CONVERTIBLE NOTE BRIDGE FINANCING
SUMMARY OF TERMS
____, 200_
Company: [___________], a [_______] corporation (the “Company”)
Amount of Financing: Up to $______________ may be issued.
Type of Security: [Secured][Subordinated] convertible notes (the “Notes”).
Purchase Price: Face value.
Interest Rate: Annual interest rate of [___], [payable at maturity][quarterly in arrears].
Convertibility: In the event the Company consummates, prior to the Maturity Date (as defined below) an equity financing pursuant to which it sells shares of its Series [ ] Preferred Stock (the “Series [__] Preferred Stock”) with an aggregate sales price of not less than $_____________, [including][excluding] any and all convertible bridge notes which are converted into preferred stock (including the Notes issued under the Note Purchase Agreement), and with the principal purpose of raising capital (a “Qualified Financing”), then the Note shall automatically convert all principal [and accrued interest] under the Note into the Series [ ] Preferred Stock at [___]% of the price paid by investors in the Qualified Financing. The Note shall convert into shares of Series [ ] Preferred Stock on the same other terms as the other investors purchasing Series [ ] Preferred Stock in the Qualified Financing.
If the Company does not consummate a Qualified Financing prior to ____, 200__, the Notes shall be convertible into common stock at a conversion price of $___ per share.
Term; Prepayment: The day that is [one year] following the date of the Note (the “Maturity Date”). All principal and accrued interest under the Note is due and payable on the Maturity Date. The Note may [be prepaid at any time without penalty upon five days prior written notice to the Holder][not be prepaid without the consent of the Holder]. [Any prepayment must be made in connection with the prepayment of all Notes issued under the Note Purchase Agreement.]
Payment on Liquidity Event: If a Liquidity Event occurs before repayment or conversion of the Note into equity, the Company will pay the holder of the Note an amount equal to _____% of the outstanding principal amount of the Note plus any accrued interest due under the Note upon the closing of such Liquidity Event. For purposes of this provision, a “Liquidity Event” shall mean (a) a merger of the Company with or into another entity (if after such merger the holders of a majority of the Company’s voting securities immediately prior to the transaction do not hold a majority of the voting securities of the successor entity), (b) a sale by the Company of all or substantially all of its assets or (c) the closing of the Company’s first firm commitment underwritten public offering of the Company’s common stock registered under the Securities Act of 1933, as amended.
Warrant Coverage: ________% coverage with warrants to purchase Series [ ] Preferred Stock at the Series [ ] Preferred Stock price per share, exercisable for [three (3) years] from the Closing of Financing. The right to exercise the Warrant shall terminate upon a Liquidity Event.
Closing: ________, 200__. A first closing will be held on or before _______, 2007 or such other date that the Company and the bridge investor(s) participating in such closing mutually decide upon. Additional closings may be held up to 90 days after the first closing at the option of the Company.
[Subordination: The Note shall be subordinated to all indebtedness of the Company to banks, commercial finance lenders, insurance companies, [leasing or equipment financing institutions] or other lending institutions regularly engaged in the business of lending money [(excluding venture capital, investment banking or similar institutions which sometimes engage in lending activities but which are primarily engaged in investments in equity securities)], which is for money borrowed, [or purchase or leasing of equipment in the case of lease or other equipment financing,] whether or not secured.]
[Security Interest: The Notes will be secured by all assets of the Company[, excluding intellectual property].
Note Purchase Agreement: The Notes will be [(i)] issued pursuant to a definitive Note Purchase Agreement containing customary covenants and representations and warranties of the Company [and (ii) secured pursuant to a Security Agreement].
Amendment: Holders of a majority in interest of the principal amount of the Notes may amend or waive any provision of the Notes and such amendment or waiver shall be binding on all holders of the Notes.
Expenses: The Company and the bridge investors will each bear their own legal and other expenses with respect to the transactions contemplated herein.