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[THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES WHERE EACH SALE IS MADE, OR AN EXEMPTION FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION 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 [Address of Corporation's Main Office] (the "Borrower"), hereby promises to pay to [Name of Payee under 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 forth in 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 Conversion Privileges (as hereinafter defined) on or before [Date on which Conversion Privilege must be exercised (ie. December 31, 2005)], then interest on the Note shall be deemed to have accrued from the [Date on which interest deemed to accrue] up to and including the date on which the Note is paid in full. 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 be made], the Note may be prepaid in whole or in part without penalty. Accrued Interest. In the event that the Holder does not exercise its Conversion Privileges on or before [Date on which Conversion Privilege must be exercised (ie. December 31, 2005)], the Borrower shall make equal monthly payments of the accrued interest due and payable to date under the Note (including, without limitation, interest accruing on the Principal from [Date on which interest deemed to accrue] through and including [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 ending on [Maturity Date].
-21.4 Current Interest. In the event that the Holder does not exercise its Conversion Privileges on 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 the first business day of each month beginning on [Repayment Commencement Date]. Payments of Principal. In the event that the Holder does not exercise its Conversion Privileges 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 ending on [Maturity Date], in accordance with Schedule "A" attached hereto. 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, from and 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 to convert all, but not part of, the Principal of this Note from the date hereof up to the Conversion Date (as defined below) into fully paid and non assessable shares of Common Stock of Borrower as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such stock shall hereafter be changed or reclassified (the "Common Stock") at the conversion price as defined in Section 2.3 hereof (the "Conversion Price"), determined as provided herein (the "Conversion Privileges"). Upon the surrender of this Note, accompanied by the Holders written request 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 shares of Common Stock to be issued upon the conversion of this Note shall be determined by dividing the Principal of the Note by the Conversion Price. 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"). Conversion Price. Subject to adjustment as provided in Section 2.4 hereof, the per share conversion price shall be [Per Share Conversion Price (ie. Six Hundred and Twenty-Five Dollars ($625.00))] (the "Conversion Price") or a total of [Number of Shares to be issued at Conversion Price (ie. eighty (80))] shares converted from the Principal. Adjustment. The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1 and 2.3, shall be subject to adjustment from time to time upon the happening of certain events while this conversion right 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, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section 2.4 shall apply to such securities 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. 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 the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. Stock Splits, Combinations and Dividends. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock 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 combination of 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 total number of shares of Common Stock, on a fully diluted basis, outstanding immediately prior to such event. Share Issuance. Subject to the provisions of Section c, if the Borrower at any time shall issue any shares of Common Stock prior to the conversion of the Principal amount of the Note (otherwise than as provided in Sections a, b or c or this subparagraph d; for a consideration less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon each such 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 the Conversion Price. For purposes of this adjustment, the issuance of any security of the Borrower carrying the right to convert such security into shares of Common Stock or of any warrant, right or option to purchase Common Stock shall be deemed to constitute the issuance of the maximum number of shares of Common
-4Stock issuable on full exercise of such conversion or purchase rights, and the consideration for such security plus any consideration payable upon exercise of its conversion or purchase right shall be deemed to have been paid to the Borrower. Upon the expiration of any such conversion or purchase right, the adjustment to the Conversion Price shall be extinguished. (e) Reservation of Shares. During the period the conversion right exists, Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. Borrower agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. Method of Conversion. This Note can be converted by the Holder only in its entirety, not in part, and by the surrender of this Note at the principal office of the Borrower. ARTICLE 3 - PREPAYMENT 3.1 Prepayment at the Option of the Borrower. If the Holder chooses not to exercise its Conversion Privileges on or before the Conversion Date, the Principal outstanding on the Note, and all interest accrued thereon, if any, may be prepaid by the Borrower, in whole but not in part, provided, that written notice is delivered to the Holder not more than sixty (60) days nor less than thirty (30) days prior to the applicable prepayment date. ARTICLE 4 - EVENTS OF DEFAULT 4.1 Default. The occurrence of any of the following events of default ("Event of Default") shall, at the option of the Holder hereof, make all sums or principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, all without demand, presentment or notice, or grace period, all of which hereby are expressly waived, except as set forth below: (a) Failure to Pay Principal or Interest. The Borrower fails to pay the Principal and interest, if any, of this Note when due and such failure continues for a period of five (5) days. Breach of Covenant. The Borrower breaches any covenant or other term or condition of this Note and such breach continues for a period of ten (10) days after written notice to the Borrower from the Holder. Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in
-5writing pursuant hereto or in connection herewith shall be false or misleading in any material respect. (d) Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any of its property or other assets for more than $25,000, and shall remain unvacated, unbonded or unstayed for a period of 60 days. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower. ARTICLE 5 - MISCELLANEOUS 5.1 Failure or Indulgency Not Waiver. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. Notices. Any notice herein required or permitted to be given shall be in writing and may be personally served and shall be deemed to be delivered upon receipt or sent by United States mail and shall be deemed to have been given three (3) days after being deposited in the United States mail, certified, registered, with postage pre-paid and properly addressed or on receipt, or sent by fax transmission (with the original sent by certified or registered mail or by overnight courier) and shall be deemed to have been delivered on the day telecopied. For the purposes hereof, the address and fax number of the Holder is as set forth on the first page hereof the address and fax number of the Borrower is as set forth on the signature page hereof. Both Holder and Borrower may change the address and fax number for service by service of written or fax notice to the other as herein provided. Amendment Provision. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns. Cost of Collection. If default is made in the payment of this Note, Borrower shall pay the Holder hereof the Holder's costs of collection, including attorneys' fees.
-65.6 Governing Law. This Note has been executed in and shall be governed by the internal laws of the State of [State (ie. California)], without regard to the principles of conflict of laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its President as of [Date of Note]
[NAME OF BORROWER] Per: Name: Title:
Schedule "A" Principal Repayment Schedule
[Insert Principal Repayment Schedule]