Convertible Promissory Note Agreement

CONVERTIBLE PROMISSORY NOTE

NOTE TERMS SUMMARY

CONVERTIBLE PROMISSORY NOTE

$[PRINCIPAL AMOUNT]

[CITY, STATE]

[ISSUANCE DATE]

FOR VALUE RECEIVED, [COMPANY NAME], a Delaware corporation (the "Company"), promises to pay to [INVESTOR NAME] or its registered assigns (the "Holder"), the principal sum of $[PRINCIPAL AMOUNT] (the "Principal Amount"), or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of this Convertible Promissory Note (this "Note") on the unpaid principal balance at a rate equal to [INTEREST RATE]% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days.

Unless earlier converted into Conversion Shares pursuant to Article 2 below, this Note shall be due and payable by the Company on demand by the Holder at any time after [MATURITY DATE] (the "Maturity Date").

ARTICLE 1 - DEFINITIONS

1.1 Defined Terms

"Conversion Price" means the lesser of:

• (a) The Cap Price; or
• (b) The Discounted Price.

"Cap Price" means the price per share obtained by dividing the Valuation Cap by the Fully Diluted Capitalization (as defined below) as of immediately prior to the Qualified Financing.

"Change of Control" means:

• (a) A merger, consolidation, or other reorganization in which the Company's stockholders immediately prior to such transaction do not own a majority of the outstanding voting securities of the surviving or resulting entity immediately following such transaction;
• (b) A sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company; or
• (c) Any transaction or series of related transactions in which any person or group acquires more than 50% of the Company's outstanding voting securities.

"Conversion Shares" means:

• (a) In the case of a conversion pursuant to Section 2.1 (Qualified Financing), shares of the same series of Preferred Stock issued in the Qualified Financing;
• (b) In the case of a conversion pursuant to Section 2.2 (Change of Control) or Section 2.3 (Maturity Conversion), shares of the Company's Common Stock.

"Discounted Price" means [100% - Discount Rate] (i.e., [80]% if the Discount Rate is 20%) of the price per share paid by cash investors for Preferred Stock in the Qualified Financing.

"Discount Rate" means [20]% (representing a [20]% discount from the Qualified Financing price).

"Fully Diluted Capitalization" means the total number of shares of the Company's Capital Stock outstanding immediately prior to the Qualified Financing, calculated on an as-converted and fully-diluted basis, assuming:

• (a) Conversion of all outstanding convertible securities (other than this Note and other Convertible Notes);
• (b) Exercise of all outstanding options and warrants; and
• (c) All shares reserved under any equity incentive plan (whether or not granted).

"Outstanding Amount" means, at any time, the sum of:

• (a) The Principal Amount; plus
• (b) All accrued and unpaid interest on the Principal Amount.

"Qualified Financing" means the issuance and sale of shares of the Company's Preferred Stock in an equity financing resulting in aggregate gross proceeds to the Company (excluding conversion of this Note and any other convertible instruments) of at least $[QUALIFIED FINANCING THRESHOLD].

"Valuation Cap" means $[VALUATION CAP].

ARTICLE 2 - CONVERSION

2.1 Conversion upon Qualified Financing

(a) Upon the closing of a Qualified Financing, the Outstanding Amount shall automatically convert into shares of the series of Preferred Stock issued in such Qualified Financing at the Conversion Price.

(b) The number of shares to be issued upon conversion shall equal:

• Outstanding Amount / Conversion Price

(c) The Conversion Shares issued pursuant to this Section 2.1 shall have the same rights, preferences, privileges, and restrictions as the shares of Preferred Stock issued in the Qualified Financing, provided that if the Conversion Price is less than the price per share paid by cash investors, the liquidation preference per share of Conversion Shares may equal the Conversion Price.

2.2 Conversion upon Change of Control

(a) In the event of a Change of Control prior to the conversion of this Note pursuant to Section 2.1 or the Maturity Date, the Holder shall have the option, at its election, to either:

☐ (i) Receive Repayment: Receive cash payment equal to the greater of:

• (A) The Outstanding Amount; or
• (B) The amount the Holder would receive if the Outstanding Amount had converted immediately prior to the Change of Control at the Cap Price, assuming the Holder participated in the Change of Control transaction on a pro rata basis with other stockholders; or

☐ (ii) Convert to Common Stock: Convert the Outstanding Amount into shares of Common Stock at the Cap Price immediately prior to such Change of Control.

(b) The Company shall provide the Holder with at least ten (10) business days' written notice prior to the anticipated closing of any Change of Control.

