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Convertible Note

Convertible Note

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Published by: Legal Forms on Jan 19, 2008
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Convertible Note
[THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933 (THE "ACT") OR UNDER THE LAWS OF ANY STATE OROTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED OR SOLD IN THEUNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS DEFINED INREGULATION S UNDER THE ACT), UNLESS THEY ARE REGISTERED UNDER THEACT AND UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR ANEXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THEOPINION OF COUNSEL SATISFACTORY TO THE COMPANY.]
FOR VALUE RECEIVED
, [Name of Corporation Indebted under Promissory Note] a [State of Incorporation of Corporation (ie. California)] corporation with its main office located at [Addressof Corporation's Main Office] (the "Borrower"), hereby promises to pay to [Name of Payeeunder Promissory Note (ie. Person to whom Debt is owed)] a [State of Incorporation of Payee(ie. California)] with its main office located at [Address of Payee's Main Office] (the "Holder")the sum of $[Principal Amount of Promissory Note (ie. $50,000.00)] (the "Principal") on or  before [Maturity Date of Debt (ie. December 31, 2007)], in accordance with Article 1 hereof.Interest shall accrue on the Principal at the annual rate of [Interest Rate (ie. 10.5%)] as set forthin Article 1 hereof. Interest and Principal shall be due and payable as set forth in Article 1 hereof.The following terms and conditions shall apply to this Note:
ARTICLE 1 -
PAYMENT OF PRINCIPAL AND INTEREST
1.1
Accrual of Interest
. In the event that the Holder does not exercise its ConversionPrivileges (as hereinafter defined) on or before [Date on which Conversion Privilegemust be exercised (ie. December 31, 2005)], then interest on the Note shall be deemed tohave accrued from the [Date on which interest deemed to accrue] up to and including thedate on which the Note is paid in full.1.2
Prepayments
. Prior to [Date before which prepayment cannot be made], no payments of Interest or Principal may be made by the Borrower unless the Borrower obtains the prior written consent of the Holder. At any time after [Date before which prepayment cannot bemade], the Note may be prepaid in whole or in part without penalty.1.3
Accrued Interest
. In the event that the Holder does not exercise its ConversionPrivileges on or before [Date on which Conversion Privilege must be exercised (ie.December 31, 2005)], the Borrower shall make equal monthly payments of the accruedinterest due and payable to date under the Note (including, without limitation, interestaccruing on the Principal from [Date on which interest deemed to accrue] through andincluding [Maturity Date]) to the Holder at its principal place of business on the first business day of each month beginning on [Repayment Commencement Date] and endingon [Maturity Date].
 
- 2 -1.4
Current Interest
. In the event that the Holder does not exercise its Conversion Privilegeson or before [Date on which Conversion Privilege must be exercised (ie. December 31,2005)], the Borrower shall make monthly payments of the current interest due and payable under the Note on such date to the Holder at its principal place of business on thefirst business day of each month beginning on [Repayment Commencement Date].1.5
Payments of Principal
. In the event that the Holder does not exercise its ConversionPrivileges on or before [Date on which Conversion Privilege must be exercised (ie.December 31, 2005)], the Borrower shall make equal monthly payments of Principal payable under the Note to the Holder at its principal place of business on the first business day of each month beginning on [Repayment Commencement Date] and endingon [Maturity Date], in accordance with Schedule "A" attached hereto.1.6
Default Interest
. In the event that the Borrower defaults in payment of any amount payable under this Note, and such default continues for a period of thirty (30) days after the due date of such payment, then all outstanding amounts under this Note shall, fromand after the date of default, bear interest at the rate of fifteen percent (15%) per annum.
ARTICLE 2 -
CONVERSION RIGHTS
2.1
Conversion into the Borrowers Common Stock 
. The Holder shall have the right toconvert all, but not part of, the Principal of this Note from the date hereof up to theConversion Date (as defined below) into fully paid and non assessable shares of CommonStock of Borrower as such stock exists on the date of issuance of this Note, or any sharesof capital stock of Borrower into which such stock shall hereafter be changed or reclassified (the "Common Stock") at the conversion price as defined in Section2.3 hereof (the "Conversion Price"), determined as provided herein (the "ConversionPrivileges"). Upon the surrender of this Note, accompanied by the Holders writtenrequest for conversion, Borrower shall issue and deliver to the Holder that number of shares of Common Stock converted from the Principal of the Note. The number of sharesof Common Stock to be issued upon the conversion of this Note shall be determined bydividing the Principal of the Note by the Conversion Price.2.2
Conversion Date
. The Conversion Privileges shall remain in full force and effect until[Date on which Conversion Privilege must be exercised (ie. December 31, 2005)], (the"Conversion Date").2.3
Conversion Price
. Subject to adjustment as provided in Section2.4hereof, the per shareconversion price shall be [Per Share Conversion Price (ie. Six Hundred and Twenty-FiveDollars ($625.00))] (the "Conversion Price") or a total of [Number of Shares to be issuedat Conversion Price (ie. eighty (80))] shares converted from the Principal.2.4
Adjustment
. The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section2.1and2.3, shall be subject to adjustment from time to time upon the happening of certain events while this conversionright remains outstanding as follows:
 
- 3 -(a)
Merger, Sale of Assets, etc
. If the Borrower at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Note shall thereafter evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, uponor with respect to the securities subject to the conversion or purchase rightimmediately prior to such consolidation, merger, sale or conveyance. Theforegoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of theforegoing, the anti-dilution provisions of this Section2.4shall apply to suchsecurities of such successor or purchaser after any such consolidation, merger,sale or conveyance. Borrower shall not consolidate with or merge into or sell or convey all or substantially all of its assets.(b)
Reclassification, etc
. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note shall thereafter evidence the right to purchase such number and kind of securities as would have been issuable as theresult of such change with respect to the Common Stock immediately prior tosuch reclassification or other change.(c)
Stock Splits, Combinations and Dividends
. If the shares of Common Stock aresubdivided or combined into a greater or smaller number of shares of CommonStock or if a dividend is paid on the Common Stock in shares of Common Stock,the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combinationof shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the totalnumber of shares of Common Stock, on a fully diluted basis, outstandingimmediately prior to such event.(d)
Share Issuance
. Subject to the provisions of Sectionc, if the Borrower at anytime shall issue any shares of Common Stock prior to the conversion of thePrincipal amount of the Note (otherwise than as provided in Sectionsa,bor cor  this subparagraphd; for a consideration less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon eachsuch issue, the Conversion Price shall be reduced as follows: (i) the number of shares of Common Stock, on a fully diluted basis, outstanding immediately prior to such issue shall be multiplied by the Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any,received by the Borrower upon such issue of additional shares of such stock; and(ii) the sum so obtained shall be divided by the number of shares of such stock outstanding immediately after such issue. The resulting quotient shall be theConversion Price. For purposes of this adjustment, the issuance of any security of the Borrower carrying the right to convert such security into shares of CommonStock or of any warrant, right or option to purchase Common Stock shall bedeemed to constitute the issuance of the maximum number of shares of Common

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