common
Stock issuable in payment of such dividend or distribution, or upon conversion
of or in exchange for such Convertible Securities issuable in payment of such
dividend or distribution, shall be deemed to have been issued or sold without
consideration.
G. No fractional share of Common Stock shall be
issued upon conversion of any of the Notes.
If any Holder of the Notes shall have converted all the Notes held by
him other than a principal amount so small that less than a whole share of
Common Stock would be issuable upon conversion thereof, the Company may elect
to prepay such balance, with interest accrued thereon to the date fixed for
prepayment, or leave the same outstanding until the maturity of the Note.
H. In any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of the Notes (other
than a change in stated value or from no par to par value) or in the case of
any consolidation or merger of the Company with any other corporation, or in
the case of the sale and conveyance to another to another corporation or person
of the property of the Company in its entirety or substantially as an entirety,
the Company shall, as a condition precedent to such transaction, case effective
provisions to be made that each Holder of the Notes then outstanding shall have
the right thereafter to convert the Notes into the kind and amount of shares of
Stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a Holder of the number of
shares of Common Stock in the Company into which such Notes might have been
converted immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance.
7. Covenants
A. The Company covenants that so long as the
Notes are in existence, it will deliver to the Holders thereof (i) as soon as
practical, in any event within fortyfive (45) days after the end of such
quarterly period, in each fiscal year, consolidated income and surplus
statements of the Company; (ii) as soon as practical , and in any event within
ninety (90) days after the end of each fiscal year, a consolidated income and
surplus statement of the Company, and (iii) with reasonable promptness, such
other financial data as the Holders may request in writing.
B. The Company covenants that, so long as any
of the Notes are outstanding, it will permit any Holder of the Notes to visit
and inspect, at the Holder's expense, any of the property of the Company,
including its books and records, and to discuss affairs, finances and accounts
with its officers.
C.
The Company covenants that, without
the written consent of the Holders of
_____________________________________
in principal amount of the Notes, it will not:
1) Create or suffer to exist any mortgage,
pledge, encumbrance, lien or charge of any kind on any of its properties or
assets, whether now owned or hereafter acquired except for (i) mortgages,
encumbrances, liens or charges which are now in existence; (ii) mortgages,
liens, charges and encumbrances (a) for taxes, assessments or governmental
charges or levies on property of the Company if the same shall not be due or
delinquent or thereafter can be paid without penalty, or being contested in good
faith and by appropriate proceedings; (b) of mechanics and material men for
sums not yet due or being contested in good faith and by appropriate
proceedings; or (c) in connection with workers' compensation, unemployment
insurance and other state employment legislation.
(2) Make any loan or advance to any person, firm
or corporation.
(3) Assume, guarantee, endorse or otherwise
become liable in connection with the obligations, stock or dividends of any
person, firm or corporation except in the ordinary course of business by
endorsement of a negotiable instrument in the course of collection.
(4) Merge or consolidate with any other
corporation or sell, lease or transfer or otherwise dispose of all or a
substantial part of its assets to any person, firm or corporation.
(5) Enter into any material transaction in which
any stockholder owning of record or beneficially more than ten percent (10%) of
the Common Stock of the Company shall have, at the time, a beneficial interest,
direct or indirect.
8. Event of Default
A. The breach of any of the events or
conditions contained in Section 7 of this Agreement shall constitute an event
of default under this Agreement. Any
one or more of the Holders of the Notes may give written notice of such breach
and if the Company shall within thirty (30) days after receipt of such written
notice have failed to correct such occurrence or condition, then the Holder of
any one of the Notes may, at its option and without notice, declare the entire
principal and interest accrued thereon immediately due and payable and may
proceed with collection.
B. If the Company has made a material
misrepresentation in connection with this Agreement or with the transactions
contemplated by this Agreement, or if the Company makes an assignment for the
benefit of creditors, or a trustee or receiver is appointed for the Company; or
if any proceeding involving the Company is commenced under any bankruptcy,
reorganization, arrangement, insolvency, statute or law, such event shall be
deemed a default which will immediately entitled Holders of the Notes, at their
option and without notice, to declare the entire amount of interest accrued
thereon immediately due and payable and proceed to enforce the collection
thereof.
C. In case of default in the payment of any
installment or principal, the Holders of the Notes may, at their option and
without notice, declare the entire principal and the interest accrued thereof
immediately due and payable and may proceed to enforce the collection thereof.
9. Miscellaneous
A. Any and all notices, approvals or other
communications to be sent to the parties shall be deemed validly and properly
given if made in writing and delivered by hand or by registered or certified
mail, return receipt requested, and addressed to the Company at its principal
office or to the Holders of the Notes at the addresses given to the Company by
such Note Holders.
B. This Agreement may not be modified, amended
or terminated except by written agreement executed by all the parties hereto.
C. The waiver of any breach or default
hereunder shall not be considered valid unless in writing and signed by the
party giving such notice and no waiver shall be deemed a waiver of any
subsequent breach or default of same.
D. The paragraph headings contained herein are
for the purpose of convenience only and are not intended to define or limit the
contents of such.
E. The validity, construction, interpretation
and enforceability of this Agreement and the Notes executed pursuant to this
Agreement shall be determined and governed by the laws of the State of
______________________________.
F. This Agreement shall be binding upon and
inure to the benefit of the company and its successors and assigns.
G. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original.
________________________________________________
Secretary
___________________________________(SEAL)
Note Holder ___________________________________(SEAL) Note Holder
___________________________________(SEAL)
Note Holder
___________________________________
President