2.3 Conversion at Maturity

(a) If this Note has not been converted pursuant to Section 2.1 or Section 2.2 prior to the Maturity Date, the Holder may, at its option:

☐ (i) Demand Repayment: Demand repayment of the Outstanding Amount in cash; or

☐ (ii) Convert to Equity: Convert the Outstanding Amount into:

• (A) Shares of the most recently issued series of Preferred Stock at the Conversion Price (if any Preferred Stock is then outstanding); or
• (B) Shares of Common Stock at the Cap Price (if no Preferred Stock is then outstanding).

(b) The Company may, with the consent of the Holder (which consent shall not be unreasonably withheld), extend the Maturity Date for up to an additional [12] months.

2.4 Conversion Mechanics

(a) Upon any conversion of this Note, the Company shall issue to the Holder a certificate representing the Conversion Shares.

(b) The Holder shall surrender this Note to the Company (or provide an affidavit of lost note) and execute such documents as may be reasonably required by the Company to effect the conversion.

(c) Upon conversion, this Note shall be deemed paid in full and automatically cancelled, and the Holder shall have no further rights hereunder.

ARTICLE 3 - INTEREST AND PAYMENT

3.1 Interest Rate

This Note shall bear interest on the outstanding Principal Amount at the rate of [INTEREST RATE]% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days.

3.2 Accrual of Interest

Interest shall accrue from the date hereof and shall continue to accrue until this Note is converted or repaid in full.

3.3 Treatment of Accrued Interest

Upon conversion of this Note, all accrued and unpaid interest shall convert into Conversion Shares along with the Principal Amount.

3.4 Payment at Maturity

If this Note is not converted prior to the Maturity Date and the Holder elects repayment pursuant to Section 2.3(a)(i), the Company shall pay the Outstanding Amount within thirty (30) days of written demand by the Holder.

3.5 No Prepayment

The Company may not prepay this Note without the prior written consent of the Holder.

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES

4.1 Company Representations

The Company represents and warrants to the Holder that:

(a) Organization and Good Standing: The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

(b) Authorization: All corporate action has been taken by the Company to authorize the execution, delivery, and performance of this Note. This Note constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms.

(c) No Conflicts: The execution, delivery, and performance of this Note will not:

• (i) Violate any provision of the Company's certificate of incorporation or bylaws;
• (ii) Violate any material agreement to which the Company is a party; or
• (iii) Violate any law, rule, or regulation applicable to the Company.

(d) Securities Law Compliance: The offer, issuance, and sale of this Note are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and/or Regulation D promulgated thereunder.

4.2 Holder Representations

The Holder represents and warrants to the Company that:

(a) Accredited Investor: The Holder is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.

(b) Investment Intent: The Holder is acquiring this Note for its own account for investment purposes only and not with a view toward, or for resale in connection with, the public sale or distribution thereof.

(c) Risk Acknowledgment: The Holder understands that an investment in the Company involves a high degree of risk, and the Holder is able to bear the economic risk of its investment, including the possible loss of the entire investment.

(d) No General Solicitation: The Holder is not purchasing this Note as a result of any general solicitation or general advertising.

(e) Access to Information: The Holder has had an opportunity to ask questions of and receive answers from the Company regarding the Company and the terms and conditions of this Note.

ARTICLE 5 - EVENTS OF DEFAULT

5.1 Events of Default

Each of the following shall constitute an "Event of Default":

(a) Failure to Pay: The Company fails to pay any amount due under this Note within ten (10) days after the same becomes due and payable;

(b) Breach of Representation: Any representation or warranty made by the Company herein proves to have been materially false or misleading when made;

(c) Breach of Covenant: The Company breaches any material covenant or agreement contained in this Note and fails to cure such breach within thirty (30) days after written notice;

(d) Bankruptcy: The Company:

• (i) Commences any proceeding seeking relief under any federal or state bankruptcy, insolvency, or similar law;
• (ii) Has any such proceeding commenced against it that is not dismissed within sixty (60) days;
• (iii) Makes a general assignment for the benefit of creditors; or
• (iv) Has a receiver, trustee, or similar official appointed for it or substantially all of its assets.

5.2 Remedies upon Default

Upon the occurrence of an Event of Default:

(a) The Holder may, by written notice to the Company, declare the Outstanding Amount immediately due and payable;

(b) The interest rate on this Note shall automatically increase to [DEFAULT RATE, e.g., 12]% per annum from the date of the Event of Default until cured or paid in full;

(c) The Holder may exercise any and all rights and remedies available at law or in equity.

ARTICLE 6 - SUBORDINATION

6.1 Subordination to Senior Debt

This Note is subordinated in right of payment to all Senior Debt of the Company now existing or hereafter arising.

6.2 Definition of Senior Debt

"Senior Debt" means:

• (a) All obligations of the Company to banks or financial institutions for borrowed money;
• (b) Equipment financing and lease obligations; and
• (c) Any other indebtedness that by its terms is designated as senior to this Note.

6.3 Pari Passu with Other Convertible Notes

This Note shall rank pari passu (equally) with all other convertible promissory notes issued by the Company pursuant to the same offering.

ARTICLE 7 - COVENANTS

7.1 Affirmative Covenants

The Company covenants and agrees that, so long as any amount remains outstanding under this Note:

(a) Existence: The Company shall maintain its corporate existence in good standing;

(b) Compliance with Laws: The Company shall comply in all material respects with all applicable laws;

(c) Financial Information: Upon reasonable request by the Holder (not more than quarterly), the Company shall provide the Holder with unaudited financial statements;

(d) Notice of Default: The Company shall promptly notify the Holder of any Event of Default or event that, with the passage of time or notice, would constitute an Event of Default.

7.2 Negative Covenants

The Company covenants and agrees that, so long as any amount remains outstanding under this Note, it shall not, without the prior written consent of Holders representing a majority of the aggregate principal amount of all Notes outstanding:

(a) Issue any debt that is senior in right of payment to this Note, other than Senior Debt;

(b) Declare or pay any dividends on any class of Capital Stock (other than dividends on Preferred Stock as required by the terms thereof);

(c) Repurchase or redeem any Capital Stock (other than repurchases at cost from employees, directors, or consultants upon termination of service);

(d) Amend its certificate of incorporation or bylaws in any manner materially adverse to the Holder.

ARTICLE 8 - GENERAL PROVISIONS

8.1 Transfer and Assignment

(a) This Note may not be transferred or assigned by the Holder without the prior written consent of the Company, except to:

• (i) An affiliate of the Holder;
• (ii) A family member or trust for the benefit of the Holder's family; or
• (iii) Any other holder of convertible notes issued in the same offering.

(b) Any transfer must comply with applicable securities laws.

8.2 Governing Law

This Note shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision.

8.3 Jurisdiction and Venue

Each party irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if such court lacks jurisdiction, any state or federal court in Delaware) for any action arising out of or relating to this Note.

8.4 Waiver of Jury Trial

EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.

8.5 Notices

All notices shall be in writing and deemed given when delivered personally, sent by confirmed email, deposited with a nationally recognized overnight courier, or five (5) days after deposit in the U.S. mail, postage prepaid, registered or certified, to the addresses set forth below:

If to the Company:
[COMPANY NAME]
[ADDRESS]
[CITY, STATE ZIP]
Email: [EMAIL]
Attention: [OFFICER TITLE]

If to the Holder:
[HOLDER NAME]
[ADDRESS]
[CITY, STATE ZIP]
Email: [EMAIL]

8.6 Amendments and Waivers

This Note may be amended or any provision waived only by a written instrument signed by the Company and the Holder. Any amendment to this Note shall apply to all Notes issued in the same offering.

8.7 No Waiver; Cumulative Remedies

No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Note shall operate as a waiver thereof. All rights and remedies are cumulative.

8.8 Severability

If any provision of this Note is held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it valid and enforceable, and the remaining provisions shall remain in full force and effect.

8.9 Entire Agreement

This Note constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior negotiations, representations, and agreements.

8.10 Successors and Assigns

This Note shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

8.11 Lost, Stolen, or Destroyed Note

Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, or destruction of this Note, and upon delivery of an indemnity agreement reasonably satisfactory to the Company (or, in the case of an institutional investor, the Holder's certification of loss), the Company shall issue a new Note of like tenor.

EXECUTION

IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to be executed by its duly authorized officer as of the date first written above.

COMPANY:

[COMPANY NAME]

By: _________________________________

Name: [AUTHORIZED SIGNATORY NAME]

Title: [TITLE]

ACKNOWLEDGED AND AGREED BY HOLDER:

[HOLDER NAME]

By: _________________________________

Name: [AUTHORIZED SIGNATORY NAME]

Title: [TITLE] (if applicable)

Date: _________________________________

EXHIBIT A - FORM OF CONVERSION NOTICE

CONVERSION NOTICE

The undersigned Holder of that certain Convertible Promissory Note dated [DATE] in the original principal amount of $[PRINCIPAL AMOUNT] (the "Note") hereby elects to convert the Note into shares of [PREFERRED/COMMON] Stock of [COMPANY NAME] (the "Company") in accordance with the terms of the Note.

Outstanding Principal: $_______________

Accrued Interest: $_______________

Total Outstanding Amount: $_______________

Conversion Price: $_______________

Number of Shares to be Issued: _______________

Please issue the shares in the following name:

Name: _______________

Address: _______________

Tax ID/SSN: _______________

Date: _______________

HOLDER:

By: _________________________________

Name: _______________

Title: _______________ (if applicable)

This Convertible Promissory Note is intended to be exempt from registration under the Securities Act of 1933 pursuant to Section 4(a)(2) and/or Regulation D. This document should be reviewed by qualified legal counsel familiar with securities laws and venture capital transactions.